THE UNIVERSITY OF MICHIGAN Final Report URBAN WATER POLICIES AND DECISION-MAKING IN THE DETROIT METROPOLITAN REGION George M. Walker, Jr.* Project Director Norman Wengert** ORA Project 01351 supported by: U. S. DEPARTMENT OF INTERIOR OFFICE OF WATER RESOURCES RESEARCH GRANT NO. 14-01-0001-1589 WASHINGTON, D.C. administered through: OFFICE OF RESEARCH ADMINISTRATION ANN ARBOR July 1970 *Now at University of Texas at Houston. **Now at Colorado State University.

PREFACE This paper is the final report of a Title II Project funded under Agreement No. 14-01-0001-1589 by the Office of Water Resources Research, U.S. Department of the Interior. It is an analysis of the growth and development of a metropolitan water supply system in one urban region. It does not deal with technical and engineering aspects of water supply. Rather, its concern is with the framework within which decisions are made, with an identification of those individuals involved in decisions, and with the forces and factors which affect such decisions. We have not attempted in our study to test decisional theories or apply them directly as guides to our research, although our debt to David Easton, Robert Dahl, Herbert Simon and others should be obvious. Since the development of any metropolitan water system is an exercise in intergovernmental relations, such relations provide the focus for much of our study. All governmental decisions will be affected to a greater or lesser degree by four basic constraining factors: (a) environmental-and we deal with a government environment in which legislative, executive, and enterprisemanagerial factors must be taken into account; (b) technological-its level, availability, and the capabilities of the using agency; (c) behavioralindividual and organizational, intra- and inter-governmental; and (d) substantive-the "what" an agency does and how it is guided by bureaucratic and legislative imperatives. We might add other factors here such as size and complexity, for they, too, have an impact on governmental decisions and operation. It is these factors which have implicitly guided our research into a relatively narrow governmental function. Where it was possible we have attempted to trace the process of decision-making and policy formulation and the mutual impacts of governmental agencies. In sum, we treat structural, functional, and institutional aspects of water supply in the Detroit metropolitan region. We have included a substantial number of appendices in the belief that these materials may contribute to a fuller understanding of the decisional matrix of the Detroit metropolitan water system. There have been a great many individuals who have assisted us in various ways throughout this study. It is impossible to acknowledge all of them. But several must be mentioned individually. ProfessorsWilliam Gable and Lyle Craine helped to develop the initial concepts of the study; Professors Robert Friedman, Leonard Stitleman and Robert Mowitz helped us to avoid conceptual and other pitfalls; many others have read parts of the manuscript and criticized them in constructive fashion. We owe a special debt of gratitude to Mr. Gerald Remus, General Manager of Detroit Metropolitan Water Services, for countless hours of interviews and for allowing us unlimited access to his staff, reports, and materials. Mr. Thomas McPhail, iii

formerly Director of Information and Education for DMWS, worked overtime on our behalf. Mr. McPhail, Mr. Fred R. Cheek, Planning Director, Southeast Michigan Council of Governments, and Mr. Phillip V. Bray, Michigan Municipal League, were especially helpful in'working seminars" with the principal investigators and research assistants. Mr. Tom Kay and Mr. Guy Larcom, the city managers of Flint and Ann Arbor provided much of the materials for the case studies of their cities. Mr. Osmund Kelley, Executive Director of the Manufacturers Association of Flint provided extensive materials on the "regionalization" of DMWS. And, of course, we owe an immense debt to both elected and appointed officials in nearly seventy cities, villages, and townships in Michigan who were interviewed for the study, many of whom provided special insights into intergovernmental relations in water supply. The principal investigators were ably assisted by graduate research assistants at The University of Michigan who prepared countless special reports and who conducted nearly all of the survey interviews, and who severely but constructively challenged us: Michael Bradley, Gerben DeJong, Darryl Hessel, Michael Luxenburg, Charles Morrison, Demitrius Plessas, and Paul Timmreck; Eunice Burns and Dean Reger deserve special mention for their outstanding contributions to the project.Mr. Eugene Eaton and Mr. Herbert Swenson of the Office of Water Resources Research provided us with moral and administrative support from the time the project got underway in January, 1968, until its conclusion. Each of the above named-and many others-have aided in the completion of this study. But the principal investigators alone are responsible for any errors of omission or commission it contains. iv

TABLE OF CONTENTS Page LIST OF ILLUSTRATIONS viii CHAPTER I. INTRODUCTION 1 The General Context of the Study 1 The General Context of Metropolitan Water Supply 3 Basic Propositions Concerning the Detroit Situation 6 Chapter Addendum: Brief Notes on DMWS8 II. THE DEVELOPMENT OF THE DETROIT WATER SUPPLY SYSTEM: THE THRUST TOWARDS REGIONAL SERVICE 11 System Development 12 A chronology of the growth of the Detroit water supply system 15 The water service region 19 Purchase of the Wayne County system 21 Bargaining advantages 25 Negotiating the regional system 26 III. DIVERSITY IN FRAGMENTATION: THE MANY GOVERNMENTS DISTRIBUTING DETROIT WATER-PART I 29 Municipal Charter Provisions Relating to Water Supply 30 Cities and Villages 39 Cities and villages from 400 to 6,800 population 41 Administrative practice 41 Personnel and finance factors 45 System relationships 46 Local public relations 47 Cities and villages from 9,000 to 18,600 population 49 Organization and administration 49 Personnel and finance factors 54 System relations 56 Local public relations 58 Cities and villages from 20,300 to 32,200 population 59 Administrative practice 59 Personnel and finance factors 63 Relationships among the systems 65 Local public relations 66 v

TABLE OF CONTENTS (Continued) Page CHAPTER IV. DIVERSITY IN FRAGMENTATION: THE MANY GOVERNMENTS DISTRIBUTING DETROIT WATER-PART II 68 Cities and Townships 68 Cities from 37,000 to 62,000 population 68 Administrative practice 68 Personnel and finance factors 71 System relationships 74 Local public relations 76 Cities from 80,700 to 195,000 population 77 Administrative practice 77 Personnel and finance factors 81 System relationships 83 Local public relations 86 Townships 87 Administrative practice 88 Personnel and finance factors 92 System relations 94 Local public relations 96 Some Notes on Diversity 97 V. TRENDS IN SYSTEM OPERATION 99 Trends Within Detroit City Limits 103 Suburban Trends 103 VI. PRICING, RATES, AND CHARGES: NOTES ON POLICY AND PRACTICE 110 The Institutional Structure 112 The Rate Structure 114 Within-city rates 116 Wholesale rates 118 Suburban retail rates 119 Factors influencing rate decisions 124 Rate-making concepts 126 The equities of the Detroit rate situation 127 Comments on "marginal cost" pricing proposals 129 Chapter Addendum 136 Note 1 - Urban water supply investment decisions 136 Note 2 - Monopoly pricing and water supply in urban communities 138 Selected Chapter References 140 vi

TABLE OF CONTENTS (Concluded) Page 141 APPENDIX A: APPENDIX B: APPENDIX C: APPENDIX D: APPENDIX E: APPENDIX F: APPENDIX G: APPENDIX H: APPENDIX I: APPENDIX J: TOTAL RELIABILITY- PEOPLE-SYSTEM-ACCEPTANCE STANDARD AGREEMENT FORM BETWEEN DETROIT (DMWS) AND SUBURBAN COMMUNITIES FOR WATER SUPPLY LEGAL PROVISIONS AFFECTING WATER SUPPLY IN MICHIGAN A CASE HISTORY OF DETROIT-FLINT CONTRACT NEGOTIATIONS HIGHLAND PARK AN INDEPENDENT ISLAND IN THE REGIONAL SYSTEM OBSTACLES TO THE DEVELOPMENT OF A METROPOLITAN WATER POLLUTION CONTROL AGENCY: THE CASE OF DETROIT REGIONALIZATION VERSUS INDEPENDENCE: PRINCIPLES AND PRACTICE THE SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY MISCELLANEOUS STATISTICS THEORY AND PRACTICE OF WATER SUPPLY PRICING 149 157 169 177 183 201 225 247 257 *vii

LIST OF ILLUSTRATIONS Chart Page II-1. Water pumped to Detroit mains in billions of gallons, 1926-1968. Source: DMWS Annual Reports. 18 Table II-1. Communities served by DMWS under the Wayne County agreement. 24 III-1. Municipal charter provisions. 35 V-1. Trends in DMWS operating data. 100 V-2. Fifteen-year trends in water consumption within the city of Detroit. 101 V-3. Fifteen-year trends in water consumption among the suburbs purchasing water from Detroit. 102 VI-1. Number of service connections, by size (June 30, 1968). 117 VI-2. Ranges in mark-up. 119 VI-3. Data on rates of distributors. 121 H-1. Southeastern Oakland County water authority manpower requirements, 1968-1969. 230 H-2. Southeastern Oakland County water authority allocated capacity and estimated maximum day. 252 H-3. Rates per 1000 cubic feet in SEOCWA communities. 233 I-1. Comparative annual water service billings. 248 1-2. 1968 DMWS operating data. 249 I-3. The regional water system in southeast Michigan. 250 I-4. Water supply system. 251 viii

LIST OF ILLUSTRATIONS (Concluded) Map Page V-1. Source: From the 112th Operating Report of the Department of Water Supply and Sewage Treatment, City of Detroit, for fiscal year ending June 30, 1964. 106 V-2. Source: DMWS information leaflet. 107 V-3. Source: DMWS (1967). 108 V-4. Projected density distribution year 2000, alternative 120. Source: leaflet distributed by Detroit Edison. 109 ix

