As rising water bills and devastating water shutoffs continue to plague cities around the country, some local governments are considering comprehensive water affordability programs that would adjust rates based on customers’ incomes. The policy debate around these programs typically centers around how affordability programs would impact utility revenues and how qualifying income thresholds should be set. But in Detroit, there is some concern that an income-based water affordability program might be illegal.
This is the claim made by the Director of the Detroit Water and Sewer Department (DWSD), Gary Brown. His reasoning is based on prior court decisions specific to Michigan.
Here’s the background: In the 1998 case Bolt vs. City of Lansing, the Michigan Supreme Court found it was illegal for the City of Lansing to impose a fee on all ratepayers in order to cover the cost of improvements to a stormwater system that only directly benefited a portion of the ratepayers. The court also found this fee to be an illegal “tax” under the 1978 “Headlee” amendment to the Michigan constitution, which requires that a public vote must be held before raising a new tax.
As the water affordability debate heated up in Detroit in 2015, DWSD Director Brown and others argued that the Bolt decision meant a water affordability program would also be found to be an illegal tax. Their reasoning was that lowering water rates for low-income customers would require charging higher rates to middle and high-income ratepayers, and this amounted to an illegal tax under Bolt.
Supporters of water affordability for Detroit have strongly contested this interpretation of the law, and the City’s own Legislative Policy Division agrees. David Whitaker, the director of Detroit’s Legislative Policy Division, sent a thorough legal analysis to the City Council in 2015 that laid out why Bolt would not apply to an income-based water affordability program. Rather than imposing a fee on a select class of users as in Bolt, Whitaker explained, the water affordability program calls for Detroit to simply add affordability as a consideration in trying to achieve the system’s revenue requirements as part of the ratemaking process. He points out that the DWSD already considers a variety of factors in rate setting, including debt and interest obligations, weather-related variables, and regulatory mandates.
Whitaker’s analysis ultimately concludes that adjusting rates under an income-based water affordability program would be "legally indistinguishable from the way DWSD has historically adjusted rates based on experience and the systems' revenue needs." Public utilities have long been subjected to special regulatory requirements since they operate as monopolies and provide a vital public service. Whitaker points out that a water affordability program would serve a legitimate regulatory purpose of making water and sewer service available at a reasonable cost to all customers.
Despite the Legislative Policy Council’s strong argument for the legality of water affordability programs, the Headlee amendment and the Bolt vs. Lansing case continue to loom over the water affordability debate in Detroit. Roger Colton, an expert consultant on water affordability law, has called these legal claims merely an “excuse” not to act.
Sylvia Orduño, a longtime water advocate with the Michigan Welfare Rights Organization, told us the Bolt case continues to be cited by DWSD Director Brown and others as grounds for opposing comprehensive income-based affordability programs. These advocates have pointed out that the laws are clearly failing when they “block actions necessary for public health and justice.”
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