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Infrastructure funding in the age of austerity – just don’t call it a “tax”

17 Jan 2017

As demands for municipal services increase, costs go up and tax revenues flatten or fall, what is a municipality to do?  Most Michigan politicians have decided that even to suggest more taxes is the kiss of death.  Everyone agrees Michigan’s roads need work.  The gas tax went up on January 1 and even that increase was widely viewed as an inadequate to fully improve our sub-par roads. Recently, a Michigan State study indicated that nationally, roughly 12% of households cannot afford the cost of water services and, if water rates rise to cover repair and upgrade expenses due to the aging of our systems and other factors, that unaffordability factor may go up to almost 36% in the next five years.

The Governor’s 2016 Infrastructure Commission, appointed in the wake of the Flint Water Crisis, reported that we need a modern infrastructure system to compete globally, to have economic prosperity, and to have healthy citizens and a healthy environment.  However, the Commission did not answer the all-important question of how to fund all of this work.  The Commission reports that Michigan lags behind every other state in the region in capital funding for infrastructure and that Michigan needs to spend $4 Billion more every year than it currently does just to align with an average state and the State’s needs.  This would be a 7% increase in spending.  The Commission did not address how Michigan should fund this shortfall.

The business group, Business Leaders for Michigan issued a report earlier this month. That Report reached the same conclusion and proposed that the State ramp up its spending and opened a door to creative and novel financing approaches including user fees which the Report indicated may be used to fund costs of “services, enhancements to increase the quality of life, and … administrative and regulatory processes.”  This report discusses such fundraising approaches as: fees per mile traveled (vs gasoline taxes); public-private partnerships; fees based on property value increase; fees which take into account all lifetime system costs; selling or leasing systems to raise funds for new infrastructure improvements; toll roads and other more “outside the box” approaches.

We have seen this before but not on a statewide approach such as when municipal governments try to fund environmental initiatives, such as stormwater management (required by federal law). The cities of Lansing, Jackson and Detroit all adopted stormwater “fees” based on the paved acreage of various properties within their jurisdiction.  Clearly, to the municipalities, this seems like a good idea – otherwise, why would they keep doing it? Reportedly, nine Michigan communities have created stormwater utilities to impose such charges (Adrian, Ann Arbor, Berkley, Chelsea, Harper Woods, Jackson, Marquette, New Baltimore, and St Clair Shores).

The Michigan Supreme Court established a three part test to distinguish between a fee and a tax: (1) “a user fee must serve a regulatory purpose rather than a revenue-raising purpose;” (2) “user fees must be proportionate to the necessary costs of the service;” and (3) “user fees must be voluntary.”  Bolt v Lansing, 459 Mich 152, 161-162 (1998)

Unfortunately for the municipalities, the Michigan Courts keep striking these fees down as illegal, hidden taxes.  In the case of Jackson County v City of Jackson, the plaintiffs challenged a stormwater management charge imposed by the Jackson City Council. The Court of Appeals ruled that the charge was a tax imposed in violation of §31 of the Headlee Amendment to the Michigan Constitution. The court held that the charge: (1) did not serve a regulatory purpose because it shifted funding of certain activities from the general fund to the charge; (2) was disproportionate to the benefits conferred upon the payor as there were no payor-specific benefits; and (3) was not voluntary because there was no way to avoid the charge by doing, or not doing, something.   The Court of Appeals cited Bolt v Lansing, which invalidated a similar stormwater charge on similar bases. Ultimately, both courts held these “charges” to be taxes subject to, and failing to meet, Headlee Amendment requirements.

Last year, the Michigan Legislature saw the introduction of a bill that would authorize such “fees,” regarding water and sewer, ostensibly to make them harder to defeat in Court under the Bolt test. The need is real and I am a big believer in top quality infrastructure which needs to be paid for.  My question is, with the 1978 Headlee Amendment that puts the size and cost of government in the hands of the taxpayers, and with a backdrop of fees rising beyond what some citizens can afford – can and should our Legislature try to pass this off by various “fees” without getting the voters’ approval as well as other “creative” solutions, some of which may cost the taxpayers less in the short run but more in the long run?  I’m all for the efficiencies in purchasing and scheduling that Governor Snyder has been pushing for but, as we watch more and more systems fail (like the recent Fraser sinkhole), it is clear that we cannot continue to push this off – if the citizens see that, they should be willing to pay for it. If these expenses get passed on in the form of fees which are not voted on and the citizenry gets hit with larger fees that they were not told about, who thinks that will play well at the voting booth?

