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Into muddy waters

By Curt Guyette

Special to the Michigan Citizen 

As this column is being written, the future of Detroit’s Department of Water and Sewerage is still being worked out behind closed doors.

Detroit Emergency Manager Kevyn Orr         PHREDDY WO

Kevyn Orr STAFF PHOTO

Whether it is the ongoing mediation efforts between Emergency Manager Kevyn Orr’s team and the representatives of Oakland, Macomb and Wayne counties, or the evaluation of bids from corporations looking to capitalize on a privatization proposal, monumental changes are in the works.

Those two possibilities, by the way, aren’t mutually exclusive. It’s possible the court-ordered mediation, which is subject to a gag order, could result in a new authority that gives the suburbs greater control over the system that serves four million people throughout southeast Michigan. And privatization doesn’t necessarily mean outright sale of the department; it could well be that a for-profit corporation is hired to manage operations and run the department — even if a deal is struck to create a new regional authority.

For the people of Detroit and suburbanites alike, what’s been going on in terms of transparency has been as clear as muddied waters.

What’s evident, though, is the pieces are being put into place for something big to happen.

Last week, it was announced a tentative deal had been struck to refinance more than $5 billion in water department debt. Though the transaction is complicated, the goal is simple: To save the department money by lowering the interest rate on all that debt.

A key player in that deal is Citigroup, a multinational banking and financial services corporation.  

Last month, Citigroup agreed to pay $7 billion in penalties and restitution for its role in the 2008 financial meltdown, when the bubble of mortgage-backed securities based on predatory loans burst. According to an article in the Wall Street Journal, the banking giant admitted to “repeatedly brushing aside warnings from both inside and outside the bank that many of the loans it had packaged had serious problems and concealing that information from investors.” 

The predatory loans and financial collapse precipitated a nationwide foreclosure crisis that hit Detroit particularly hard, contributing to the exodus from a city that continues to lose about 10,000 residents a year. That population loss, of course, means the people who do remain have to pay more to cover the water department’s fixed costs — which include debt service.

The dots keep connecting.

Although none of the local mainstream media appear to think it’s noteworthy, it seems worth at least pointing out that the Jones Day law firm — where Kevyn Orr was formerly a partner, and which was hired to oversee Detroit’s restructuring and bankruptcy — lists Citigroup as one of its clients.

Along with the proposed debt refinancing, it’s hard not to see a connection between the highly controversial water shutoffs (temporarily put on hold) and the intent to make major changes regarding the water department. Despite official denials the two issues are linked, it seems clear that clamping down on delinquent accounts helps improve the department’s bottom line, making it more attractive to both suburban officials and the private sector alike.

What’s been noticeably absent in all of this so far has been any sort of public debate over the issue of privatizing management of something as essential to life as water. Given the history of water privatization, and the inherent value of Detroit’s system as water shortages elsewhere in the United States grow more dire, the lack of transparency surrounding this particular issue is particularly vexing.

Some examples of successful privatization can be found, but research shows that overall it more often proves to be a failure.

In 2011, Mildred E. Warner, a professor in the Department of City and Regional Planning at Cornell University, published the results of a “meta-analysis of all published studies on water distribution.” In other words, she and her colleagues reviewed the results of every other major, broad-scoped study that had been conducted worldwide.  They also looked at surveys of what local government managers in the United States had to say about the issue. 

This is the conclusion they arrived at: “Water service is a poor candidate for privatization. There are better alternatives.”

Curt Guyette is an investigative reporter for the ACLU of Michigan. His work, which focuses on Michigan’s Emergency Management law and open government, is funded by a grant from the Ford Foundation. You can find more of his reporting at aclumich.org/democracywatch. Contact him at 313.578.6834 or cguyette@aclumich.org.

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