Industrial businesses and even churches have cost the city billions in uncollected revenue
Come Oct. 1, the owners of 22,000 parcels in Detroit are going to experience a state of shock, courtesy of the Detroit Water and Sewer Department. But unlike the first wave of unsettling news to come from the DWSD a year ago when the department was making international headlines resulting from a rash of residential customer shutoffs for delinquency and nonpayment, this time the target for collections are the truly big fish who have not been paying their fair share of water rates — if they’ve been paying anything at all — for years.
The announcement of this approach comes at an opportune time for DWSD, which made news again last week due to fears that its WRAP program, targeted to provide payment assistance for lower income customers, was running out of money. DWSD Director Gary Brown quickly put that fear to rest, saying that this was not true.
It is also an important response to critics who charged that the rampant shutoffs were unfairly targeting poor and low-income residents for non-payment while allowing larger corporate, industrial and non-profit businesses (including many churches) to walk away free and clear.
Not anymore, because in the end, money does talk. And the amount of uncollected funds represented by these 22,000 customers, many of whom are also absentee landlords and real estate speculators, is enough to make a dead man shout. The amount of money that DWSD could have collected from them over the past six years amounts to roughly $75 million — money that they are still legally empowered to recoup, according to DWSD Chief Financial Officer Marcus Hudson.
But instead, Brown has decided that to try to claw back that much cash from customers all at once while simultaneously raising their monthly water rates by dramatic amounts would essentially be to declare open warfare. Not worth it.
The program that Brown says is designed to bring more fairness and equity to the bill payment system will give customers a three-year phase-in to the new plan that will switch over from a metered rate that inadequately measures drainage to a rate designed to measure impervious surface area drainage.
The process will begin with city parcels in October, followed by the industrial customers in December (which are the smallest number of customers but represent the largest amount of impervious area), then commercial, then tax exempt organizations. Residential customers will not be switched over until fiscal year 2018.
“The idea is to gradually bring everyone over to being charged according to impervious area,” said Brown.
Parking lots are a perfect example of impervious surface area because they are not charged for all the water that drains off their lots, even though that water flows into a drain (same as with residential customers) and still has to be treated (same as with residential customers). And unlike lawns, where most of the water is absorbed and soaks in, an impervious surface is generally impenetrable by water so the water rolls off into the sewer drains.
“While DWSD has had a drainage charge for some time, people were being charged based on the size of their meters,” said DWSD Project Manager Eric Rothstein. “There was a discrepancy because there were a number of folks being charged according to impervious surface charge, which is more, as opposed to those who were being charged on a meter size basis, which is far less. This dramatically affected collection rates from industrial and businesses, including churches.
“There were businesses, like the parking lot across the street, which didn’t have a water or drainage system, so they basically didn’t have a reason to be Gary’s (DWSD) customer.”
To give another example, Brown said, “I just visited a church this morning that is paying $184 in drainage (per month). It has 12.5 acres. And then you take another one that has 13 acres, one half acre more, and they’re paying $9,000.”
“(This pastor) has a 5,000-member congregation, so I’m assuming a lot of them are flushing toilets and using water. But when I look at his bills for August, July and June, they are smaller than my house. And so therein lies the inequity,” because the pastor with the 5,000-member congregation is being charged by metered rate for drainage, whereas the other pastor who is paying $9,000 monthly is being charged using impervious surface rates.
“The goal is to get the people who have been paying too much to come down, and to get the people who haven’t been paying at all, or who haven’t been paying their fair share, to come up.”
In order to redesign the way DWSD customers were being charged, the department began doing individual flyovers by air to visually determine the actual number of parcels in the city and who owned which parcels. That process is what led to the realization that there were 22,000 parcels (out of a total of 385,000) taking a free ride on the backs of paying customers. And since DWSD has an annual revenue requirement of $125 million, “…if we’ve got 22,000 customers that aren’t paying, then the other customers are paying that much more,” said Brown.
So about two weeks ago, letters went out to these 22,000 customers who were not being billed for drainage, “and we say to them, ‘our records show that you own this property, that there’s impervious area on this property, and it should be getting billed more drainage services’,” said Rothstein. The customers were asked to check the accuracy of DWSD’s information. If the customers can prove the property doesn’t belong to them, they get off the hook. But if it does, say hello to your brand new rates.
Just to give a more detailed explanation of how much money DWSD could have recouped had they decided to legally pursue the amount owed by those 20,000 customers over the past six years, let’s start with the fact that DWSD charges $750 per acre per month for water and sewer.
The average residential home is .04 acres. However, one of the 20,000 non-paying customers is located in the 1100 block of Gratiot with a total acreage of 6.22 acres, of which 5.62 acres is impervious. Multiply 5.62 times $750 per acre and that equals $4,215 per month. Multiply by 12 months to equal one year and that’s $50,580 owed for just one year. Multiply that times six years and that’s $303,480 that DWSD should have been paid in drainage charge from just that one industrial company.
But there are a total of 22,000 that have not been paying, representing a total acreage of 1,400 acres. And 1,400 acres, multiplied by $750 per acre per month, multiplied by 12 months, multiplied by six years equals…a lot of cash.
“My point is, Detroiters are paying more than they should have been paying for two reasons: we didn’t have everyone in the billing system, and we didn’t do a very good job at collections,” said Brown.
“We had a 77 percent collection rate when I got here. Now it’s up to 91 percent, and for every percent of collection raised, DWSD brings in another $3-4 million. We’re trying to get to 95 percent, which is the national average.”