Water, water … recycling?

9 Dec 2014

6_weekWe here in Detroit  had far more rainfall this past summer than we usually get and between the long, cold winter and all the rain, our lake levels are nearing their normal levels.  Meanwhile, in the southwest, drought conditions continue to grow.  So much so that there’s a flurry of deeper well drilling in California. In Texas, some communities are installing mega-treatment and cycling water from their wastewater treatment plant back to their drinking water systems, under a trial permit.  San Diego’s Sea World announced it was using treated saltwater in its toilets.

I’ve blogged about so-called “toilet-to-tap” before.  At that point, it was more on the model of Orange County’s program – where treated water was discharged back into an aquifer from which drinking water was taken.  That program is a way of speeding up the water cycle we all learned about in elementary school.  Some call it “showers to flowers” and it is being expanded.  In Texas, it looks like they are taking a more direct approach.

At least one gentleman I know has decried this as dangerous due to the possibility of industrial and other contaminants finding their way into the public’s drinking water.  And, he’s right – there is a risk – but, as we have seen recently, there are risks to taking drinking water from a lake or river  which receive runoff and NPDES discharges.  Virtually all the water we see at the tap has been through a person’s body or has been impacted by some industrial or farming operation – it’s only a question of how much natural and professional treatment it receives prior to discharge, how long ago, how much dilution occurs and how much treatment before it’s put back into the drinking system.

The World Economic Forum has identified water as a key issue for the future.  There simply isn’t much freshwater on the planet as this video shows. As the video shows, some 80% of our water gets used for power generation and farming.  How we protect and conserve and, in some cases, recycle, this resource may be the story of the next 50 years.

Toilet to Tap? I don’t see overcoming the “ick” factor any time soon

2 Jun 2014

drinking_waterAs drought conditions settle in across much of the United States, some communities are beginning to look at the concept of “water reuse,” which sounds very conservationist.  Generally it means so-called “grey water” reuse where water that’s been used once (such as for laundry or car washes) is reused for other non-potable purposes. It also means the capture of rainwater for irrigation (think the barrels that some people have at the end of their downspouts). (more…)

Earth Day at 44…. still crying?

22 Apr 2014

Earth Day brings me right back here

Earth Day brings me right back here

Happy Earth Day 44.  We have come a long way from the challenges and problems that led to the first Earth Day –  a 1969 oil spill in Santa Barbara, California; the dead zone in Lake Eriesmog in Los Angeles and burning rivers in the Midwest.

The first Earth Day led to the creation of the US Environmental Protection Agency and the passage of environmental laws like the Clean AirClean Water, and Endangered Species Acts.  As the EPA and its state counterparts have continued to regulate, there has been a backlash of business and media outcry which certainly impacts the public’s views.

The challenges we face today are more complex and likely more daunting than those of 44 years ago.  We still have oil spills, but they are from rail cars, pipelines, larger ships and deeper wells.  Lake Erie and many other bodies of water are still challenged by more diffuse and “below the radar” sources of contamination.  While reducing the impacts of asbestos, lead and NOx from our daily lives, and healing the ozone hole, we now face questions regarding greenhouse gasses, smog impacts from and in China unlike anything LA ever faced, and the challenges and benefits posed by fracking.

Once the “low hanging fruit” of easy cleanups were “picked,” what we were left with was less shocking or engaging than dead fish and burning rivers.  Consequently, there’s much more debate about the best way to address them or whether they need to be addressed at all.  The issues are just as important – maybe more so, but it’s unlikely that our polarized nation would agree on what changes would be best, if any.

Water, water everywhere.

