Reason’s Bizarre Portrayal of Flint’s Water Crisis

As someone who specializes in public finance and managing capital projects, I have been following Flint’s water crisis and distressed municipalities in Michigan for some time. Most of what I have read tracks a predictable, but appropriate, trajectory of outrage with state officials and Michigan’s objectively terrible emergency manager laws. That was until my Twitter followers exposed me to Reason Magazine’s coverage of events in Flint, which seeks to frame the city’s water crisis as “the result of a Keynesian stimulus project gone wrong.” Yikes.

In general, I do not consume or make an effort to respond to what is posted on the various popular websites that masquerade as journalism but exist only to promote a specific political worldview (right or left, conclusions-looking-for-evidence thinking isn’t particularly worthwhile). This is especially true in situations like Flint, where there is so much excellent investigative reporting available.

I am going to make an exception here, however, because Reason’s “reporting” is wrong in some gloriously entertaining ways.

So here is how Reason sets up this story:

Liberals are wrongly blaming Flint’s lead poisoning crisis on austerity measures imposed on the city by a fiscally conservative Republican Governor Rick Snyder, as I wrote last week. (Snyder had appointed an emergency manager in 2011 to help the city balance its books and avoid bankruptcy.) However, I didn’t quite realize just how wrong they were. As it turns out, the debacle is the result of Snyder’s efforts to stimulate the local economy — the exact opposite of the liberal line.

The whole mess occurred because Flint decided against renewing its 30-year contract with the Detroit Water and Sewage Department (DWSD) and switched instead to Karengondi [sic] Water Authority (KWA). KWA was planning to build its own hugely expensive pipeline, parallel to DWSD’s, to harness water from Lake Huron and service the Genesee County area where Flint is located. This left the city in the lurch for a few years when its contract with DWSD ended but the new facility had not yet gone online, prompting it to reopen a local mothballed facility that relied on the toxic Flint River as its source (more on the rank stupidity of this decision later).

The rationale for the original decision to switch Flint’s water providers was that, in the long run, KWA would generate substantial savings for the cash-strapped city. Not only was this false but Snyder had very good reasons at that time to believe that this was false.

Maybe one sentence of all of that is factually correct.

The idea of constructing a pipeline to connect the population of Flint directly to Lake Huron did not surface randomly. Flint had actually started such a project in the early 1960s. Flint ended up scuttling that project and entered into a long-term contract to purchase water from the City of Detroit after that original project was caught up in a procurement scandal.

This never would have been an issue except for the fact that the City of Detroit does not play well with others —it hasn’t under the past (corrupt) administrations, it certainly didn’t during bankruptcy, and it hasn’t since it emerged from bankruptcy. Although the pipeline concept was revived in 2006, Flint’s water crisis can in many ways be interpreted as collateral damage from Detroit’s bankruptcy (which you’ll note was also a state-managed event).

Before Flint changed water sources in 2014, Detroit Water and Sewerage’s business model was not all that different from many local water departments across the nation. Detroit piped water from Lake Huron and sold it to residents and other local governments for resale to their residents. Detroit Water and Sewerage’s revenues came from a combination of user fees from Detroit residents and wholesale customers like Flint. Detroit’s water department received two-thirds of its revenue from wholesale customers. That is to say, selling water to other municipalities was extraordinarily important to Detroit’s bottom line.

The Reason article tries to paint Detroit officials as, well, the voices of reason in the decision to construct an alternative pipeline:

Documents that have just resurfaced show that the then DWSD Director Susan McCormick presented two alternatives to Emergency Manager Ed Kurtz that slashed rates for Flint by nearly 50 percent, something that made Detroit far more competitive compared to the KWA deal. “The cliff notes version,” she said in an internal e-mail to her staff, is that the “proposal offers a today rate of water for Flint/Genesee of $10.46 as compared to $20.00 paid currently per Mcf — 48% less that could be realized nearly immediately and even more when compared to the increases coming with KWA.” In fact, when compared over the 30-year horizon, the DWSD proposal saves $800 million or 20% over the KWA proposal, she pointed out.

That works out to over $26 million in annual savings for a city in precarious financial shape.

So why didn’t Flint jump at the offer?

If McCormick had been corrupt and untrustworthy like her predecessor, who was indicted in the scandal involving former Mayor Kwame Kilpatrick (for, among other things, illegally steering contracts to friends and cronies), it would have been one thing. But McCormick has a stellar reputation as an administrator and was brought on board after a federal court ordered a reorganization of the DWSD to clean up its operations and ensure that it was complying with federal water regulations. (Despite opposition from the city’s powerful unions, she made a nearly 80 percent reduction in staff while improving operations, all of which ended 35 years of court oversight of the department!) In fact, she even offered the city representation on the board and a say in “facility operations and capital investment” in order to guard against unwarranted future rate hikes, removing an issue that has long been a bone of contention between Detroit and its municipal clients.

What’s more, lest one dismiss McCormick as a biased party with a fiduciary interest in pressing DWSD’s case against its competitor’s, a study commissioned by Snyder’s own treasurer from Tucker, Young, Jackson & Tull, a prestigious engineering consulting firm, confirmed that the KWA’s plan to supply Flint didn’t make any financial sense. It estimated that KWA was lowballing the project by at least $85 million. “Cost overruns and delays in completion will both negatively impact Flint’s final costs,” the report concluded.

