Detroit Suburbs - Water rates rise slower

Communities forge ahead with study of suburb system

Published: January 6, 2005
By Jameson Cook Macomb Daily Staff Writer

While Macomb County officials are pleased that the Detroit water system plans to hold down increases in water rates next year, a handful of them also are looking at creating a separate suburban system that could cost as much as $1.42 billion.
The Detroit Water & Sewerage Department is proposing to increase the rates it charges its suburban wholesale customers an average of 3.9 percent beginning in July 2005, the lowest increase in more than a decade and below projections. Rates in 2002-03 rose by an average of 14.9 percent and last year rose an average of 7.1 percent.
"We're happy," said Tim Haney, director of finance in St. Clair Shores, which likely will see its rate drop by 7.1 percent, one of five Macomb communities that would see a decrease. Each community will decide whether to pass along its rate from Detroit to its residents and business owners.
"We hope that we'll be able to pass that decrease on to our residents, that's our intent," Haney said.
Despite Shelby Township's proposed 6.8 percent increase, Supervisor Ralph Maccarone said he is encouraged by the rate compared with this year's 12.64 percent increase.
"Four years ago they (DWSD officials) said there would be double-digit increases for five years and beyond," Maccarone said.
The relatively low rate increases come amid a dispute between the suburbs and city of Detroit over water rates that has escalated in recent years. The city of Warren led the current charge and filed a lawsuit against the city, and a consortium was formed to facilitate relations after some lawmakers attempted to exert outside control over the DWSD.
DWSD spokesman George Ellenwood said the department was able to hold down costs better than expected for a variety of reasons.
"It's because of the continuing monitoring of how the department spends money, keeping an eye on overtime and always looking to improve business processes -- streamlining and consolidating where we can," Ellenwood said.
Warren Deputy Mayor Mike Greiner, however, said he doesn't buy Detroit's explanations, arguing that Detroit is playing political games to combat a recently completed study of constructing another water system, a competitor, to serve 23 communities or more. Keeping rate increases minimal will help usurp the effort.
"We think the city of Detroit is trying to take the steam out of this movement to create another system," Greiner said.
Ellenwood retorted: "That's easy to say."
The $200,000 study was completed by O'Brien & Gere Engineers in New York on commission of the communities, including the Macomb communities of Warren, Center Line, St. Clair Shores, Eastpointe and Fraser. Fifteen communities in Oakland County and one in Wayne also participated in the study.
It proposes three options in detail and two additional options that need further study. The trio of top options are:
Construction of a water treatment plant to serve 23 communities and costing $1.42 billion.
Construction of a water treatment plant to serve only the Macomb communities and the single Wayne County community involved in the study at a cost of $363 million (the six Macomb and Wayne communities make up about one-third of the usage)
Taking advantage of existing capacity and expanding treatment plants in Mount Clemens, Highland Park and Grosse Pointe Farms at a cost of $310 million.
The remaining options that would require further study are:
Including Genesee County and the city of Flint in a regional solution.
Purchasing treated or untreated water from Genesee.
Roy Rose, president of Anderson, Eckstein & Westrick, which the communities hired as a consultant, said the study not only provides potentially viable options but served another purpose.
"We hope and feel that doing this has helped Detroit keep rates under control, although Detroit would never say that," Rose said.
Whether any of the options is viable remains in question, Rose said. The biggest obstacle would be cost, especially paying for the construction at the same time still paying Detroit for water.
Bonds would be sold to pay for a system, and payments from taxpayers could be kept relatively low by being spread out over 20 or 30 years. For instance, $1.42 billion spread among the households holding approximately 800,000 people would result in a cost of $1,774 per household. That equals $59 per year for 30 years, excluding interest.
A major downfall would be the planning and construction period of about five years, during which time the bond payments also would have to be made.
"It would be like if we were a homeowner and had to make payments on two mortgages for five years," Maccarone said.
Delaying payments for five years likely would increase the interest rate by a significant amount, Rose said.
On the other hand, if a large number of other communities joined in, in addition to the 23 that paid for the study, the costs could be reduced to a more viable amount, officials said.
Based on projections, once the new system is built, its rates would be lower than Detroit's after only three years of operation, Rose said. But he noted that projections can be iffy, pointing out that Detroit officials projected an average increase of 7.4 percent from 2005 to 2010 and 5.4 percent from 2011 to 2020, but next year proposes a rate increase far below the projections.
"The question is, 'What's Detroit really going to charge?'" he said.
Maccarone commended DWSD Director Victor Mercado and his staff for working better with suburban officials since protests first intensified more than two years ago. DWSD and suburban staffers and officials have been working together in technical advisory committees. Suburban officials are learning about the 11 to 14 factors that go into each community's rate.
"I don't know if it lowered rates, but they have a better understanding of the way rates are formulated and have more confidence in them," Ellenwood said.
A rainy first half of 2004 also likely contributed slightly to the lower rates because it reduced the peaking factor, Ellenwood said.
Despite the drawbacks to a creating a separate suburban system, a steering committee and a committee of all 23 communities will continue to look at the study and determine whether to proceed to "phase two," which would involved drawing up plans at a cost of $160,000, Rose said. One avenue would be to obtain details, including costs, of the fourth and fifth options.
Rose said he sees this exercise as a necessary evolution in the regional water system's development.
"This is the first time, as far as I know, that this (a separate, regional suburban system) has been looked at, that anyone has come up with any numbers," Rose said.