CHAPTER I INTRODUCTION This study is an analysis of the growth and development of regional water services in the Detroit area. It deals primarily with the period after 1959 when the Detroit Water Board took deliberate and forthright steps to become the water supply agency for the entire metropolitan area, ultimately defined as including parts of at least nine counties. THE GENERAL CONTEXT OF THE STUDY The 1950's were turbulent years for the Detroit water system, years in which the policies of the Detroit Water Board shifted from a kind of isolationism, with a concern primarily for consumers within the corporate limits of the city, to the ideal of serving the entire region. Several years of drought in the first half of the decade contributed to the policy shifts, and, undoubtedly, continued suburban growth sharpened the need for firm policy decisions. The idea of regional service was not entirely new in 1959. Historically, going back to 1851, Detroit has served suburban customers. The idea of taking water from Lake Huron-a crucial aspect of today's regional service idea-had been considered in the 1890's and was carefully appraised in 1924. And while service outside Detroit city limits continued slowly to expand into the early 1950's, the haphazard expansion which occurred could hardly be designated as the intentional development of a regional system. In the following pages, then, we will describe how the regional system has developed within the context of, and guided by, the earlier history of water service to the communities in the region. We will seek to identify, also, the principal problems which that development has encountered, and to suggest with a look to the future some of the more serious problems which are likely to arise. The most critical issues of regional service lie in the area of intergovernmental relations simply because the manner of regional growth permitted the Detroit Water Board no choice but to sell its water at wholesale to suburban governments, which in turn continued to handle distribution to householders, commercial establishments and industry. Only within the city limits of Detroit does the Detroit Water Board serve the ultimate consumers of its product. To date, its relationships with the wholesale customers have been uncomplicated, efficient, and even at times cordial. But there is reason to believe that the 1

problems still to be faced will be more complex, the decisional choices more difficult to discern, and conflict more likely to occur. As one looks at the past two decades in the development of the Detroit water supply system, one is tempted to look for a simple explanation of the tumultuous events of the 1950's, attributing their instigation and outcome to personality characteristics of the key actors. Or using a depersonalized model, one might couch explanation in theories of organizational behavior. We have rejected these approaches because they are simplistic, because they over-emphasize particular individuals, or suggest an interorganizational decision-making process which unfortunately bears little relationship to what we feel really happened. Our approach, in short, is pluralistic. It recognizes multiple causes and multiple effects, and we are sure that we are not always able to identify all forces and factors which led to particular decisions or resulted in particular policies. To a certain extent our approach takes recognition of certain deterministic elements-a kind of negative dimension of incremental decision-making. It is often more dramatic to explain governmental policies in terms of grand decisions. But in so mundane a field as water supply, even the most charismatic of leaders have few opportunities for making grand decisions. The range of decisional choice is usually limited; the opportunity for redirecting programs or policies is severely constrained by history, by physical factors, and by the social environment. To be sure, the development of the regional water supply system involved some interesting and forceful leaders. It stimulated organizational as well as individual conflicts of interest and views. But we feel it would be a mistake to overemphasize these elements of the situation. As a result, the story we have to tell may not be so exciting; it may not contribute to conspiratorial or other theories of social action, but we feel that it more nearly records the complex patterns of interaction out of which the Detroit regional water supply system has begun to develop. In some respects (perhaps obviously) the way in which the Detroit regional water supply system developed has been unique, and therefore our analysis deals with what is, in effect, a discrete set of events. But in other respects the evolution of the Detroit regional system has elements which are not unlike those in other Great Lakes metropolitan communities. In addition, perhaps it is possible to learn something about intergovernmental relations that is more generally applicable to water supply problems in metropolitan regions throughout the United States, and even to other functional metropolitan problems in general. In any case, this is our hope and the justification for this project~ 2

The General Context of Metropolitan Water Supply With the end of the depression and World War II, urban growth, which had been arrested, revived with vigor. Vacant land in cities filled up, and suburbs expanded and multiplied at ever more rapid rates, reflecting the need to "catchup," the impact of population increases, and the new prosperity. While the period of previous rapid growth to about 1930 had seen both suburban and central city growth, the period after 1945 was marked more by growth in the suburbs than in the central cities. Perhaps the principal cause for this new situation was the fact that, except in a few cases, central cities had no place to expand, and annexation and absorption of smaller communities had come to an end. In the post-World War II period no one could have conceived of a major consolidation of jurisdictions similar to that which occurred in 1898 when the five boroughs combined to form Greater New York City, although scholars and citizen study committees of great variety were urging the need for metropolitan government on the Toronto model. Instead, the independent suburb, sometimes evolving from an antecedent township, town, village, or city, provided the institutional model for governing the expanding urban areas that comprised the metropolis. These developments are commonplace, but it has not always been recognized that they had two consequences of interesting significance: First, intergovernmental relations within the metropolitan area became important. Second, the U. S. Bureau of the Budget in 1949 found it necessary to define a new statistical unit, namely, the Standard Metropolitan Statistical Area, (SMSA), so that data on the complex of governmental units which operated in a metropolitan region could be uniformly aggregated. To illustrate, the Detroit metropolitan region (defined as including from three to nine counties) has over 400 independent governmental units of which about 200 are school districts. Growth of urban areas, necessitated by economic growth and made possible by the automobile and highway construction, provide the backdrop against which water supply problems must be considered. Already in the 1920's, when the first thrust of suburban growth occurred, some aspects of the post-World War II problems of intergovernmental relations had begun to emerge, although the term itself was not used. With respect to water problems (both supply and waste water management), several institutional 1. There are exceptions to this generalization, of course, with Houston, Texas and Oklahoma City being notable among them. 2. The term itself only became popular after World War II and was applied both to the interrelationships within metropolitan regions, and as a new term for administrative relations in the federal system. 3

arrangements for intergovernmental cooperation had begun to develop: (1) the special district or authority; (2) the intermunicipal collaborative agreement, and (3) contractual service agreements under which one government (often the central city) undertook to provide service to the other. But cooperation was often the last resort, and on an ad hoc limited basis. In those locations where access to water supplies involved no complex engineering or cost problems (e.g., where sinking wells into high-yielding aquifers was inexpensive, or where streams or lakes were within or close to the corporate limits) the municipalities usually preferred to provide their own water or to rely on private companies for this service. But where massive expenditures were involved, special districts or authorities were common devices for aggregating financial and managerial skills in order to provide adequate service. In the arid and semi-arid West such cooperative institutional arrangements were frequent, and were often related to and encouraged by the development of water resources by the federal government. In the humid regions a more diversified pattern could be observed, influenced in the particular case by such factors as physical availability of water, legislative authority, administrative vision, political boundaries, and simple convenience. Simple convenience, rather than any grandiose plan, lay behind the frequent pattern of relationships in which the older central city agreed to sell water to adjacent suburbs and subdivisions (usually at the city limits). In many cases, these agreements provided for supplementary water, and little attention was paid to longer run needs and engineering efficiency. Among other things, of course, this pattern of dealing with suburban water supply needs preserved the control of distribution, including rates, in the suburban communities. Aside from such political motivations, these contracts were often simple to negotiate and postponed the difficult issues of additional supplies, bond issues, or possible tax increases for the suburb. Thus, in the 1920's engineering and city management journals had begun to deal with such questions as'"hat Cities Should Charge Suburbs for Water."3 Most of these relationships were developed in an ad hoc, case-by-case basis, usually without the benefit of state regulatory supervision. With World War II ended, and with economic growth and housing needs advancing, those responsible for water supply took up the patterns of the 1920's with the result that improvisation and ad hoc arrangements, rather than metropolitan area plans and efficient engineering, continued to be typical. A 3. Of sentimental interest to political scientists, perhaps, is the article in the July 1927 issue of American City by Louis Brownlow entitled "The Water Supply and the City Limits. 4

review of this situation was published in 1962 in a report prepared by the Institute of Public Administration (New York) entitled Intergovernmental Responsibilities for Water Supply and Sewage Disposal in Metropolitan Areas.7 Some of the criticisms in this report of the situation which then prevailed (and continues in many metropolitan areas) are worth quoting: As noted earlier, examples of fragmentation abound. In the Sacramento metropolitan area, water supply and distribution are the most splintered of all public functions, with 44 public and 55 private agencies serving the public. Minneapolis-St. Paul and their suburbs have 45 individual water utilities operating without an organizational or operational tie, except the minimal controls exercised by State agencies. Fiftysix agencies supply or distribute water in Pittsburgh and Allegheny County. This fragmentation for water supply and distribution is concentrated in the suburbs, and parallels a similar pattern for sewage disposal service....The general tendency has been to create additional water and sewer districts rather than expand the area of existing districts.... Without question, the suburbs are the critical aspect of the metropolitan water problem.... Suburban water and sewage problems in most metropolitan areas are of postwar origin.... Most postwar studies of urban water supply and waste disposal have underscored the failure to achieve efficient and economical planning, development and operation on a metropolitan basis. The economic benefits to be derived from areawide utility planning and development, and the fact that political boundaries bisect watersheds and drainage basins, are powerful arguments for structural change in those metropolitan areas where water responsibilities are fragmented, investment is inadequate, suburban development is hampered..., and intergovernmental relations strained by drawbacks of the contract system. The ACIR report also asserts: Inadequate scope is a major weakness of most of the present regional water and sewer operations. It is a product of the political necessity of having to accept a less than ideal geographical base and the failure of many metropolitan water agencies to grow.... In these areas, the outlying districts suffer from the same fragmentation and shortcoming of individual 4. Advisory Commission on Intergovernmental Relations, Report A-13, October, 1962. 5

systems that are found in areas where metropolitan agencies have not been created.... The political position of the central city, like the attitude of a particular suburb, is likely to be based on immediate selfinterest rather than projected long-range regional benefits. These few excerpts, from what is a first rate analysis of the situation, do not do the report justice, but perhaps they serve to reinforce our description of the general situation, and provide background against which to assess developments in Detroit. In many areas of the nation the situation described by ACIR in part reflects competition among jurisdictions for scarce water resources and the high cost of constructing water production facilities (wells, reservoirs, storage basins). But metropolitan communities with the capacity to secure water from the Great Lakes are in a somewhat different situation. They have available an unlimited and low cost supply of water-for nature built the reservoirs. Until quite recently Great Lakes water was of very high quality and for many communities continues to be so. Until the mid-thirties, for example, Milwaukee pumped raw Lake Michigan water into its system with chlorination as the only treatment method; its filtration plant was constructed as a mid-depression PWA project. Detroit's filtration plant went into operation in 1924. As a result of its ready availability, decisions with respect to water supply sources have seldom involved intense intergovernmental political competition and controversy in Great Lakes cities, nor have economic issues loomed as large as in some communities. Another characteristic of Great Lakes communities is the extreme fragmentation of local government, supported by long traditions of local autonomy at the smallest jurisdictional level. As a result, decisions with respect to urban water supply are retained at this local level, with great resistance to arguments for even partial consolidation or regionalization. At the same time, the issue of "grass roots democracy" and local self-determination aside, the local decisional institutions in the Great Lakes communities are traditionally among the least well-equipped for making'wise" decisions. Their time perspectives tend to be short, their planning competence limited, and their fiscal capabilities precarious. And for similar political reasons, there has not developed a strong system of state supervision and control. Basic Propositions Concerning the Detroit Situation As subsequent chapters will indicate, Detroit differs in some respects from many Great Lakes communities; but in other respects the system, based on 6

