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Published in Michigan Environmental Law Journal, Spring 2018, Vol. 36, No. 1, Issue 104 [view full issue].
Cite: 36 Mich Env Law J 1 (2018)

by Mark Fancher, Staff Attorney, The Racial Justice Project of the American Civil Liberties Union[1]

A few years ago, under the heroic leadership of civil rights attorney Alice Jennings, a small band of lawyers representing a courageous group of low-income customers of the Detroit Water and Sewerage Department (DWSD) filed a lawsuit against the utility. They complained that, among other things, DWSD was terminating the water service of tens of thousands of residential customers whose unpaid water bills were sometimes less than one thousand dollars, while large corporations with unpaid six and seven figure bills had uninterrupted service. They complained as well of the failure of the utility to follow its own rules by failing to provide proper notice of planned shutoffs as well as opportunities to challenge bills that were often unwarranted or incorrect. The net effect of these and other practices was that many thousands of people who were sick, poor, elderly, or who were parents of small children, found themselves without water service in their homes, and too often the predictable consequences of that predicament became tragic reality.

Legal Issues Regarding Affordable Drinking Water

The case, Lyda, et al. v. DWSD,[2] did not receive favorable treatment at any stage of the litigation. District Court rulings were taken to the Sixth Circuit Court of Appeals where, because the City of Detroit was in bankruptcy, the case was disposed of on grounds that it violated Section 904 of the Bankruptcy Code. Section 904 does not allow a court to interfere with a bankrupt city's "political [and] governmental powers," its "property [and] revenues," and its "use [and] enjoyment of . . . income-producing property." The Sixth Circuit ruled that relief sought by the lawsuit would, if granted, cause the court to run afoul of Section 904.

Nevertheless, the Sixth Circuit did not dismiss the Lyda case before it offered observations that, when juxtaposed, are simply breathtaking. The court stated first:

"[T]he list of fundamental rights is short," and seldom expanded. Rights derived from state law, as opposed to the constitution, usually do not make the cut. "Most state-created rights that qualify for procedural due process protections do not rise to the level of substantive due process protection . . . ." This is the case for plaintiffs' alleged property right to continued water service—or continued affordable water service. A right of this nature is not rooted in our nation's traditions or implicit in the concept of ordered liberty.[3]

Later in its opinion, the Sixth Circuit went on to comment:

The circumstances plaintiffs allege are truly unfortunate. Living without water, even if only for a few days, poses a substantial risk to health and safety. Beyond that, it is a significant indignity.[4]

For many, it is difficult to reconcile the conclusion that: "[l]iving without water, even if only for a few days, poses a substantial risk to health and safety…" with the conclusion by the same court that "[a right to affordable water service] is not rooted in our nation's traditions or implicit in the concept of ordered liberty." Intellectually, emotionally and practically, there is a clear disconnect between theory and reality. That gap in understanding (or a gap caused by indifference) is not limited to the courts. For more than a decade, DWSD has taken the puzzling, stubborn position that a plan that would make water affordable for all Detroit water customers would be illegal. This position is based on a provision of the Michigan constitution.

Art 9, §31 of the Michigan Constitution is commonly referred to as the "Headlee Amendment." This provision essentially requires voter approval of new taxes. The provision has been a focal point for controversies in cases where local governments have been accused of disguising new taxes as fees of various types and not first seeking voter approval.

In Detroit, requests by community organizations over many years for a water affordability plan with a rate structure that indexes water and sewerage rates to poverty, and that holds poor customers harmless for amounts that exceed 3 percent of their total household income have been met by assertions that such a plan would violate the Headlee Amendment. The Michigan Supreme Court case of Bolt v. City of Lansing[5] has been cited as the basis for this position.

At issue in Bolt was the question of whether a storm water service charge imposed by the city of Lansing on all property owners was a fee, or instead a tax that requires voter approval. To resolve this and comparable questions, the court articulated a three-part inquiry: 1) Does the charge serve a regulatory purpose? 2) Is the charge proportionate to the necessary costs of the service? 3) Is payment of the charge voluntary?[6]

The court held that if a charge is implemented primarily to generate revenue it does not serve a regulatory purpose.[7] Further, if the charge is designed primarily to benefit the public at large rather than to provide a particular service to an individual, it is unlikely to be a fee. By contrast, the court stated, "Where the charge for either storm or sanitary sewers reflects the actual costs of use, metered with relative precision in accordance with available technology, including some capital investment component, sewerage may properly be viewed as a utility service for which usage-based charges are permissible, and not as a disguised tax."[8]

In addressing the specific question of Lansing's storm water sewerage charge, the Michigan Supreme Court took special note of part of the Court of Appeals Bolt dissent:

The extent of any particularized benefit to property owners is considerably outweighed by the general benefit to the citizenry of Lansing as a whole in the form of enhanced environmental quality . . . . When virtually every person in a community is a "user" of a public improvement, a municipal government's tactic of augmenting its budget by purporting to charge a "fee" for the "service" rendered should be seen for what it is: a subterfuge to evade constitutional limitations on its power to raise taxes.[9]

Finally, the court held the charge was not voluntary because: "The property owner has no choice whether to use the service and is unable to control the extent to which the service is used."[10]

The Lansing controversy was not the first "fee versus tax" case to be considered by the court. In fact, in the 1876 case of Jones v. Board of Water Comm'rs of Detroit, the Michigan Supreme Court held definitively that fees for water service are not a tax.[11] The court explained that a defining characteristic of taxes is that taxes are compelled and user fees are paid voluntarily. "[W]ater rates paid by consumers are in no sense taxes, but are nothing more than the price paid for water as a commodity."[12] The court noted: "the citizens may take [water] or not as the price does or does not suit them."[13]

In Ripperger v. City of Grand Rapids, the Michigan Supreme Court followed the reasoning of the Jones decision and held that a charge for sewerage services implemented by the city pursuant to a court order was not a tax.[14] Both Jones and Ripperger were considered in Bolt, but in deciding there should be a different outcome the court explained there is no rigid rule that is mechanically applied. Instead, the court considered the referenced three factors as they concerned Lansing's charges, and the court concluded the charges were a tax rather than a user fee.

Applying Bolt to a Potential Water Affordability Plan

Given the disposition of prior cases, including Bolt, it is apparent that any fee connected with a water affordability plan for the City of Detroit would be a user fee and not a tax. This is demonstrated by the three criteria established by the court.

1) Regulatory Purpose

Money collected as part of an affordability program is used exclusively by the water provider for the purpose of providing affordable water services. The money does not flow into the city's general fund to be used for services and projects typically financed by taxes. The charges are in every sense a fee for water services and water services only.

Key to appreciating the true nature of charges connected with an affordability plan is the fact that the benefits are not limited to low income water customers. All customers of the utility benefit because the program expands the ranks of paying customers and as a consequence reduces the financial burden currently borne by customers with greater financial resources. Without an affordability plan, paying customers must pick up the slack for water customers who pay nothing. With an affordability plan that allows all water customers to pay what they can afford, higher income customers pay less to sustain the utility, and with the additional fees for services the water department increases its capacity to maintain and improve the services provided to all customers.

2) Proportionality

Of concern to the courts have been those cases where charges significantly exceeded the actual cost of the service provided, and the extra funds collected have been used to pay costs typically covered by taxes or the general fund. For a charge to be regarded as a user fee, it is not necessary for it to be strictly limited to the actual cost of the service. The court in Bolt acknowledged that the actual cost "including some capital investment component" is acceptable.[15] An affordability plan fee is acceptable because it represents an investment in the expansion and financial stability of the customer base, which in turn increases the capacity of the utility to deliver expanded, quality services for all customers. Furthermore, not only are water payments made according to an affordability plan proportionate to the water service provided, they are indexed to actual income making the payments very particular to the water needs of each individual.

3) Voluntariness

Voluntariness was absent in Bolt because all Lansing residents were required to pay the sewerage fee. Water service fees on the other hand are always optional. A property owner always has the option of not maintaining a residence on his property and therefore having no need for water service. The voluntary choice of obtaining water and paying for it bears no resemblance to the required payment of taxes. Of the three factors, voluntariness may be the one that most clearly distinguishes taxes from user fees. As recognized by the Michigan Supreme Court in Jones, water service has never been, and likely never will be compulsory.[16]

In the absence of an affordability plan, or even the prospect of one in the reasonably foreseeable future, the ACLU of Michigan and its volunteer lawyers provided assistance to select DWSD customers to learn more about access to water service. It was concluded that the utility's staff can at least limit harm by adopting empathetic approaches. For example:

• In one case, flexibility was all that was needed to make a significant difference. ACLU volunteer lawyers advised customer service representatives that DWSD failed to clear the amount due at the time a customer moved into her residence. The customer also pointed out there were problems with the meter for some time after she moved in, and eventually DWSD had to install a new meter. Consequently, any bills estimated during the period when the meter was not functioning were not reliable. At the time of the new meter installation, the record showed a $950 balance. Although DWSD rules limit the time to dispute a balance to 42 days, customer service staff agreed to deduct the $950 from the total arrearage. Although the customer had missed payments on a previous payment plan and the rules required a 50 percent down-payment on the arrearage, an affordable 30 percent down-payment was negotiated. The DWSD staff's flexibility and consideration of the customer's circumstances made it possible not only for water service to be restored, but also for DWSD to receive payments from this customer.

