Nick Krieger (@nckrieger):
Lately, the Detroit Water & Sewerage Department (“DWSD”) has been trying pretty hard to convince us that establishing an income-based payment plan for indigent water customers living in the city would violate state law.
In June, Curt Guyette of Detroit’s Metro Times reported that DWSD Deputy Director Darryl Latimer had told him, “[S]tate law prohibits any kind of assistance plan that charges some customers less than the actual cost of service.”
More recently, according to an article in today’s Detroit News, DWSD consultant Eric Rothstein has stated that “[w]ater affordability plans aren’t currently legal in Michigan.” Indeed, Rothstein claims that such income-based water billing is “unconstitutional.”
What is the problem with these statements? Both are misleading and probably incorrect.
Michigan law provides that a municipal water supplier authorized to sell water beyond its territorial boundaries must charge customers who live outside the city “a rate which is based on the actual cost of service as determined under the utility basis of ratemaking.” MCL 123.141(2) (emphasis added). However, there is no comparable statue requiring a municipal water supplier to charge city residents a rate that is based on the actual cost of service. Why? If you think about it, it makes perfect sense. Those living outside the city have no say in the selection of city leaders who set the municipal water rates. Therefore, out-of-city customers need the protection of state law to ensure that they aren’t gouged or overcharged. In contrast, city residents are empowered to choose the city council members and other government leaders who set their water rates. At least in theory, utility customers who live inside the city can directly control the rates they pay for city-supplied water through the power of the ballot box, and therefore do not need the same state-law protections as out-of-city users.
True, the Michigan Supreme Court has held in some cases that municipal utility rates which exceed the actual cost of service constitute a tax and violate a specific provision of the Headlee Amendment of the Michigan Constitution of 1963. But the Michigan Supreme Court has never struck down a municipal utility rate on the ground that it is less than the actual cost of service. Bear in mind that under an income-based payment plan established by the city of Detroit, the rate for out-of-city customers and non-indigent in-city customers would remain the same and would not increase. For example, out-of-city customers would still be charged a rate based on the actual cost of service. The only difference is that qualifying, indigent, in-city customers would be charged a lower rate based on their ability to pay. There is nothing unconstitutional or inherently illegal about such a system.
Nor would an ability-to-pay system of this nature violate the constitutional principle of equal protection. I acknowledge that qualifying, indigent city residents would pay at a lower rate than other city residents. (They would also pay at a lower rate than out-of-city customers; but recall that the charge for out-of-city customers is set by statute as “a rate which is based on the actual cost of service. . . .”) And, yes—to that extent they would be treated differently. But these groups would have different abilities to pay, and hence would not be similarly situated. Moreover, even if an income-based payment plan did result in the disparate treatment of similarly situated groups, it appears that it would still pass constitutional muster. The city of Detroit surely has a legitimate interest in delivering potable water to its own residents at an affordable price without impoverishing them, and an ability-to-pay plan would be rationally related to accomplishing this objective.
Article 7, section 24 of the Michigan Constitution of 1963 states, “Subject to this constitution, any city or village may acquire, own or operate, within or without its corporate limits, public service facilities for supplying water, light, heat, power, sewage disposal and transportation to the municipality and the inhabitants thereof.” Furthermore, Article 7, section 34 provides that “[t]he provisions of this constitution and law concerning . . . cities and villages shall be liberally construed in their favor.” In the end, neither the Michigan Constitution nor Michigan statutory law appears to place any restriction on a city’s authority to set lower rates for resident water customers based on their ability to pay.