local autonomy and which lodges substantial decisional power in local communities, limits the freedom with which a truly regional water supply system can be developed. And although the following propositions will be developed in greater detail, it seems useful to set them out here one by one to suggest the framework within which this study will proceed. 1. If efficiency in distribution (lowest or optimal) costs, and equity in treatment of the same or similar classes of consumers in the metropolitan region are primary goals, then (all other values aside) a single, completely integrated water supply system, administered under uniform policies, would seem to be the logical, if not the best solution. Rate differences in such a system thus would be justified only if there are real costs differences, or in order to realize explicit social policies of the region, state, or nation. 2. The physical supply of water is not a problem for the Detroit region (nor for any city with access to the Great Lakes), since Detroit even at peak demand periods does not take 2% of the volume of water normally in the Detroit River and which varies only slightly in annual flow. 3. Even the engineering problems of supplying water to the Detroit metropolitan region are minimal (and low cost) because of the level terrain and the geologic characteristics of the soil. 4. The major problems of water supply for the region are thus primarily political and institutional, involving economic, organizational and influence considerations. 5. Even the economic problems are not overwhelming since water costs in Detroit should be expected to be about as low as anywhere in the nation. One result of this is that consumption patterns are probably not significantly affected by price changes, recognizing that demand for water in any case is inelastic. Price changes (increases) thus involve issues of equity and politics, the latter being particularly evident because of the way in which the management of the regional system is structured, with Detroit handling production and transmission functions (outside its own City limits) and contracting local governments handling the distribution function, including rate making, billing, etc. 6. In the Balkanized situation of local government in the Detroit metropolitan region, decisions are dispersed throughout the system and influentials are widely scattered. It is often just not possible to know what really was decided, who decided it, and the reasons and motivations involved. 7. Decisions affecting water policy in this system may, as a result, often be influenced by questions of how decisions with respect to water supply will affect other decisional structures and the exercise of power in other program areas within the complex metropolitan system with its many subsystems. 7

In the process, interest and concern for the simple issues of water supply may be lost sight of. In other words, those who control a subsystem may use their control to achieve the explicit goals of the subsystem, or alternately as a vehicle for achieving goals of other subsystems in which they may be involved (e.g., assuring visibility by attacking the central city's Detroit Metropolitan Water Services in order to win a local election; nepotism; etc.). Chapter Addendum: Brief Notes on DMWS An understanding of the development of a regional water supply system for metropolitan Detroit must focus on the role of DMWS in the complex of intergovernmental and institutionalized relationships of regional system growth, But we want to make it clear that our study is not of, about, or for DMWS. As regional producer and transmitter of water, DMWS is the central of the many municipal water agencies on the system. Moreover, its basic operating and engineering standards provide the base upon which most operating and engineering specifications of the system are grounded; it provides major technical and engineering parameters for the operation of all other departments it serves. Yet the chapters that follow are not concerned with DMWS except as it functions as part of the regional system. Because we do not treat DMWS separately below, we can place its central role in regionalization in better perspective here through some understanding of its organization structure and the philosophy that guides its policies and operation. We will not deal with its technical operation nor its management: these are recognized as proficient and expert by a variety of professionals. DMWS is a large department: with more than 1800 employees it has a work force larger than the population of nearly a dozen communities it serves. The Department is divided into two major sections, a Water System Section of seven divisions (Finance and Accounting, Commercial, Operations, Maintenance and Construction, Engineeering, Personnel, and Information-Education Services) and a Water Pollution Control System Section of four divisions (Finance and Accounting, Commercial, Operations, and Engineering.)5 All employees of DMWS, including the General Manager and his thirteenman Executive Staff, are included in the City's classified civil service system. 5. Highly detailed reports on the operation of both sections are contained in the Annual Operation Reports for DMWS. By all indices water supply is the larger of its operations. 8

In addition, nearly all clerical and work force employees are unionized. One notable factor, except in the lowest civil service grades, is the low rate of turnover of the work force as well as of supervisory and managerial personnel. Perhaps the words that best characterize both the personnel system and technical operation of DMWS are stability and continuity.7 The Detroit Water Board is the appointed policy body of DMWS and serves two major functions: to help determine the broad policies upon which DMWS operating policy is based; and, in practice, to serve as a buffer between Detroit's Common Council, where politics is frequently volatile, and DMWS. The seven-member Board is composed of four residents of Detroit and three outcounty (suburban) representatives. Both City and suburban representatives asserted that there is little if any controversy or voting along City-suburban lines. Membership on the Board tends to be very stable; short term appointments to the Board (by Detroit's Mayor) are the exception rather than the rule. And, by all accounts, the Board also tends to be isolated from City and County political issues with but a few notable exceptions. The Board has long held a regional philosophy of service, even before membership was granted to out-County representatives in 1960. Indeed, the appointment of the current General Manager grew out of a conflict between his predecessor (a "Detroit-only" advocate-most probably influenced by the Common Council which, in 1957, also exhibited a City-isolationist philosophy) and the Board when the former manager resigned, along with three key assistants, over the issue of expansion into the suburbs.9 6. Unionization has had little impact on the Department's operation. Nor, apparently, has there been difficulty in balancing union and classified service demands and requirements. 7. The classified service requirement for all personnel, in conjunction with a City Charter provision that forbids the transfer of profits from either water supply or sewage treatment to any other use (i.e., profits are retained for supply and treatment purposes, respectively), has kept DMWS generally free from political controversy within the City and has helped to mute suburban criticism. 8. The Board does not set policy, nor is it a policy initiating body. It most usually approves the recommendations of the General Manager which it then proposes to the Mayor of Detroit. The Mayor, in turn, presents the recommendations to the Detroit Common Council for approval. In several recent instances, Board-recommended policy has fallen victim to a prolonged feud between some Council members and the past Mayor. 9. There was little open controversy about the issue but the controversy reportedly was intense within the department and was an outgrowth of CityCounty political conflict. For an excellent account during this period see Robert J. Mowitz and Deil S. Wright, Profile of a Metropolis, chapter 4: "Water for Southwestern Wayne County," Detroit: Wayne State University Press, 1962. 9

Guided by a regionalizing philosophy and managed according to high standards of engineering and economic efficiency, DMWS has become the key factor to the regionalization of water supply in this Great Lake's metropolitan area. 10

CHAPTER II THE DEVELOPMENT OF THE DETROIT WATER SUPPLY SYSTEM: THE THRUST TOWARDS REGIONAL SERVICE Partly a. result of affluence, partly a result of health and sanitation imperatives, and partly a result of patterns of living that have developed over the past fifty years, the availability of plentiful, potable water is taken for granted by those living in American cities. It makes little difference whether the city is in the humid Northeast, the hot and humid Southeast, the prairies or plains, the arid Southwest, or the cool, wet Northwesturban Americans expect water to be available in the quantities they may choose to use at any particular time and for any of a. wide range of purposes, the social utility of which have hever been seriously scrutinized. The style of life in Twentieth Century metropolitan American communities assumes and requires a plentiful supply of water. Not to have water available when, where, and in quantities demanded by American city dwellers unquestionably would pose political issues of the most serious nature. And perhaps it is because governmental and civic leaders have recognized this that, except in a few rare and unusual situations, water has in fact been available in anticipation of expanding urban demands. At the same time, even a superficial knowledge of water resources in the United States suggests that the technological and administrative (and hence political) problems of urban water supply vary from section to section and region to region, even though demand-creating factors may be quite uniform.l The Detroit metropolitan region, which is the area of concern for this study, happens to be among the areas most copiously blessed with easily accessible natural water resources, and in this respect is generally similar to other Great Lakes metropolitan regions. Yet water does not automatically flow into the taps of the four million residents of the Detroit region. Decisions must be made; policies established and administered; organizations developed; relationships maintained; financing provided; construction planned and carried out; and so on. The end result of these processes and decisions over more than 100 years is what can now be identified as the Detroit water supply (DMWS) system. How it developed; the problems it faced; the decisions involved; the compromises and negotiation; these are the subjects of this study. 1. F. P. Linaweaver, John C. Geyer and Jerome B. Wolff, A Study of Residential Water Use, Washington, D.C., Federal Housing Adminstration (1967) U.S. Government Printing Office. 11

System Development A metropolitan water system does not spring full blown into existence. In fact, in most metropolitan communities it is a euphemism to speak of "a system" for the fragmentation in general local government is usually mirrored in urban water supply arrangements. Perhaps the situation in northern New Jersey is among the more chaotic,2 but that in northeastern Illinois is not much different.3 It is important to recognize that in most metropolitan areas the arrangements by which water is made available are the result of years of growth and development, reflecting the accretion of incremental decisions over many decades. In this respect water differs from most other utilities and certainly from many of those industries whose products are bought and sold in the market. The time factor is a significant variable, and perhaps only sewer systems and city streets present analogous situations. The physical life of water mains in ground may be 75 years or more; reservoirs may have useful lives of hundreds of years.4 Stand pipes and storage tanks, and even pumping plants, are long lived. Most other basic utility systems differ from water in this respect. Water systems began to develop in the early Nineteenth Century, and thus in older communities initial installations go back that far. Electrical generating facilities did not develop until late in the Nineteenth Century, and electricity as an alternate to gas for residential illumination did not dominate the situation until after World War I. The development of telephone systems, similarly, is primarily a Twentieth Century phenomenon. And in all three fields-gas, electricity, telephones-the rapid development of technology induced constant changes in basic capital equipment and hence required much shorter depreciation and investment policies. A possible exception may be gas mains, which though not approaching water mains in age and continuity of use, nevertheless often have had a relatively long life. 2. Leonard Zobler, et al., Benefits From Integrated Water Management in Urban Areas - The Case of the New York Metropolitan Region, distributed by Clearinghouse for Federal Scientific and Technical Information, U.S. Department of Commerce, April 1969. 3. Northeastern Illinois Metropolitan Area Planning Commission, The Water Resource in Northeastern Illinois: Planning Its Use, Chicago, June 1966. 4. Norris reservoir in the TVA system, for example, at the time of construction was estimated to have a life of eight hundred years, and even reservoirs with acute silting problems are usually assumed to have life expectancies of fifty or more years. 12

