State oversight keeps Detroit City Council in check
Detroit City Council got its hand slapped a few weeks ago, after members opted not to support a water rate increase that’s necessary to fill a budget hole. Consequently, council revisited the matter Tuesday, and approved the rate hike 5-4. Members made the right call this time around.
While it’s discouraging that city leaders are already balking at tough decisions, this incident highlights that the safeguards put in place following bankruptcy are working.
And these provisions should also help put concerned bond holders at ease. That’s important, since their final consent is necessary before the new Great Lakes Water Authority can be fully executed.
Detroit’s bankruptcy plan directed the city to lease the Water and Sewerage Department’s assets to the regional authority. The authority’s board approved the lease last month.
Bond holders don’t care so much about Detroit politics, but they do care that the right decisions get made.
When the City Council voted down a 7.5 percent rate hike in June, it left a $27 million budget shortfall in the water department.
“The city of Detroit needs to meet its obligation,” says Eric Rothstein, the project manager who is overseeing the implementation of the Great Lakes Water Authority.
If it doesn’t, several layers of oversight come into play. In this recent instance, the nine-member Financial Review Commission, created by the state as part of the “grand bargain” to end Detroit’s bankruptcy, stepped in quickly to alert council of its error.
In a letter to council, state Treasurer Nick Khouri, chairman of the review commission, raised concerns over the vote and reminded council if it’s not reversed, a water department fund will be in deficit.
If council didn’t come around, the commission could have extended its oversight of Detroit by another three years.
In addition to close state oversight, the water authority will have options.
Oakland County Deputy Executive Bob Daddow, who chairs the water authority board, says once the authority is fully operational, it possesses what he calls a “nuclear option” in which the authority could step in and set rates and make collections in Detroit.
“Bottom line, this is a last resort, but it is an option,” says Daddow.
Despite the pressure from the state, some council members have continued to resist the budget challenges. Council says it is concerned that raising rates could put more hardship on residents who struggle to pay their monthly water bills.
Some members are pushing to bring on Massachusetts-based utility expert Roger Colton to devise an “affordability plan” concept for Detroit. Such a plan would ultimately index the rates residents pay to their income, so rates would potentially fluctuate widely throughout the city.
Ten years ago, Colton worked on a similar plan with council, but it was scrapped when it became apparent it clashed with the Michigan Constitution. Since the constitution hasn’t changed, this plan is a waste of time for council to pursue.
Rather, it should work to expand the programs it already offers to struggling residents, such as water payment plans and other assistance programs.
The water authority’s 40-year lease will spend about $50 million per year toward pension costs and a $4.5 million fund to help low-income customers pay their bills.
Detroit’s Chief Operating Officer Gary Brown told council this week that if members really want to help the poor, they should approve the rate increase to help finalize the authority — and the assistance fund.
It’s only a few months since the end of Detroit’s bankruptcy. Council needs to step up. But as the debate over water rates shows, oversight by the state and water authority will keep city leaders in check.