29 Jan 2014

Picture006Did you ever think about where your water comes from and what may be in it?  I have a good friend who never thought about the fact that there was a finite amount of water and that certainly some of what came out of his tap had, at some point, likely passed through someone else’s bladder. What that means is that treatment of wastewater has an impact on drinking water quality and the public health.

We’ve recently learned that the DWSD and the local counties have been trying to work out a deal to “regionalize” the Detroit Water System – thus far – to no avail.  Also, just this week, rumors have surfaced that the DWSD may be cutting 40% of its staff – a reorganizing of the system which, if successful, could lead to lower operating costs, lower borrowing costs and may make a multi-county regional deal more likely. If not, the system could be back in trouble.  There have also been rumors of a possible sale of the system or that the Detroit Emergency Manager might strike some sort of deal without Oakland and Macomb counties – which hold many of DWSD’s customers.

This is a big deal because the DWSD supplies drinking water to 126 communities in southeast Michigan, other than Detroit, serving roughly 40% of the state’s population.  The system is one of the Country’s oldest, dating back to the 1830’s and the infrastructure issues involved are huge, given that the system has five water treatment plants treating water from two intakes in the Detroit River and a third in Lake Huron. As we reported earlier, because the DWSD was able to achieve compliance on the other *ahem* end, it was finally let out of what was then one of the oldest ongoing lawsuits in existence.

However, wastewater treatment plants (which discharge treated sewage) don’t always clean everything out of the water and that failures to catch chemicals like pharmaceuticals, can have impacts downstream.  Sometimes, the chemicals get caught by accident without the operators even knowing it! A draft MDEQ report also tells us that there are problems in Michigan’s rivers (some of which may have been there all along and better testing is just now bringing it to light) with higher levels of pathogens of the sort our sewers and septic systems are supposed to eliminate.  While the City’s drinking water meets federal and State standards, those standards don’t test for everything that winds up in the water.  We’ve come along way from the 1969 fires on the Cuyahoga and Rouge Rivers, but we’ve still got a long long way to go.

As far as drinking water, one hopes that the treatment deals with every possible chemical and pathogen but we know that it does not. With a need for infrastructure upgrading and impending staffing cuts, the time seems right to strike a regional deal that benefits everyone in both the short and long terms. Let’s hope the region can pull this off. Sound water and wastewater systems are important for both our health and our economy.

WV Spill – could it happen here?

15 Jan 2014

Water trucks traveling into WV

Water trucks traveling into WV – Photo by Marc Goldman

The national press is now focusing (after spending hours and hours on a NJ traffic jam) on a chemical release from an above ground tank into 300,000 people’s drinking water.  When 1/6 of a State loses the use of its water supply – that tends to be a big deal (if a similar proportion of Michigan residents lost their water it would be over 1.5 Million!).

One or more tanks owned or used by Freedom Industries that stored a coal washing chemical, leaked a reported 7,500 gallons (or more) into the river which was the source of local residents’ tap water.

Federal law requires facilities that store oil and meet 3 criteria (non-transportation related facility, have more than a certain storage capacity, and could reasonably discharge to navigable waters or adjoining shorelines) must comply with spill prevention, control and countermeasure (SPCC) regulations. The SPCC regulations require the facility owner/operator to prepare and implement an SPCC plan for their facility. This plan must be well thought out and prepared in accordance with good engineering practices.

The Federal Emergency Planning and Community Right to Know Act (EPCRA) helps communities plan for hazardous substance emergencies by requiring facilities holding chemicals to provide local and state governments  information on chemicals stored so that the local communities can plan for chemical safety in the event of a fire or spill. Reportedly, Freedom Industries did comply with this law.

There are also OSHA, Transportation and Homeland Security regulations which may conflict regarding hazardous chemical storage. In August, 2013, President Obama issued an Executive Order focused on improving chemical facility safety and improving coordination with owners and operators as well as state and local regulators.  The working group is nowhere near complete and I expect the West Virginia experience will play a part in their deliberations.