But it is not only the physical longevity of water systems that is significant. It is also the pattern of evolutionary growth of these systems (which in many respects is unique) that needs to be noted. Once the decision was made in a community to abandon private wells, and in many cases these were prohibited by health ordinances or regulations, then the water system was required to follow the course of settlement, sometimes anticipating full development. In some communities, where the terrain was rough and rocky, water main extension could be very costly, so water lines tended to follow the easiest routes with the result that main extensions became major influences on settlement and development patterns, particularly before World War II when specialized earth moving equipment had not yet been developed. In other communities, where the terrain was less of a barrier to main extension, the influence on urban growth patterns was probably less pronounced. In the case of Detroit, for example, where much of the area is sedimentary (former lake beds of the Great Lakes system), the real estate developer could assume that water would be available to his development when he needed it. In some parts of the region, in fact, drainage rather than water supply loomed more important to expansion. This remains so today. The fact that most water systems have grown and developed over time is important for several reasons: (1) at any one time the management of the system has inherited many past and generally irreversible decisions; (2) the management of the system has a relatively narrow range of decisional choices with respect to system development except where extension of new mains, or the building of new pumping and storage facilities may be involved; (3) the financing of the system involves long time spans and a substantial amount of, literally, "sunk costs"; (4) bad engineering or unimaginative planning may be difficult to correct, especially in the face of the necessity for uninterrupted operations; and (5) water consumption patterns and practices over the short run tend to be fixed, so that drastic changes are not likely. Thus at any one time the water distribution system in a metropolitan region (whatever the pattern of administrative organization may be) is made up of very old, old, not so old, relatively new, and new pipes and equipment. Since most of the distribution system is in the ground, it may, as a practical operating matter, be difficult or costly to alter the "real" condition of the system. The transmission system, similarly, reflects the accumulation of decisions over a. long span of years. The production system, especially where wells or reservoirs are the source of supply, involves long time spans too, but differs from distribution or transmission in that additions to the system may involve large increments, and operating decisions may permit utilization of more efficient units for basic loads, leaving older units for peaking purposes.5 Both the way in which water supply arrangements develop over time and the normal fragmentation of government in metropolitan regions contribute to a "Rube Goldberg" patchwork in many metropolitan regions. Simple engineering 5. The distinction of the three functions distribution, transmission, and production is standard in the water utility industry, and is similar to the classification of functions in electric utility service. 13

efficiency considerations rarely are the sole elements in system design or operation. Where a number of water sources are available, incentives toward integration are weak. And even where a single source dominates the supply situation (as in Detroit), a patchwork is still very likely to develop over time. In short, only with superior management and leadership, including longrange planning for development, will a metropolitan system be other than a patchwork reflecting the improvisation of short-range day-to-day decisions. The point to emphasize is that water systems in most metropolitan areas, including Detroit, reflect much history. The accretion of past decisions at most will determine, or at the least will limit the choices open to presentday decision-makers (managers and policy-makers). The way in which the system grew and developed in engineering terms, in financial terms, in traditions of service, and in habits and expectations with respect to use-all these factors and many more-affect how water supply problems will be approached. Analyses which fail to take past decisions as well as future probabilities into account present an inadequate picture of decisional reality. To allege overinvestment in urban water supply facilities (as is done by some economists), where at any one time at least 75% of the distribution system is already in place and much of the production and transmission systems are in operation, (1) fails to take into account the difficult problems managers of a, system face in trying to make main extension dicisions five or more years ahead of a clear demand, (2) fails to deal with the fact that production system additions are necessarily in large increments or lumps, and (3) ignores the administrative realities of water supply system growth and development,6 Water supply system decision-making must necessarily be incremental for many reasons; among these are (1) The fact that the future is cloudy, and this uncertainty affects decisions with very long time effects that are largely irreversible once made; (2) The fact that the managerial span of attention is limited and that it is difficult to foresee or control the many independent variables affecting the demand for water; traditionally, supply elements seem more readily controlled, but the demand side of the equation is presently outside control areas except in unusual situations; and (3) The fact that past decisions (engineering, fiscal, managerial) limit the opportunities for new decisions. 6. See Chapter VI, infra, where this issue is treated more fully. 14

A CHRONOLOGY OF THE GROWTH OF THE DETROIT WATER SUPPLY SYSTEM The sense of development over time is well-illustrated in a chronology prepared by the Detroit Department of Water Supply parts of which are reproduced herewith. The first phase in the history of the system runs from 1827 to 1853. 1827 Common Council granted Rufus Wells, a pump maker from the State of New York, and his associates, later to be known as the Hydraulic Company, exclusive rights to supply the City with water. This group immediately began construction of a water system consisting of a new intake, a pump house on Berthelet's Wharf, a reservoir on Randolph near Jefferson, and a distribution system of tamarack logs. At this time the population of Detroit was about 1,500. The system was promptly placed in operation and water sold at a uniform rate of $10 per family per year. 1831 The Hydraulic Company was incorporated and granted a new charter to supply the City with water, after which the Company extended the system in an effort to meet the ever-increasing population of Detroit and to render better service-none of which was carried out to the satisfaction of the citizens. 1836 After much bickering between the Common Council and the Company, the City purchased the privately-owned water system from the Hydraulic Company. The population at this time was about 8,000. Operation and control of the waterworks was assumed by the Common Council, which immediately began planning for a new and larger plant. 1841 The new plant, known as the "New Works," located at the foot of Orleans, was put into operation. 1852 In 1852 the Common Council placed the Department of Water Supply under the management of a separate organization known as the Board of Trustees. 1853 On February 14, 1853, the State Legislature, on application of the Common Council, amended the City Charter, creating a Board of Water Commissioners to replace the Board of Trustees and granted special powers and authority to the new Board. The new Board was promptly organized and immediately got to work on a new improvement and expansion program, and has been at it ever since... The second phase in the history of the Detroit system began in 1855 when the Board of Water Commissioners was created, and from that time on, apparently, the records are more complete. Thus in the following table (excerpted from the Department of Water Supply Chronology), estimates of population served and plant capacity are included. It should be noted that the "population served" figures 15

Plant Capacity in Population of Million Gallons Per Day Year Area Served Plant Expansion or Improvement i Total Capacity Total (estimated) Capacity Added Capacity 1853 1879 1886 1889 1905 1914 28,268 Board of Water Commissioners created 116,340 Water Works Park Station, including new intake, put into operation 135,000 Additions made to Water Works Park Station. Reservoir cut off. For first time entire -system on direct pressure 1* 2 66 80* 203,992 First water meters installed 369,805 New intake crib at head of Belle Isle put into operation. Additions to Water Works Park Station completed. 652,000 Water Works Park Station No. 2 completed 72 152 308 Rated Maximum Rated Maximum 1924 1,371,500 1951 1,678,655 Water Works Park Filtration Plant put into service 316 595** Construction of a new intake at the head of Belle Isle and Springwell Station 272 340 192 240 588 735 780 975 1956 2,897,000 Northeast Station placed in operation $52,000,000 1959 3,038,700 Springwells $35,000,000 addition 160 200 160 200 940 1175 1100 1375 1964 3,316,400 Southwest Station put into service *Estimated on basis **From this point on of pumpage. plant capacity based on filter capacity. Source: DETROIT'S WATER DEVELOPMENT PROGRAM FOR SOUTHEASTERN MICHIGAN 19662000, issued by the Detroit Department of Water Supply, July 5, 1966, pp. 19 and 20.

reflect both the growth in the area of the City of Detroit as well as service agreements with various suburban communities. Many comments might be made on the specific items listed in this chronology. First, the chronology serves to emphasize the continuity as well as the long time-span covered by the system as a system. Quite recently some of the original tamarack log mains were unearthed when new mains were being installed in old sections of the City. Second, the year 1889, when meters were first installed, takes on special significance as a kind of bench mark date because it coincides approximately with the beginning of the automobile industry in Detroit, Henry Ford's first car ran on the streets of Detroit in 1893, but it was not until about ten years later that Detroit started on its way to become the automobile capital of the world. Some measure of the impact of this drastic shift in the City's economic base is suggested in the growth in population served by Detroit water from 1889 to 1909 when the number more than doubled from just over 200,000 to over 440,000. But this was just the beginning' The next two decades saw the population served almost quadruple to 1,678,635 in 1931. The ensuing thirty years saw the population dependent on Detroit water again double. The increase in water pumped to mains each year from 1926 to 1968 is indicated in Chart II-1, the increase having been from less than 80 billion gallons per year to over 220 billion gallons per year-just short of a, threefold increase. Two short periods of decline and two of stability may be noted, although the general trend is strongly upward. The first decline was associated with the Great Depression and ran from 1930 to 1933. The second and shorter decline followed World War II and reflects adjustments in industrial production associated with the end of that War. The two periods of stability are, first, the years after 1933 until war production expanded in 1939 and started a steady upward movement, and second, 1956 through 1963 when drought and economic sluggishness contributed to a stable demand pattern. After 1963 the major factor in the steep rise in demand was growth in service to the suburbs as the Department of Water Supply embarked on its deliberate policy of becoming the regional Detroit Metropolitan Water Services (its name since 1967). It is this shift from a central city water department serving a few suburbs to an agency of regional status that is the focus of this study. The point to stress is not simply that the population served increased (this has probably occurred in the case of most large city water systems), but that after 1959 regionalization of the Detroit Department of Water Supply was deliberate, publicized policy set out in the Department's first "Year 2000" plan issued in 1959, Detroit's Water Development Program for the Metropolitan Area. 17

220 200 180 160 mo 140 120 100 80 1928 32 36 40 44 48 52 56 60 64 6E Chart II-1. Water pumped to Detroit mains in billions of gallons, 1926-1968. Source: DMWS Annual Reports 3

In the 1959 program report the Detroit Water Board stated its new policy: This report outlines a plan for the orderly development of water facilities for the City of Detroit and those portions of the Counties of Oakland, Macomb, Monroe, St. Clair, Washtenaw, and Wayne which may be expected to receive their future water supplies from a common system. The plan contemplates service to a population of 7,000,000 or more, expected to occupy an area of 2,500 square miles during the next three or four decades. It is believed that in the next twenty years the number of people served by the system will increase from 3,247,000 to 5,100,000.... The Board of Water Commissioners reaffirms its willingness to provide all water for the metropplitan area. The development of one water utility for the area will provide more reliability, better supply, less duplication, and lower average costs. THE WATER SERVICE REGION The Detroit Metropolitan Region has been variously definedo The U.S. Bureau of the Census includes three counties in the Standard Metropolitan Statistical area. The recently created Southeast Michigan Council of Governments (and its antecedent Inter-County Supervisors' Committee) focused on a six-county region. In the 1966 revision of its "Year 2000 Report" the Detroit Department of Water Supply indicated its expectation to service a nine-county area with an anticipated population of eight million, 805o of which was assumed to be living outside present corporate limits of Detroit. The idea that an urban region extends beyond the corporate limits of the central city has long been recognized. But in Detroit, as in other metropolitan areas, the approach to regional problems has emphasized functional collaboration and the creation of special purpose agencies to accomplish limited objectives rather than consolidation. With respect to water supply, the amnouncedregional service policy had been preceded by ad hoc arrangements going back as far as 1851 when Detroit undertook to provide some service for a: few suburbs. By 1904 Detroit was providing water to thirteen suburban communities. World War II led to an expansion of extraterritorial service, and in the early 1950's the Detroit Water Department reported that it was serving forty communities outside its own city limits, But this service beyond the corporate limits could not properly have been designated a "regional system" without doing violence to the words "regional" and "system." The improvised character of these contractural relationships was described in a 1958 consultant's report to the Wayne County Board of Road Commissioners in the following language7: 7. From a report submitted by Mosher Associates, Consulting Engineers, on November l, 1958, to the Board of County Road Commissioners, Wayne County. 19

