Can an income-based water affordability plan solve Detroit’s water shutoff problem?

Lisa Brooks still owes more than $2,000 in arrearages to DWSD. Once Michigan’s water shutoff moratorium expires on December 31, she will be at immediate risk of losing her water service a third time.

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The first time Lisa Brooks’ water service was shut off by the Detroit Water & Sewer Department, in 2018, she and her family lived without water for about a year. Brooks, fifty-five, has a monthly income of about $1,200 from disability and food assistance, and couldn’t afford to pay her bill. She suffers from COPD, arthritis, and diabetes, and uses a portable oxygen tank. Her sixteen-year-old son has asthma and uses a nebulizer requiring water. The family received eight to twelve cases of bottled water every two weeks from the nonprofit group We the People Detroit for drinking and basic sanitation, relying on relatives’ homes for bathing.

In 2019, Brooks entered into a payment plan with DWSD, which required her to pay about $100 per month for water service, plus $98 per month in arrearages—together, about seventeen percent of her monthly income. She wasn’t able to keep up with those payments, and was soon disconnected once more in the winter. Again, she turned to We the People and relatives for help, surviving on donated water and the generosity of family for nearly another year.

Then, on March 9, 2020, Michigan Governor Gretchen Whitmer and Detroit Mayor Mike Duggan announced a statewide moratorium on water shutoffs and a new Water Restart Plan to restore water to those who were living without service, in response to the coronavirus pandemic. According to the DWSD, it restored service to more than twelve hundred occupied homes within ninety days of the order—including Brooks’s home. The city has said repeatedly that it conducted a door-to-door survey and has restored water to all occupied homes it found. However, activists say nearly ten thousand homes were without water in early 2020, and have produced shutoff notices sent by DWSD as late as May. It remains unclear how many occupied homes in Detroit may continue to live without water service.

Today, Brooks pays $25 per month under the Water Restart Plan. Whitmer issued an executive order on March 28, extending the shutoff moratorium through December 31. But, she wonders, what happens then? Brooks still owes more than $2,000 in arrearages to DWSD. Once the moratorium expires, she will be at immediate risk of losing her water service a third time.

Brooks is one of six named individual plaintiffs, along with the nonprofit group People’s Water Board Coalition, who filed suit against Whitmer, the City of Detroit, Detroit Mayor Mike Duggan, and DWSD director Gary Brown on July 9. The suit alleges that the actions of the governor and the city—to set up a system in which many very low-income residents will inevitably have their water shut off again—deprived city residents of their rights to due process and equal protection under the 14th Amendment and the Michigan Constitution, and violated the federal Fair Housing Act and the Elliott-Larsen Civil Rights Act by disproportionately affecting the city’s Black residents. In addition to compensation and punitive damages, the plaintiffs seek a declaration that the city and state violated plaintiffs’ rights and a permanent injunction against water shutoffs.

What the plaintiffs ultimately want is for the city to adopt a policy that makes water affordable for the city’s poorest residents who live in chronic poverty, like the one first proposed to DWSD by economic consultant Roger Colton on behalf of the Michigan Poverty Law Program/Michigan Legal Services in 2005. Such a plan would index water rates to income, keeping the proportion of income residents pay for their water bills within the affordability threshold of 2.0-2.5% of household income set forth by the U.S. Environmental Protection Agency.

“We take it as a given that an affordability plan is the most reasonable and logical way of dealing with this,” said Mark Fancher, a Michigan ACLU staff attorney representing plaintiffs. “And that’s what we’ve asked for. That’s what we say is the appropriate mechanism for ensuring that everybody is able to afford water, and have access to it.”

Water rates in cities across the Great Lakes and Midwest—including Detroit—have skyrocketed in recent years as those cities struggle to maintain an aging infrastructure. Detroit residents pay, on average, ten percent of their income on water bills. The city’s poorest residents can pay up to four times that number.

Some cities are trying to mitigate these effects on their poorest residents. In July of 2017, Philadelphia launched a Tiered Assistance Program (TAP) that bases water utility rates on income; it was the first U.S. city to adopt such a plan. The Philadelphia city council unanimously approved the program in 2016, after city councillor Maria Sanchez proposed a bill adapting the state’s Customer Assistance Program for electric and gas utilities regulated under the Pennsylvania Public Utility Commission (PUCO), which provides discounted bills based on a percentage of monthly income, and provides for forgiveness of arrears.

