22 Jul 2014

So what about Detroit?

I have followed Detroit's fall with interest, mostly because I am hoping that an entrepreneurial government will allow a thousand flowers to bloom in the hollowed-out city (population has dropped by 60 percent; 200,000 properties are vacant). That process will take time, even if it's going in the right direction.

In the meantime, the city is bankrupt, and one-third of its debt ($5 billion) is linked to the Detroit Water and Sewerage Department (DWSD), which is trying to collect $175 million in past-due debt from its customers.

This action is sensible but controversial in two ways. First, DWSD is cutting service to customers who do not pay their bills. Second — and far worse — DWSD is going after debts of as little as $150 from 150,000 residential customers even as it waits for repayment from 11,000 larger customers who owe half the total.

These actions have led to a petition from the human-right-to-water crowd, asking the President to declare a human health crisis, i.e., to prevent DWSD from charging customers. That's a terrible idea because it undermines the utility's finances now AND later. Why would anyone pay for water they can get for free?

My opposition to the petition does not mean I oppose financial help for the poor or their continued access to drinking water. Here's how I'd handle the situation:

  • Drinking water SERVICES should NOT be a human right (=free) because they — like electrical services — cost money
  • Detroit has mismanaged many dimensions of life, including poverty, jobs and water management
  • The utility MUST continue to operate, and it needs money for that
  • Past debt may not be customers’ fault, since the utility may have over spent, etc.
  • Therefore:
    1. The poor should income support to pay for food, rent and water. They should NOT be given free water
    2. The utility should go after biggest customers FIRST, as the cost per $1,000 of debt recovery will be MUCH lower
    3. The government may face a welfare burden, but welfare works through income transfers, not cheap — or free — water
Bottom Line: The government (and taxpayers) should bail out the poor. Bigger customers should be chased for repayment. All customers should pay their future water bills.

H/Ts to BB, DC and RM


ron griffin said...

You're correct re detroit imo david, and I believe that there's an extendable lesson here for areas like the southwest US where climate change migration may commence in the not-too-distant future. The first gasp of political spendthrifts entering a heightened water scarcity era is to expand supply, sans economic analysis of course. Yet the uncertainty present seems to infer that even an npv>?<0 test (for new water developments) is insufficiently prudent as there is relevant quasi-option value to consider. Waiting and learning has value under these conditions. If southwestern govts are going to take on infrastructure debt prior to experiencing a new migration direction, there's a worrisome detroit-effect that could make the water situation even uglier.

David Zetland said...

@Ron -- great point!

SC said...

People refused to pay, and ignored offers for help many times from the water company.

Things like delayed payments, or small payment plans would prevent water from being cut off..... they weren't allowed by the government to do anything harsher.

Word got around that water bills were being let slide by the company, and therefore many people didn't see the need to pay for water they'd get anyway.

If the water company does nothing - it slips further into the red.

Everyone getting free water - keeps getting free water, and the ones paying high rates that reduce the cost of the others not paying will no likely ALSO stop paying...

Regardless of big business - people need to pay for their water, even if just a little - for too long, bills were being pushed to the side, and no one was paying.

It can't continue.

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