• In another case, it was access to information that made the difference. The customer had been without water for months. All the while she was unaware that two facts made her eligible for restoration of her water service. First, a family member's medical condition qualified the household for restoration of water service for a 21-day period because of a health emergency. Second, the water could remain on after that period because she was on the waiting list for the Water Residential Assistance Program (WRAP). She learned these things only after working with her legal counsel and DWSD customer service.

• Finally, rules that are rigidly applied without consideration of the human factor can be destructive. A customer had been without water for more than a year through no fault of his own. He rented a house from a landlord who had apparently failed to pay water bills. Consequently, water service was terminated soon after the customer moved in. The landlord then passed away. The customer had no information about the disposition of the landlord's estate. His only interest was in establishing a tenant's account so that he could pay water bills directly. Unfortunately, at several levels, DWSD staff seemed at a loss as to how to establish an account for the customer—largely because of DWSD rules that were apparently designed to prevent squatters from receiving water service. A tenant's account was established only after the customer and his counsel attended a Board of Water Commissioners meeting to request waiver of any rules preventing restoration of water services. Certain board members expressed concern and asked a customer service manager to intervene. Within the next hour a tenant's account had been established for the customer.

Steps to Address the Water Affordability Crisis

There are lessons to be learned from these experiences, as well as concrete steps that can be taken to address a city-wide crisis. These measures might include:

1) Ongoing, persistent outreach to customers who have lost their water service.

Budget and personnel limitations should not prevent more aggressive efforts to re-connect water service for eligible customers. When personal visits to homes are not feasible, such things as newsletters that discuss the various options (e.g., health emergency reconnections; payment plans; WRAP, etc.) should be routinely and repeatedly mailed to homes that are no longer receiving water service. This type of outreach is not just a service. It is an investment that can bolster the roster of paying DWSD customers.

2) Greater license and encouragement to DWSD staff to seek and obtain authorization to implement policies in ways that provide greater and not less access to water services.

The lack of water for any household is an emergency that warrants an extraordinary response. DWSD staff culture should make it unacceptable for a customer who has financial means or who is otherwise eligible for water to be denied reconnection of their water service because of policies or rules. There should be a commitment to restoring water service even to the point of requesting (and receiving) waivers and exceptions to rules as often as needed unless doing so poses a health or safety risk, or will result in violation of the law.

3) Implement an effective water affordability plan.

The benefits of such a plan are undeniable and a refusal to pursue one is, under the circumstances facing Detroit's residents, unconscionable.

Is the "New Detroit" for Everyone?

There seems to be a willful, stubborn resistance to an affordability plan, or anything else that can reasonably be regarded as measures that signal a sincere commitment to ensuring access to water for all Detroit residents. Observers cannot be faulted for concluding that this indifference—maybe even hostility to the poor—is driven by a cynical strategy to purge the city of those who do not fit the profile of the returning gentry. The loss of water service has caused the exodus of many families who have lived in Detroit for generations. The emergence of the so-called "new Detroit" means abandoned residential properties will find their way into the hands of developers hungry for opportunities to establish upscale housing. How DWSD chooses to handle its customers can have profound implications for Detroit's future demographics. A decision to terminate a family's water service long term is essentially a decision to drive the family from their home, and possibly from the City of Detroit. Over time, the fact that Detroit becomes richer and whiter will not mean that it has become better. The long-term Detroit families have made the City what it is, and if the City is to retain its unique character and culture, these families must be given every opportunity to remain.

[1] In accordance with the Michigan Environmental Law Journal mission statement regarding publication of viewpoint articles, the positions advanced within this piece are those of the author and do not purport to represent the Environmental Law Section's position on any legal issue.

[2] Lyda v. City of Detroit, 841 F 3d 684 (CA 6, 2016).

[3] Id. at 700 (citations omitted) (bold emphasis added).

[4] Id. at 703.

[5] Bolt v. City of Lansing, 459 Mich 152; 587 NW2d 264 (1998).

[6] Id. at 161-62.

[7] Id. at 162.

[8] Id. at 164-65.

[9] Id. at 166.

[10] Id. at 167-68.

[11] Jones v. Board of Water Comm'rs, 34 Mich 273 (1876).

[12] Id. at 275.

[13] Id.

[14] Ripperger v. Grand Rapids, 338 Mich 682 (1954).

[15] Bolt v. City of Lansing, 459 Mich 152, 164-65 (1998).

[16] Jones v. Board of Water Comm'rs, 34 Mich 273 (1876).