Sanchez got the idea from attorney Robert Ballenger, who serves as a public advocate in rate cases before the Philadelphia Water, Sewer, and Storm Water Rate Board, an independent body that sets rates for the Philadelphia Water Department, much like a public utility commission. He’s also an attorney for low-income energy utility customers. “The ironic thing about TAP is that it’s so novel, yet it’s based on something we’ve had in place since the nineties in Pennsylvania for the electric and gas utilities,” Ballenger told me. “So we really didn’t have to look very far to figure out the core things that we wanted to put into that legislation.”

Here’s how it works: Under TAP, water bills are capped at two percent of monthly income for residents earning less than fifty percent of the federal poverty level (FPL), 2.5% for residents earning between fifty-one and one hundred percent of FPL, and at three percent for residents earning between 101% and 150% of FPL. Prior to TAP, approximately thirty-five percent of the city’s households earning less than $30,000 spent between 3.25 and 8.1 percent of their monthly income on water bills, according to city data. When a customer applies for assistance, the system automatically puts a hold on their account so water services cannot be disconnected while the application is processing.

The public rate board sets a rate based on expected TAP participation, including a reconcilable rate rider, which allows for annual adjustment based on costs. At first, the program focused on forgiving only the penalties and fees associated with arrearages, not the principal. That will change starting this October when participants will begin earning credit toward paying off the principal of their arrearages over two years. They will earn that credit just by staying current with TAP, with no additional costs.

Although it’s still early, Ballenger is optimistic about the program’s impact. As of July 2020, 15,741 customers were participating in the program, according to data provided by the Philadelphia Water Department. “That is approximately double the average enrollment in the predecessor discount program,” Ballenger said. That program, called Water Revenue Assistance Program (WRAP), awarded grants for eligible participants based on projected water usage. However, Ballenger noted, it often underestimated usage and was a major contributing factor to the accumulation of water debts by customers. “Over a period from 2009 through 2012, the average indebtedness of participants in that program actually increased by twenty-five percent,” he said.

A May 2019 survey of TAP participants, conducted by ImpactED at the University of Pennsylvania, showed that the majority of TAP participants (sixty-seven percent) applied for the program because they were struggling to pay their water bill, according to Laura Copeland, a spokesperson for the Philadelphia Water Department. The survey also found that ninety-six percent of TAP participants have not had water shutoffs since enrolling in the program and eighty-eight percent of TAP participants feel the program helped with their budget.

Although overall water debt in the city has not decreased, Ballenger says that’s because the program has not yet begun forgiving principal on arrearages. His analysis of the overall indebtedness of TAP participants during the period of June 2018 through December 2019 shows that old debt is still increasing, both as it becomes older and as more participants join the plan. But the amount of newer debt (<120 days) among TAP customers has declined as the program expanded and is holding steady.

A remaining challenge, Ballenger said, is reaching customers who are tenants and don’t have control over their water bill. Part of his practice is working with clients to get water bills in their name so they can enter the TAP program. Another challenge, Copeland said, is connecting with hard-to-reach groups including non-English speakers and seniors. The city is working on improving its communications to better reach those groups, she said.

Other cities have since followed Philadelphia’s lead, but it’s been a slow go. On March 1, Chicago launched its Utility Bill Relief program, which cuts bills by fifty percent for those at or below one hundred and fifty percent of the federal poverty level. Participants who stick with the program for a year are eligible to have their arrearages forgiven. However, the pandemic delayed the launch of that program until July.

Activists have been trying for at least fifteen years to get the city of Detroit to adopt an income-based water affordability plan. So far, the city has resisted. Instead, it has adopted two different water assistance programs.

In the “10-30-50” program, a customer makes a down payment of ten, thirty, or fifty percent of the past due balance based on the number of payment plans the customer has entered into over the last eighteen months (the first time is ten percent, the second is thirty, and the third time or after are fifty). The customer must pay the past due amount spread over a period of six to twenty-four months, plus the current monthly amount.