The earliest water main extensions into the present Wayne County Water System service area [the Wayne County System was purchased by Detroit in 1959], were noted in the Detroit Water Board's annual report of June 30, 1922. A total of 5,264 feet of 6-inch mains had been installed in Dearborn Township [presently the City of Dearborn Heights] during the previous year. Through the next two decades, hundreds of miles of such suburban mains were addedo The increase was so rapid at times that the Water Board lost count of the footage... A large part, perhaps a majority of all these mains were installed by land developers, under agreements which purported to vest title to the mains in the Detroit Water Board. Where water mains were acknowledged property of suburban municipalities, the Water Board obtained flowage rights through the local systems under agreements for supplying Detroit water. From 1922 to 1942 flowage rights acquired in both ways were exercised with little if any restraint. One after another, new developments were connected onto the ends of pipe systems which had been designed to meet only the water supply requirements of properties fronted on the mains, The eventual result was a sprawling network of small water mains, abounding in dead ends, gaps and bottlenecks, reaching as far as ten miles beyond Detroit City limitso This network was almost completely devoid of the large arterial mains which are essential for adequate supply in an extensive water system... So long as the area remained sparsely occupied, the inadequacy of the water system.. received little consideration. However, beginning about 1940, the inrush of population to man defense industries inaugurated a building boom which quickly increased water demand so far beyond the limited capacity of the system that intolerable water supply conditions developed at many locations in the area0... The limitations of this patchwork situation became critical during the war. As a consequence, in 1942, the Detroit Water Board arranged for the Wayne County Road Commission to initiate construction of transmission mains and other facilities to supply Detroit water more efficiently to out-C unty communities. In urging the County Road Commission (which owns and operates the Detroit Metropolitan Airport among its many enterprises) to undertake this task, the Detroit Water Board was quite clearly indicating its lack of interest in becoming a regional water supply agency. At that time it considered its role simply one of supplying water which was temporarily surplus to the needs of city residents as an aid to the war efforto As the quotations from the consultant's report indicate, these more-or-less improvised arrangements continued after the war, with the result that suburban growth and economic development put deniands on the system which seemed to threaten Detroit's capacity to delivero In the water crisis of 1952, brought on by a severe drought, consumers were faced with low pressure and concomitant water restrictions, and suburban officials and land developers (including those 20

outside Detroit's service area) became increasingly uneasy about the future. But again, as in 1942, the Water Board rejected the idea of developing a regionally integrated system. Instead it urged the Wayne County Road Commission to expand to serve other Wayne County communities. This included construction of an independent intake and pumping facility. The Road Commission needed little encouragement, and in short order formulated plans and secured voter approval for a fifty million dollar bond issue.8 As has been the case in most large cities, in the early years of the century and until the Great Depression, it was often assumed that suburban areas would in due course be annexed by the principal city. In some situations water service became a weapon to force annexation. But while for most central cities, including Detroit, the era of annexation ended with World War II, the need for water did not. In the Detroit region, moreover, dependence by the suburbs upon the central City for water was greater because geologic conditions often precluded use of ground water sources, and the streams and rivers of the region were not adequate. Direct access to the Detroit River was for many communities blocked by Detroit, not in a legal sense, but practically.9 The character of the hydrologic situation is suggested by these brief quotations from a U.S. Geological Service report10: In much of Macomb and Wayne Counties, ground water supplies are inadequate or of poor quality. The bedrock aquifers generally yield little water or water of poor quality. The area in Wayne, Macomb, and southeastern Oakland Counties is of low relief, consisting mostly of lake plain. Drainage conditions are poor... PURCHASE OF THE WAYNE COUNTY SYSTEM For reasons that are not entirely clear, the Detroit Water Board shifted its position in 1956 and began to restate its role in terms of becoming the single supplier for the entire metropolitan region. Of considerable importance to this shift was the retirement of the Board's long-time general manager 80 For a full account of this situation, see Robert Jo Mowitz and Deil S. Wright, Profile of a Metropolis, Wayne State University Press, Detroit, 1962, Chapter 4, "Water for Southwestern Wayne County.."t 9. Highland Park, although totally surrounded by Detroit, had its own intake in the Detroit Rivero 10. Water Data for Metropolitan Areas, Geological Survey Water-Supply Paper 1871, compiled by William J. Schneider, U.S. Government Printing Office: 1968, p. 182. See also USGS: Water Resources of the Detroit Area, Geological Survey Circular 183, USGPO Washington, 1952. 21

(Mr. L. G. Lenhardt) and the appointment to this position of Mr. Gerald Remus who had been urging a regional orientation as a Board employee for some time.1 Mr. Remus had been a Water Board employee since the 1930's and thus was quite familiar with Detroit's water supply problems. But other factors no doubt also influenced this change of the Board's perception of its mission, but these factors are difficult to identify since the change in policy was not marked by open conflict within the Department of Water Supply. From events that followed, it is clear that the Water Board considered the prospect of competition from the evolving Wayne County water system as the first hurdle to moving into its role as the regional water supply agency. Hence, the Detroit Board sought to eliminate this threat. The heated controversy that resulted and its resolution is described by Mowitz and Wright.l2 Although the Detroit Board appeared to have lost all the "battles" to prevent the County from moving ahead, it ultimately won the "war" by the simple expedient of purchasing the County system. On its face, the controversy between the Wayne County Road Commission and Detroit Water Board seemed to be primarily a struggle between two bureaucracies, particularly since the issue of a regional service was only indirectly aired. But the 1959 "Year 2000 Report," released just prior to the formal signature of the agreement to purchase the County system, clearly indicated the direction in which the Detroit Water Board intended to move. Success was not automatic, as is suggested by the concluding reservations in the MowitzWright case study. Only time will tell whether or not the Detroit Department of Water Supply will be transferred into a metropolitan water agency, but the odds are in its favor.... The settlement of the Wayne County Water controversy opened the way for the metamorphosis of the Detroit Water Department from city to metropolitan status.15 The reservations expressed by Mowitz and Wright underline the extent to which the initiative and responsibility for becoming the regional water supply 11. A Department of Water Supply report dated June 1956 by G. Remus was entitled "Proposed System Expansion Program," which in ten pages outlined what became the new stance of the Boards, including as an important element the Lake Huron intake. It should be noted that the Lake Huron intake does not represent a new supply of water since all water from Lake Huron presently flows into the Detroit River, which is the present source of Detroit water. As an additional intake, however, the Huron source gives greater balance to the system, and provides very high quality water. See Appendix "A" for a recent statement of the regional philosophy of Mr. Remus. 12. Op. cit., suburban growth to the North (Oakland and Macomb Counties) was at a slower pace than within Wayne County until the 1960's. At the time of the controversy the needs of the area to the North were less immediately pressing, although the creation of SEOCWA (see Appendix H) was the Oakland County response to threatened shortages. 13. Op. cit., p. 234. 22

agency lay with the Detroit Water Board itself. Its legal authority was sufficient, but it had no general public mandate for this shift of roles except its own perception of community needs and opportunities. The Board did secure approval of the Detroit City Council and of the Mayor, as well as of the Wayne County Board of Supervisors, for the purchase of the County system. But beyond this, the conception of serving the larger region and the decision to tap Lake Huron-the concrete elements of its regional outlook-were developed by the Board itself as operating policy. The successful elaboration of this policy was dependent upon its negotiations with the various local distribution jurisdictions. It is significant to note, moreover, that Detroit was already serving the communities involved in the Wayne County system. Initially, therefore, the agreement to purchase the County system did not affect the demand for Detroit water. In fact, the County system was not completed at the time the agreement was concluded. In terms of operations, the purchase would ultimately provide an additional intake below Detroit with a capacity of 160 million gallons. This intake came on to the system in 1964. In addition, the County system involved substantial improvements in the transmission system for westerh Wayne County. It is clear in retrospect that even if Wayne County had not agreed to sell its systenr while regionalization would have been less than complete, the growth and development to the North into Oakland and Macomb Counties would not have been reduced. It is also doubtful whether the plans for the Lake Huron intake would have been altered significantly. In this connection it might be noted that while in the 1950's it was generally assumed that the Detroit Metropolitan Region would grow to the West and South, in the 1960's growth in fact was greater to the North and Northwest.l4 This is indicated, for example, in data on increases in water supplied to those communities covered by the Wayne County agreement compared to increases in water supplied to other suburbs. From 1962 to 1968 total suburban consumption increased by 4,934,102,000 cubic feet. Twenty-two and one-half percent of this increase (1,111,383,000) was attributable to suburbs covered by the Wayne County agreement. More than 75% was attributable to other suburbs. Moreover, from 1962 to 1968 Detroit entered into agreements with thirteen new suburban customers accounting for 38.5% (1,849,827,000 cu ft) of the total suburban increase. In short, it was sensible from an engineering and economic standpoint to include the Wayne County Communities in the regional system. But it is difficult to argue that the development of the regional system was dependent on the inclusion of these communities. For a list of these communities see Table II-1 which follows. 14. The Detroit Edison-Doxiadas report stresses this development. See Emergence and Growth of an Urban Region: The Developing Urban Detroit Area, Vols. 1 and 2; published by the Detroit Edison Company, 1966 and 1967. 23

TABLE II-1 COMMUNITIES SERVED BY DMWS UNDER THE WAYNE COUNTY AGREEMENT Community Ne Year First Served Estimate of PopulaCommunity Name by Detroit tion served-1968 Allen Park 1929 43,500 Belleville 1964 2,300 Dearborn Heights 1929 80,700 Garden City 1934 42,500 Gibraltar 1943 3,500 Inkster 1931 39,500 Livonia 1931 98,700 Riverview 1929 8,900 Southgate 1942 32,200 Trenton 1929 22,300 Wayne 1933 20,300 Westland 1953 61,600 Huron Twp 1953 6,000 Romulus Twp 1943 16,300 Taylor Twp 1928 62,000 Van Buren Twp 1963 4,500 Woodhaven 1943 1,400 Brownstown Twp 1943 5700 Canton Twp 1959 2,900 Grosse Ile Twp 1938 8,400