This version of events is somewhat startling in its naïveté. Detroit offered the city a steep discount to stay! They provided an independent feasibility study to show them it was a bad idea! But those ego-maniacal stimulus junkies decided to ditch a good thing anyway!

The local governments involved in the pipeline had been trying for years to negotiate lower rates with Detroit Water and Sewerage and Detroit had flatly refused. Detroit only began to discuss a modified rate structure in earnest once it became a done deal that they were going to lose their wholesale customer base and under pressure from the state.

Flint and other local governments had very good reasons not to trust Detroit at the time. The city was pragmatically trying to recast any business it could as a regional enterprise as a means of transferring the city’s operating costs to other local governments. This was true not just for impoverished communities like Flint, but for Detroit’s wealthier suburbs.

Early attempts to create a regional water authority made this explicit. From a 2014 article in the New York Times, Detroit Plan to Profit on Water Looks Half Empty (emphasis mine):

Negotiations for Detroit’s proposed regional water enterprise, the Great Lakes Water Authority, faltered in April. Among the sticking points, county officials said, was a provision for the new water authority to accelerate its contributions to the city pension fund, even though the city itself would get a ten-year funding holiday. Oakland County withdrew from talks, and its commissioners voted to spend $500,000 studying alternatives to Detroit …

Detroit’s emergency manager, Kevyn D. Orr, has included plans for a regional water authority in his agenda for reviving Detroit. Uncoupling the system from the city and giving the three counties more power would improve its credit ratings and borrowing cost. Detroit would still own nearly 4,000 miles of water mains; the Great Lakes Water Authority would lease the system, run it and keep any excess cash. The lease payments would bring Detroit $47 million a year for 40 years.

The money would go into Detroit’s general fund, where the city could use it for its economic recovery. Under the current structure, the Detroit Water and Sewerage Department must plow any surplus back into its own operations, not subsidize the city.

Freeing up the water revenue would be a boon to the city, but bondholders call it an illegal diversion, and wary suburbanites worry that the $47 million a year for Detroit would be a backdoor bailout, using their water bills.

So that was the real political climate behind Flint’s decision to strike out with other local governments in building their own water system. Detroit was making it very clear that it was looking for an opportunity to use its waterworks to subsidize the city’s operations — which partially helped Detroit’s emergency manager walk away from the city without fixing the city’s revenue problems, beyond a bunch of economic development-y fluff — and Flint (and others) did not want its own residents to be a captive market providing that subsidy.

At the time, Detroit’s water department had more than 79,000 delinquent residential water accounts, totaling $42 million. (Similarly, around half of Detroit property owners were not paying property taxes, which is why the city was seeking any line of business that could subsidize its operations.) The city’s inability to collect money from its own residents was so bad that officials decided to begin a program of water shut-offs, which generated national outrage, including a populist-y segment on The Colbert Report. And Flint didn’t want to be a car in that train wreck? How irrational!

But that does seem better than feeding your children lead, you say. Sure, so why did they end up using the Flint River as a water source in the interim? Why not wait it out with Detroit while the pipeline is under construction? Well, that’s because Detroit decided to terminate its water contracts with those entities in retaliation for constructing an alternative pipeline, and Flint had to go looking for another water source (you’ll note who sent the letter — none other than the heroine of Reason’s story):

The city of Detroit has given notice that it’s terminating a nearly 50-year-old contract for selling water to Flint and the county next year, but Drain Commissioner Jeff Wright says he doesn’t think Detroit can turn off the area’s supply of water so easily.

The three-paragraph notice from Detroit Water and Sewerage Department Director Sue F. McCormick does not say water sales would necessarily cease after April 17, 2014 — only that the current arrangement would end.

“I have to believe that Flint had to know that this was the next step,” said Bill Johnson, a consultant and spokesman for DWSD. “Perhaps (water purchases after April 17, 2014) is something that will be part of discussions with Flint and Genesee County.”

Yep, Detroit officials were so generous and caring, and they just wanted to help Flint make the right decision for its people.

So there you are in Flint, your water supplier has cut you off, your project won’t be complete for years, and people at the highest levels of state government are telling you water from the Flint River has been tested, will continue to be tested, and is safe to use. What do you do? Stick with the thieves you know or try take steps toward what seemed like a more sustainable and fair solution at the time?

I understand why Reason wanted to go with the narrative that it did. The players in charge at the state level in this story were so criminally indifferent to their duty to ensure public safety that there is no way to defend them at this point. So it is easier to cast them as wanting to create a “stimulus project” for Flint, because then the governor isn’t worth defending as a conservative leader.

(Reason also seems to have a strange on-going war on infrastructure investment in general. I found some of their past articles on how American infrastructure is actually in a lot better condition than you think it is, which I think I can safely say no one in any statehouse in the nation believes. So I guess it was to be expected they’d have a less-than-accurate understanding of Flint’s water crisis. If you want to make a good libertarian argument regarding infrastructure, try arguing for increased private investment rather than denying that much of America’s infrastructure is past its useful life. Incidentally, I wrote a long series on infrastructure funding here for context.)

Michigan had a pair of Siamese twins under state emergency management. They endorsed their separation, held one twin up as a shiny model for state intervention, and left the other twin to die. It is also worth noting that Michigan was running close to a billion-dollar surplus when Flint was left to find its own water source. Nothing was stopping the state financially from intervening in this situation in a positive way. Nothing at all.