Confusing? Yes. The other plan is a bit more straightforward. In 2016, the regional Water Residential Assistance Program (“WRAP”) was a two-year program launched to support those below two hundred percent of the federal poverty level with monthly credits and cash assistance. That program is financed by the Great Lakes Water Authority, the regional entity that assumed DWSD’s debt after Detroit’s bankruptcy and leases the DWSD’s infrastructure for $50 million per year to service suburban customers.

Fancher and water activists have said these programs are inadequate to the task of helping Detroiters like Lisa Brooks, who struggle with chronic poverty due to disability and health challenges. They say the only long-term solution is to adopt a program that makes water access affordable for those unable to pay market rates. Temporary assistance programs like WRAP and 10-30-50, they say, address only those who may be going through a temporary financial emergency.

“They have absolutely nothing in place for people who are chronically poor—who were not able to pay market rates yesterday, can’t pay market rates today, and won’t be able to pay market rates tomorrow,” said Fancher. “So as long as you expect them to pay market rates, they’re always going to be delinquent and vulnerable to having their water disconnected.”

So the fight for a water affordability plan continued—and continues to this day. Notably, in 2016, the People’s Water Board Coalition and others sued the DWSD and the city of Detroit to stop water shutoffs. The judge sided with the defendants—the city—writing: “there is no fundamental right to water.”

Both Detroit and the state of Michigan have filed motions to dismiss the most recent suit brought by Lisa Brooks and others. The city’s primary argument against an income-based affordability plan is that “cost-shifting does not work in Detroit.” It suggests the city’s demographics cannot be compared to Philadelphia, Chicago, or Baltimore, and that its rate base cannot support an income-based plan because of its uniquely high poverty level. Such a plan, the city contends, would cost $10 million, and it would take two years to implement an upgrade to its billing system and do outreach.

More importantly, the city claims an income-based plan would cause water rates to skyrocket for other users. “An income-based rate shifts the cost to other ratepayers. In Detroit, 73% of the population is at or below 200% of the federal poverty level, in which case an income-based rate would harm many Detroiters,” DWSD spokesperson Bryan Peckingbaugh wrote in an email. “The better alternative is a state and federal financial assistance to supplement local water affordability programs for those in abject poverty.”

Colton disagrees with that assessment. “That is the old argument that the ‘cost’ of low-income rates is the difference between bills at standard residential rates and bills at the discounted rates.  We know that not to be the case,” he wrote in an email. Essentially, his argument is this: DWSD would bring in more revenue if it collected some money from every user—even at a lower rate for low-income households—than in the current situation, in which some customers simply can’t pay at all.

DWSD also argues that, should it adopt an income-based plan, it would be subject to lawsuits from commercial customers based on the Michigan Headlee Amendment, which prevents public entities from assessing a utility fee disproportionate to services rendered, establishing that such a fee is really a tax and so must be approved by voters.

Oday Salim, a law professor at the University of Michigan and director of its Environmental Law and Sustainability Clinic, says he and his law clinic students have debunked that theory in a comprehensive legal analysis that shows income-based rate making for water systems is legal in Michigan. The Detroit City Council’s Legislative Policy Division reached a similar conclusion in 2015.

Advocacy groups, including We the People, Freshwater Future, and others have developed a ten-point plan for what such an affordability program should include, incorporating input from residents who have been affected by water shutoffs. Although no legislation addressing water affordability has so far been introduced in Michigan, a recently-introduced bill in Ohio draws on this plan.”We want to negotiate on behalf of the residents on what they really want,” said Jill Ryan, executive director of Freshwater Future. “We see this as the values and principles around which legislation could then be drafted.”

Until then, the city continues to argue that the best way to help poor people with their water bills is through temporary assistance programs. Peckingbaugh also touts Detroit’s new Community Health Corps program, which will launch this fall, as another way in which the city is working to assist those in poverty. The program, funded with federal CARES Act money, will send social workers door-to-door to help poor families access resources.

None of this is likely to arrive in time to help Brooks and her family from having their water shut off on New Year’s Day. “We’re still waiting for them to come forward with an answer to what happens to these people after the emergency orders expire,” said Fancher. “They go on at great length about how much [the governor] has done to deal with the pandemic, and that nobody needs to worry about not having water. But until they come forward and tell me what happens on January 1, 2021, I think talk is cheap.”

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This piece is the second in a 3-part series about solutions to Michigan’s water challenges funded by the Solutions Journalism Network in partnership with Belt Magazine. Read the first piece here.