The Detroit Board moved ahead of its regional policy and by 1968 it had agreements to supply water to seventy communities, thirty more than in 1954 when the issue of regional service was first joined. In its revised and updated "Year 2000 Report" (published in 1966) the Board projected that by the end of this century Detroit water would be supplied to about 130 communities and would serve 8 million people. The Detroit Water Board has also been moving to become the regional pollution control agency and now serves more than fifty communities, thus combining, for many communities, regional water supply and pollution control functions, using the contractual device as the method for accomplishing both regional objectives.15 BARGAINING ADVANTAGES The metamorphosis to metropolitan status reflects the power of the regional idea and the negotiating skills of DMWS, supported by some rather considerable bargaining advantages. One of the most significant of these, as already noted in Chapter I, has been the hydrologic situation in the area. Ground and surface water supplies, other than from the Great Lakes system, are limited in quantity and poor in quality. While small rural towns were able to meet their needs from wells or from the smaller streams, rapidly increasing demands of the urbanizing suburbs could in most cases be met only by tapping the Great Lakes system. But for many communities the financial and administrative problems of this course of action were beyond their capacity. With respect to most of the communities in the region, therefore, DMWS was and continues to be in the position of the classic monopolist: the suburbs have no real alternative but to contract with DMWS. Even those that presently hope to remain independent will, as demand increases, probably be forced to deal with DMWS.16 Several other factors contribute to Detroit's bargaining strength, particularly: economies of scale, DMWS's conservative financial management which has resulted in favorable bond ratings and consequent borrowing advantages, and generally good management, including the availability of a sizable professional engineering staff to develop system plans. 15. It is not unlikely that DMWS may by 2000 be serving an even larger region than now contemplated. Among communities which may desire Detroit water is Lansing-East Lansing, as well as other communities reasonably close to the major transmission mains. 16. Primary holdouts are Ann Arbor and Ypsilanti. Both cities have heavy investment in plant capacity on the Huron River to meet projected demands to 1980 and, perhaps, beyond. The Huron River is heavily taxed in its ability to meet expanding water needs and accept effluents from several water treatment facilities on the River. (See Appendix "J" for a discussion of the Ann Arbor situation.) 25

NEGOTIATING THE REGIONAL SYSTEM If one were to set up a hypothetical water distribution system for southeastern Michigan in which existing governments and individual interests were assumed away, or if one had dictatorial powers, one might create institutions which followed engineering and economic efficiency criteria and reject all other arrangments as undesirable and too costly. Perhaps a single agency to handle all aspects of the regional job, from drawing water from river and lake to delivering it to households and industry, would be the logical solution, Under these conditions the happenstances of location on one side or another of politically drawn municipal boundaries would not provide a basis for differences in the manner of delivering or charging for water from the same source, pumped by the same pumps and transported by the same mains, etc. Neither would the diverse values and plural goals that motivate individuals and groups deserve consideration. But realization of regional objectives, many of which are still to be dealt with,17 has not been without compromises of abstract regional principals and adjustments in ideal operating practices. Many analyses of water distribution rest simply on economic criteria seeking maximization of aggregate social welfare, feasible institutional arrangements being assumed to be cost free devices for achieving efficiency goals. But analyses of decision-making in a democratic society make it clear that the assumption of cost free institutional arrangements is not tenable. Where bona fide negotiations are a, part of the decisional process, differing interests are implicit and mutual adjustments a. part of agreement. As previously indicated, accounting practices in water utilities distinguishes between production, transmission, and distribution functions, and in negotiating for the development of the Detroit regional system these distinctions have been accepted as a basis for assigning jurisdictional responsibilities. DMWS handles production and transmission, while distribution beyond Detroit corporate limits is handled by local governments. Separation of functions in order to accommodate geographic decentralization need not, as such, involve an erosion of the regional concept, except for two related conditions that limit application of regional service criteria. The first of these is that the definition of distribution service areas is completely dependent upon political jurisdictional boundaries and hence removed from a consideration of regional efficiency factors. The boundaries of the contracting local governments determine distribution service boundaries, and 17. The "hard" negotiations remain in the future. Curiously, the present service region is almost identical to the Detroit telephone system (a crude measure of metropolitan orientation?). 26

the fact that little weight is given to regional water distribution goals is suggested by the range in population among municipal distributors from about 400 to more than 200,000. Water consumption data for recent years reveal similar ranges, several distributors handling as little as fifteen million cubic feet of water, while several others purchased in excess of one billion cubic feet. The sizes of the areas served and the miles of distribution mains reveal similar variations. As elaborated in Chapter III, organizational and administrative arrangements also vary considerably. Although there is no evidence to indicate how these variations in service conditions may affect quality or cost of distribution, it does not seem unreasonable to conclude that not all of the seventy some distributors represent "optimal" service arrangements. The second condition limiting realization of regional objectives arises from the dispersal of control over the rates paid by the ultimate consumers. Detroit has established one rate structure for consumers within its city limits and another set of rates for its wholesale customers. The distributors, in turn, determine their own "mark-up" on the Detroit wholesale rate, giving consideration to such factors as seem relevant to the local situation. The result is a varied pattern of rates to the ultimate consumer, a pattern which can hardly be considered regional except in a very loose sense. Whether the pattern is justifiable, sound, and equitable is very difficult to determine. Within its city limits, Detroit gives dominant weight to two factors: (a) the size of the service connection (from 5/8 inch to 48 inches); and (b) the quantity of water used in a billing period. The wholesale rate to suburban distributors takes into account the character of demand, elevation, distance, and special contractual relations such as whether the distributor has been part of the planned Wayne County system or whether a water authority is involved in the transactions. 19 Retail rates of the distributors vary considerably, the "mark-up" ranging from 335 to 281%.20 Some of the distributors seek to derive "profit" from water sales which is then used for other governmental purposes. There is no State control of either wholesale or retail water rates in Michigan, and accounting and other management practices are not standardized, so that effective comparisons are difficult.21 18. DMWS appears to be encouraging smaller jurisdictions now entering the system to form water authorities. But in the absence of supervision, especially of rates, this seems to be only a partial solution. 19. See Chapter VI for a detailed description of the rate situation. 20. See Chapter VI. 21. The data on "mark-up" has been calculated on an aggregate basis and may understate the situation. 27

One result of this fragmentation is that consumers located on opposite sides of a political boundary, using the same quantities of water and having similar demand characteristics, may pay charges varying by more than 200%. As comments from some municipal distributors indicate, such rate variations are not completely neutral factors in determining opportunities for and patterns of economic development within the region. Having succeeded in regionalizing production and transmission functions and establishing arrangements to capture economies of scale with respect thereto, DMWS has had no effective leverage over how distribution might best be organized.22 Undoubtedly, the highly fragmented distribution structure has strengthened local governments. And, as indicated, sewerage treatment is being handled in a similar way.23 One would like to conclude that these arrangements, which reinforce local autonomy-and seem in some cases to absorb such savings as may result from economies of scale in production and transmission-are justified by the benefits which result to democratic grass roots institutions. But unfortunately, evidence on this is not available. Water distribution, in contrast to school systems, for example, is a service activity not deeply or fundamentally related to democratic processes, once basic policies have been established. In many cases, in fact, water distribution is quite isolated from governmental decisions generally. One cannot fail to compare integrated operations in other utilities in the region and wonder whether the fragmented political decisions with respect to regional water distribution may not have slighted important value questions concerning how technological benefits (economies of scale) should most equitably be distributed. The equitable issue aside, it is clear that the separation of functions has brought intergovernmental politics and administration to the fore in DMWS. It has, potentially at least, made the agency vulnerable to a variety of pressures from distributors (as illustrated in recent threats of State rate control), and the likelihood of DMWS being blamed, as frequently occurs, for high rates, poor service, and other deficiencies in distributors' operations. The opportunity for local political leaders to manipulate consumer/citizen attitudes is evidence of the importance of intergovernmental relations, not only in contract negotiations, but in day-to-day operations. 22. It is noteworthy that the Tennessee Valley Authority followed a similar pattern, leaving distribution to local governments, but exercising control over resale rates, accounting, etc. 23. A somewhat similar plan, not involving DMWS, has been proposed for solid waste handling in the metro region. 28

CHAPTER III DIVERSITY IN FRAGMENTATION: THE MANY GOVERNMENTS DISTRIBUTING DETROIT WATER-PART I In previous chapters the fact that DMWS handles suburban distribution through contracts with some seventy local governments (townships, villages, cities, and authorities) has been noted. It has also been noted that, as a result, water produced by the Detroit Department of Water Supply (designated DMWS in its larger regional role) is distributed over an area of more than 500 square miles. It needs to be emphasized, however, that while Detroit controls water supply, sets wholesale rates, and approves certain design and operating standards, the local jurisdictions distributing Detroit water control the distribution phase of the activity without any supervision or direction either from DMWS or from the State. There is a body of Michigan constitutional, statutory, and judicial law that sets some bounds on the independence and autonomy of local governmental units. But most State law is permissive, declaratory of authority and powers for the local units. The most far-reaching grant of powers is established in the "Home Rule" provisions of the State Constitution and in the statutes and court interpretations of this power. Michigan was one of the pioneer Home Rule states, and for this reason, reinforced by strong political support for the doctrines of Home Rule, local governments continue to be exceptionally autonomous. One of the results of this situation is that, rather than looking at State statutes, court opinions, or administrative policies to determine how the local governments may be constrained, it is necessary to examine the individual charters (except in the case of the General Law, non-Home Rule townships) to determine how the water distribution function is handledo This chapter, therefore, deals first with municipal charter provisions relating to water supply, and then reviews the principal structural and decisional patterns of cities and villages with. respect to water, dividing the distributors into five categories according to population size. Because of their somewhat special characteristics, townships are examined separately. As this review of the administration of the water distribution function will reveal, the authority, structure, and administrative behavior of local governments in Michigan are extremely diverse. One finds a pluralism which makes meaningful aggregation and generalization almost impossible. Without belaboring the point, the difficulties are perhaps suggested by the fact that Redford Township, organized and governed under the general township 29

