So what about Detroit? (and water)
David Zetland has a post from last year at Aguanomics that should stir some thoughts in What about Detroit. Still relevant.
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:
Whereas:
- 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:
- The poor should income support to pay for food, rent and water. They should NOT be given free water
- The utility should go after biggest customers FIRST, as the cost per $1,000 of debt recovery will be MUCH lower
- 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.
Let’s see. One third of five billion is about ten times the delinquent accounts payable. In other words, they’re trashing the city to get ten cents on the dollar. It’s barely worth it. Where’s the other $1.5 billion? Going after that might be worthwhile.
More importantly, since that $1.5 billion is probably in the hands of parties too wealthy to be held responsible for their stealing, what is the annual operating deficit of the water company, ignoring debt and depreciation. We’re just talking about power, maintenance, accounting, chemicals, leases and so on. How close are they to making that nut? It is quite likely that DWSD actually has enough money to provide water and sewage services, even at lower rates, if one ignores economic rents.
Zetland
you bailed yourself out with your final solution
but just to return to the idea of why people would pay for water they can get for free?
why indeed. maybe its because we live in an intricately interrelated economy and none of those people can reasonably be blamed for the situation they find themselves in. and unless we are going to go all Ayn Randian on them and decide that kids dying of thirst or just dirt is the price the poor pay for their lack of “virtue,” maybe we need to honor the fact that THEY TRUSTED US when they left the water sources of their remote ancestors and joined us in building that interrelated economy.
so, yeah, “welfare” may work better than “free drinks”, but keep in mind “we” owe them something. we owe “us” something. because someday it may be our turn. and we may not like reaping what we sow.
in other words,
you COULD provide the “welfare” to the water company which could then provide “free” water to people and foster a spirit of “we are in this together” instead of some Randian delusion of “self sufficiency.”
(i know you are not a Randian, but your fondness for market solutions and privatization in an earlier post sets my teeth on edge.)
@Kaleberg — DWSD owes $5 billion. Using the average split of 80/20 between fixed (debt) and operating expenses, you’re right that a writedown of debt would leave a LOT more space. Such a writedown would require a default to creditors (muni bonds are held by investors but ALSO pensions), which would be disruptive — but NOT as disruptive as “no water”.
@Coberly — Welfare was created for the problem you cite — interdependence. Water services cost money to run, so it’s a choice between payment and no services. In the past, they were paid with property taxes (i.e., the rich) but we shifted to user pays long ago. Your idea of “welfare” for the utility is the worst outcome, as it would remove any kind of performance incentive (water users are leeches not customers) or cost control (welfare today for our screw ups? Let’s screw up again!). This essay may interest you: http://kysq.org/pubs/Performance_Insurance_DZ.pdf