In Michigan, we have a broader set of rules which require a pollution incident prevention plan (PIPP) for polluting materials which include salt, oil, any chemical from a lengthy list, and any compound or product that contains 1% or more, by weight, of the listed materials.  The rules:

  • Identify threshold management quantities (TMQs) for both indoor and outdoor use, storage, and other management areas. Exceeding these TMQs will determine if a PIPP has to be prepared, if containment is required, and if other Part 5 rules must be met. The PIPP is to include inspection and maintenance procedures but no minimums are specified.
  • Describe conditions and threshold reporting quantities (TRQs) for polluting materials which, if exceeded, or occur, require spills or releases to be reported.
  • Provide exemptions from some requirements if certain conditions are met or other regulations apply.
  • Within 30 days of completing its PIPP, the facility must send a notice that it is in compliance to the relevant MDEQ district office. It also must notify the Local Emergency Planning Committee (LEPC) and local health department that the plan has been completed and is available upon request.
  • Requires each PIPP to be evaluated every three years or after any release that triggers the plan. The plan must be updated when there are changes to personnel, processes, or procedures identified in the plan. The facility must re-notify the MDEQ and local agencies and recertify compliance when the plan is updated.

For above-ground tanks that hold at least 1,100 gallons of flammable or combustible liquids, there are further Michigan requirements (recodified at the end of 2013) for design, installation and site inspections both after installation and every three years.

Despite Michigan’s 20 page list of regulated chemicals – the chemical in this instance, 4-methylcyclohexylmethanol, is not on the list and so a Michigan company would not be obligated to have a PIPP if it stored only that compound.  Could it happen here? Of course it could; tank spills happen all the time – there are reportedly 2,000 a year across the US. Is Michigan better positioned to deal with such a release – it appears yes, but there are gaps in the system that the West Virginia spill may lead Michigan legislators and regulators to conduct a further review.

Would a tax by any other name smell the same? Funding in the age of austerity

26 Aug 2013

As demands for municipal services increase, costs go up and tax revenues flatten or fall, what is a municipality to do?  In most places in Michigan, politicians have decided that even to suggest more taxes is the kiss of death.  For example, everyone agrees Michigan’s roads need work.  Governor  Snyder proposed increasing the gas tax and registration fees some 8 months ago and it has gone nowhere.  Some legislators are talking about asking the voters to approve an increase in the State sales tax to 7% – this might come before the voters next year.

So, when municipal governments try to fund environmental initiatives, like managing stormwater (required by federal law), what is a municipality to do?  Well, the cities of Lansing, Jackson and Detroit have all adopted stormwater “fees” which are based on the paved acreage of various properties within their jurisdiction.  Clearly, to the municipalities, this seems like a good idea – otherwise, why would they keep doing it? Reportedly, nine Michigan communities have created stormwater utilities to impose such charges (Adrian, Ann Arbor, Berkley, Chelsea, Harper Woods, Jackson, Marquette, New Baltimore, and St Clair Shores).

Unfortunately for them, the Michigan Courts keep striking them down as illegal taxes.  In the recent case of Jackson County v City of Jackson, Case No. 307685, the plaintiffs challenged a stormwater management charge imposed by the Jackson City Council. The Court of Appeals ruled that the charge was a tax imposed in violation of §31 of the Headlee Amendment to the Michigan Constitution. The court held that the charge: (1) did not serve a regulatory purpose because it shifted funding of certain activities from the general fund to the charge; (2) was disproportionate to the benefits conferred upon the payor as there were no payor-specific benefits; and (3) was not voluntary because there was no way to avoid the charge by doing, or not doing, something.   The Court of Appeals cited the 1998 case of Bolt v Lansing, 459 Mich 152 (1998), which invalidated a similar stormwater charge on similar bases. Ultimately, both courts held these “charges” to be taxes subject to, and failing to meet, Headlee Amendment requirements.

Interestingly, one City, Adrian, has reportedly voted to refund the fees it collected.

Will the Detroit “fee” fall to a similar challenge? Every case is different but the recent history would indicate yes – if the City wants to have a stormwater “charge” based on acreage, it will have to go to the voters and make the City’s case.  Otherwise, the City will have to fund these expenses out of general funds.