statutes of the State, has a 1968 estimated population of 75,000, being larger than most of the cities receiving water from Detroit. Several of the smaller cities, in fact, have populations of less than 1000. Redford Township is about as large as the City of Pontiac, and like Pontiac provides more services in greater depth than do smaller cities. Yet some smaller cities more resemble larger cities in services provision than they do other smaller cities. To date, Detroit has contracted with only one water distribution authority, the Southeastern Oakland County Water Authority (SEOCWA), but there seems to be some interest in using this organizational device for bringing groups of cities and/or townships together, particularly in the less densely settled sections of the metropolitan service region. In any case, SEOCWA represents a special situation we treat separately. While the needs and problems of each community differ, DMWS has, nevertheless, standardized its contractual relations to the greatest extent possible, and negotiations begin with the basic contract.1 Its rate policies, similarly, are standardized as will be indicated in a subsequent chapter. Municipal Charter Provisions Relating to Water Supply* The Constitution of the State of Michigan and certain State statutes provide the basic structure upon which local units of government are formed. The Constitution explicitly states that its provisions shall be liberally construed in favor of local units.2 The Constitution and Home Rule Acts give cities and villages the power to control and manage all municipal property and administrative affairs; to pass any ordinance to advance the interests of the municipality; and to pass laws and ordinances relating to municipal concerns.3 This philosophy of local control of municipal affairs helps expalin why Detroit has had little legal difficulty in negotiating water supply contracts with suburban communities, and in taking initiative to develop the regional water system without a specific statutory mandate. Different types of local governments have successfully negotiated with Detroit for water supply. As of January 1, 1969, there were forty-seven 1. See Appendix B for a copy of this standard contract. * This section is taken for the most part from a study by Eunice Burns, Institute of Public Policy Analysis, The University of Michigan, a research assistant to the principal investigators. 2. Article VII, Sec. 34, 1963 Constitution of Michigan. 3. Article VII, Sec. 21 and 22, 1963 Constitution of Michigan; Chapter 49, M.S.A.

Home Rule cities, three Home Rule villages, three General Law cities, fifteen townships, and a water authority. Additionally, several of these develop their own contracts with cities, villages, and townships to provide Detroit water; the Oakland County Department of Public Works also provides major functional operation for several townships and villages. The Constitution specifically states that any city or village may develop service facilities for supplying water. It also states that any city or village may sell and deliver water outside its boundaries in any amount that its legislative body determines.5 A new section in the 1963 Constitution, however, gives the State legislature the power by general law to authorize intergovernmental ventures. These ventures may include contractual agreements, joint administration of a function or power, sharing of costs, lending credit, or a transfer of functions or responsibilities to one another. There is nothing in the Constitution, however, on sales price, or water rates, or how to spend water revenue. State statutes permit any public corporation (defined as a county, township, city, village, school district, metropolitan district or port authority) to provide an adequate water supply, through its own efforts or in a joint effort, or by contracting with another unit.7 There is a limit of ten years on contracts by villages and fourth class cities.8 Home Rule cities and villages may sell and deliver water outside their corporate limits in amounts determined by the legislative body.9 Fourth class cities are restricted to 25o of the amount they sell within their boundaries. Rates may be set.ll Provision may be made for collection of rates and charges and, as security for such collection, the power to place a lien on private property is granted.12 The rates and charges must be sufficient to cover payment of expenses and should be fixed and revised so as to produce these amounts. Rates, appropriate to different types of buildings are to be set on or before the first Monday in June by fourth class cities. Villages, also, are to set their rates appropriate to different type buildings. 5 4. Article VII, Sec. 24, Constitution. 5. Article VII, Sec. 24, Constitution. 6. Article VII, Sec. 28, Constitution. 7. M.S.A., 5.2511; 5.2532; 5.4081. 8. M.S.A., 5.1894; Sec. 5.1419. 9. M.S.A., Sec. 5.2532 (4). 10. M.S.A., Sec. 5.1889. 11. M.S.A., Sec. 5.2515. 12. M.S.A., Sec. 5.253113. M.S.A., Sec. 5.2751. 14. M.S.Ao, Sec. 5.1889. 15. M.S.A., Sec. 5.1414.

For water delivered outside municipal limits, the price charged may be not less than, nor more than, double that paid by customers inside the corporate limits. However, the price charged may be more than double if the water is delivered to a city, village, or township outside the county limits or more than ten miles away. In any case, the price charged is to bear a reasonable relationship to the service rendered. But in the absence of enforcement machinery, litigation is the only practicable way reasonableness can be testedo Bonds may be issued to finance public improvements. Most often revenue bonds are used since these do not come under the limits on indebtedness of the municipality. Revenue from the service rendered by the improvement must, however, be sufficient to pay off the bonds.7 State law further provides for allocating and accounting for revenue. All revenue first goes into a receiving fund. From that, an operation and maintenance fund is set up, as well as a bond and interest fund. The law states that additional allocations may be made after these two requirements are adequately met.18 Any surplus may be transferred to other fund accounts and used for any purpose the governing body may determine to be for the best interests of the community.19 Cities and villages draw up their charters in accordance with the Constitution and State lawso Although long hours are spent in formulating each charter, and discussing each provision, their contents are very similar, so that there are few variations in the main provisions in the charters of the cities and villages which have contracted with Detroit for water supply. Detroit's charter specifically gives authorization to the Board of Water Commissioners to sell and deliver water outside the corporate limits, and the Board may extend its waterworks to provide the service. The Board has the same powers over equipment and supply outside the C ity as it does within, 2O and is empowered to fix the rates at which water will be soldo Charter provisions on fixing rates and charges range all the way from merely stating that the municipality shall be able to exercise all the powers which it has under the Constitution and State law, to a section in the City of Melvindale's charter which specifically states that the rates may not 16. M.S.A., Sec. 5.2581. 17. M.S.A., Sec. 5.27510 18. M.S.A,, Sec. 5.2752. 19o M.S.A., Sec. 5.2756. Many cities, including Detroit, restrict the use of water reenues to water purposes either by charter or ordinance 20. Detroit Charter, Title 4, Chap. 12, Sec. 17.

exceed certain percentages of actual costs. The percentages range from 125 to 1570 depending on the amount consumed, and can be changed only by the electorate.21 Other charters state that rates are to be based on building dimensions, value, fire hazards, number of occupants, and consumption. Most of the charters simply provide that the governing body shall set "just and reasonable" rates. A few call for "just and equitable" or "uniform" rates. Many provide that rates set shall at least meet all costs of service. The majority of charters proscribe free service or discrimination in providing service. Most authorize the governing body to provide for the collection of charges and to levy liens on property if bills are not paid. Some charters provide that the municipality may purchase water from another governmental unit. A few have a ten-year limit on all contracts, although the Cities of Roseville and Warren exempt contracts with a public utility or with one or more governmental units from such limitations. Authority to supply water outside corporate limits is contained in many charters. A few provide that no more than 25% of that supplied within may by supplied without the boundaries. Many permit higher rates for sales outside the city, limiting the increase to not more than double. Most of the municipal charters call for a. separate account for each publicly-owned utility, classified according to generally-accepted utility accounting practice. A few specify that water funds shall be separate, or that such funds be used only for the purpose collected. Flint's charter, for example, provides that water funds may not be commingled with other City funds and may not be used for any other purpose except for sanitary sewers after the water system expenses are taken care of. Roseville's council, on the other hand, may transfer any unencumbered balance from its water receipts into one or more public improvement funds. Receipts and funds in Warren must be used exclusively for defraying operating and capital expenses of the water system and may be used for no other purposes. Ordinances, passed by municipal governing bodies, spell out in more detail what is allowed under State law or municipal charter. Ordinances often establish water departments; prescribe rules and regulations for operation of the system and for improving, enlarging, and extending the system; fix rates and charges; provide for collection and specify penalties; provide for the sale, issuance, and retirement of revenue bonds; establish special funds; and establish guidelines for water use in time of emergency. Typical ordinances may contain one or more of the following: (1) Rules and regulations for establishing a water department, sometimes including responsibility for the sewer system. The ordinance may place the 21. City of Melvindale Charter.

water department under the direct control of the governing body or delegate responsibility to a board, the city or village manager, or to a superintendent. The ordinance usually specifies conditions and terms for connecting to the system, regulations about meters, and policies on general financing, rates, collections and penalties. (2) Provisions to improve or extend the system, including purchases of a, few feet of pipe for construction of a, pumping station and an elevated tank. Engineering bids are usually required by ordinance. (3) Approval of revenue bonds, listing amounts and maturity dates, in accordance with Act 94, Public Acts of Michigan, 1933, as amended, commonly known as the "Revenue Bond Act." (4) Covenants with bond holders that the system will be kept in good repair, and will not be leased or sold, that insurance will be kept, etc. Ordinances also provide for the keeping of books and annual audits. (5) Water rates and charges, provisions for collection, and penalties. Most municipalities have some kind of minimum monthly or quarterly service charge, sometimes called, as in the City of Belleville, a "ready-to-serve charge." The service charge or a monthly meter service charge are based on the size of the meter, and some systems add a debt service charge, which remains in effect until bonds are retired. Provision may be made for other charges, including connection charges for the privilege of tapping into city-owned water mains and capital charges payable at the time of application or when application for service is approved. (6) Ordinances may include provision for fund accounting, specifying a receiving fund, from which disbursements are made into other funds, such as the operation, and maintenance fund which must have a sum sufficient to provide for the next month's (or quarter's) expenses, including maintenance necessary to keep the system in good repair. The second fund is usually called "the bond and interest redemption fund," and is solely for the purpose of making the principal and interest payments on revenue bondso The minimum amount to be put into these funds may be spelled out in the ordinance, any amount left over then being available for replacing equipment, for improving the system, or for other purposes. (7) Water service contracts with Detroit, after being negotiated, are approved by resolution of the governing body of the municipality, taking into account local charter provisions or ordinanceso A comparison of charter provisions or cities and villages contracting with DMWS follows in Table III-1. 34

TABLE III-1 MUNICIPAL CHARTER PROVISIONS City or Village a x wZ X blc d elflg h J x k x 1 x m x n o x p x q r s x t u w Y ALLEN PARK BELLEVILLE x x x BERKELEY x x x BEVERLEY HILLS x x x x x BIRMINGHAM x x x X CENTERLINE x CLAWSON x xx x DEARBORN DEARBORN HEIGHTS x x x x x x x EAST DETROIT _ x x x X ECORSE x X_ _ FARMINGTON x xx x x FERNDALE x ___xx _ X X X_ FLINT _x __xx _xx FRASER x x Xx x x GARDEN CITY x_ GIBRALTER x I _x x X2xxx xx_ GROSSE POINTE PARK x x x x x x GROSSE POINTE SHORES x x GROSSE POINTE WOODS x X X X X HAMTRAMCK _x x x xi x xx HARPER WOODS x x X X X x x x HAZEL PARK Ix. I I I x x ~x X 35

TABLE III-1 (Continued) City or Village a b C d e x f g h j x k x 1 m x n o x p q lr[s lt u x w-y HUNTINGTON WOODS INKSTER xx 4 x x xx X KEEGO HARBORx X X X LATHRUP VILLAGE x x xx x x x x x LINCOLN PARK x LIVONIA x x x MADISON HEIGHTS x x xxxxxx x MELVINDALE x' x x xx MT. CLEMONS x x xxxx xx x NORTHVILLE x x XX X X NOVI x xxxx xx x OAK PARK x x xxxx xx x PLEASANT RIDGE x xxx x X X x PONTIAC x xxxx x RIVER ROUGE x x x x x RIVERVIEW x x xx x xx x ROSEVILLE** x X XX X X ROYAL OAK x xx x x ST. CLAIR SHORES x X x SOUTHFIELD x X x SOUTHGATE x x x x x x STERLING HEIGHTS x x xx x x TAYLOR x x x i X 53

TABLE III-1 (Continued) City or Village a x b c d e f x g h j x k x 1 x m x n 0 x p x qlr s x t ulw Y x TRENTON TROY x x xxxx xx x UTICA x x WARREN x x xxxx xx xx xi WAYNE x I x xxx xx x WESTLAND x I xx xx x WOODHAVEN x x x xx SOUTH ROCKWOOD x xxx x x CARLETON x x xx BINGHAM FARMS x FRANKLIN x KEY RATES a —just and reasonable b —just and equitable c —general powers under state law and constitution allowed d —governing body may establish or fix e —uniform f —at least meet costs of system g —based on consumption h —based on building, value, number of occupants, fire hazards, and consumption SERVICE j —shall be no discrimination in rates within any classification of users k —nor shall any free service be permitted 57

TABLE III-1 (Concluded) KEY (continued) COLLECTION 1 —council shall provide by ordinance for collection of rates m —security for collection shall be a lien on property n —no lien shall be placed on property OUTSIDE SERVICE o —may sell and deliver water outside corporate limits p —higher rates may be charged outside corporate limits q —may not exceed 25% of amount sold to customers inside limits r —outside rates may not be more than double MISCELLANEOUS s —transactions shall be kept in separate group of accounts under appropriate fund caption t —funds may not be used for other purposes u —may purchase water from another governmental unit w —may not enter into contracts over ten years y —may join with others to have furnished jointly or by one for others, anything city can do alone. xl —Melvindale has specific percentages, ranging from 157% of gross rate for first 1000 cu. ft. to 125% for 500,000-1 M cu. ft., written into its charter. Can only be changed by vote of electorate. x2 —Southgate's charter says there shall be no lien unless authorized and permitted by statute. ** —Roseville has section which authorizes council, at end of fiscal year, to transfer any unencumbered balance into one or more public improvement funds. These funds may only be used for purpose intended unless a majority vote of the electors decides otherwise.

Cities and Villages The preceding section of this chapter outlined Constitutional and statutory provisions governing the distributors and described some basic municipal charter provisions affecting water distribution. In this section actual practice of the municipalities in distributing water will be examined, based on interviews and questionnaires.22 As previously stated, the autonomy of the 22. Detroit water is distributed by 55 cities and villages (1967-68 data) and by 16 townships. Interviews and questionnaires were received from 51 of the cities and villages (townships are treated separately). The information schedule (questionnaire) used by the interviewers was open-ended in order to capture the diversity of the administrative situations among the many jurisdictions. But this fact makes aggregation and generalization somewhat more difficult. The information schedule was in two parts; one dealing with organizational, management, and administrative matters; the other dealing with financial and fiscal matterso The narrative of this section is developed from the first part of the information schedule. It should be noted that the decision to use an open-ended and "free-wheeling" type of information schedule was not made lightly, but was based on a thorough pre-test in about ten jurisdictions. This pre-test indicated that to seek the kind of uniform responses which could be processed statistically would have forced reality into dubious rigidity and would probably have given too much emphasis to the conceptual biases of the researchers and may have closed off meaningful responses from the respondentso Building confidence was an important part of this interview procedure. The problem of gathering meaningful information by means of structured questionnaires had been brought to our attention by a mail survey conducted by the Michigan Municipal League just as we began our project. While the information thus secured by the League is interesting, city-by-city, it also cannot be aggregated because of the liberties respondents took in replying. Hence our decision to interview and to permit flexible responses. The second part of the questionnaire was intended to gather data from each respondent on financial aspects of water supply. Several of the jurisdictions went to great length to provide us with the information we had requested, including small and large townships and cities. But in several townships and cities we met with an outright refusal to provide financial data: our graduate assistants were told, in such instances, that it "... was none of (our) business" to seek such financial data. In more than half the jurisdictions repeated visits and letter and telephone requests failed to generate sufficient interest to have the "Part II" questionnaires completed. In addition, there is reason to doubt the accuracy of many completed questionnaires; the data just does not "hold together." Nor, despite the cooperation of the State Municipal Finance Commission, was its information wholly useful since local reports are required only for general obligation bond-financed water systems. With apologies, then, to those who cooperated whole-heartedly, we must restrict our presentation of financial data to its administrative aspects since we hesitate to draw conclusions on the basis of a 20% usable return, or to project trends in financing, investment and proportion of municipal budgets devoted to water supply. 39

local governments in Michigan and the absence of controls or supervision of the distribution function either by the State or by DMWS makes generalization most difficult. In addition, some of the information secured by interviews and questionnaires was given in confidence, so that we cannot always identify the specific governments involved in a particular practice. To permit some generalizations, however, we have grouped the cities and villages by size: (1) Cities and Villages from 400 to 6,800 population; (2) Cities and Villages from 9,000 to 18,600 population; (3) Cities and Villages from 20,300 to 32,200 population; (4) Cities from 37,000 to 62,000 population; and (5) Cities from 80,700 to 1.95,000 population. The dividing lines for each category represent the population of the smallest and largest city in the group. Other groupings were considered, and certainly a number of other possibilities provide a tenable basis for classifying the cities and villages. Some of these alternatives were: gallons of water purchased; number of service connections within the jurisdiction; time period during which the jurisdiction had been contracting for Detroit water; administrative structure; location; level of industrial and commercial development; land use patterns; and, probably, a number of other factors might have been considered as providing a significant basis for grouping. In using population we make two assumptions: first, that cities of similar size are sufficiently similar to permit comparisons of administrative practices; and second, that the range of differences in other factors is probably not sufficiently wide to be significant to questions of managing and administering water distribution. Cities and villages (of which there are only three) are treated together, and townships (of which there are sixteen) are treated separately as a single group since township organization is relatively uniform,23 even though population among the townships ranges from 75,000 for Redford Township to 200 for Northville Township, with five being in the 10,000 to 25,000 range. As indicated in the previous section, however, basic governmental structure in cities and villages under Michigan Home Rule law is determined by local referenda.24 23. See Joseph A. Parisi, Jr., A MANUAL FOR TOWNSHIP OFFICIALS, Kalamazoo, Doubleday Bros. and Coo, 1963, for Constitutional and statutory provisions applicable to townships, as well as a description of standardized practices and traditions. 24. Home Rule was originally granted by the Michigan Constitution of 1909 and was carried into the 1965 Constitution in Sections 21 and 22 of Article VII. 40

All Michigan cities vest legislative authority in an elected body variously designated council, commission, or board of trustees. But executive and administrative structure is more varied, being determined by charter provisions. CITIES AND VILLAGES FROM 400 TO 6,800 POPULATION25 Administrative Practice Of the ten cities in this category, six are city manager (or village manager) cities.26 In one city so classified, the city manager serves more as an administrative assistant to the mayor; in effect, this city is controlled by a "collective manager," the manager, mayor, and city clerk. In two, executive or administrative responsibility is vested in a mayor or village president; both are of the "weak mayor" variety. In one of these small cities, reflecting local custom and pragmatic response to need, the city clerk assumes most executive responsibility. In another of this group, the Director of the Department of Public Works has assumed executive responsibility for public works functions including water; the mayor and city clerk retaining executive responsibility in other functional areas. In each of these small cities those with nominal authority appear to be key decision-makers with respect to water supply. One exception is Keego Harbor (1968 pop. est. 400), where all water supply functions, except billing, are handled by the Oakland County Department of Public Works (OCDPW).27 It is to be expected that, as in the small townships, the small city water departments-invariably under the control of a Department of Public Works or Public Service (in one instance, the Water Committee of the Council) —are small, one-to-three man departments. In three small cities which supply water to a single, large industry located in each (approximately half of their total water sold), the departments range in size from eight to ten employees. In eight of the cities general operating policies are established by the council. (We use the term council to mean either a city council or city commission, or village council.) In one (Keego Harbor) they have been established in the basic contract with DMWS which was approved by its council. In one, policies are established by the Supervisor of the Department of Public Works 25. The persons interviewed in these cities included: city or village manager, water superintendent, director of DPW, water commissioner, city clerk, treasurer, mayor, or village president. 26. Michigan has the second largest number of manager cities (about 100), ranking second in the nation, just after California. 27. Even recommendations for rates, for approval by the village council, and bill collections are made by the OCDPW. 41

to whom responsibility has been delegated by the charter (Utica). The recommendations upon which the several councils base general distribution policies come from a wide variety of sources. Three look to the city or village manager for recommendations. In two cities, the council may consult either DMWS or a city engineer, as well as the city manager. In others, the DPW Supervisor, the DMWS staff, the city treasurer, or city clerk, are identified as sources of basic recommendations. In neither of the two cities which reported having water commissions or boards did respondents suggest that the board or commission was a source of recommendations for general distribution policies, such boards seeming to perform more a "buffer" than administrative function. In four of the cities water supply administrative organization is determined by the city manager, in one, in conjunction with the DPW; in four it is established by council ordinance; in one it was established at the time of its contract with DMWS which suggested basic guidelines. In one small community of wealthy homes (Pleasant Ridge), basic organizational and administrative constraints are apparently provided by a performance budget utilized by the city manager. In identifying key water supply decision-makers within these small cities, respondents listed their councils in only five instances,28 generally in conjunction with the mayor or village president, city manager, water superintendent, DPW supervisor, and, in one instance each, the building inspector, city engineer, city clerk, or city treasurer.29 In one instance the city council was named as a key factor in rate determinationo One city listed DMWS, but not the council, with the Oakland County DPW making basic recommendations as to rates. DMWS was listed in addition to the council in another city. In other instances, the city manager, city treasurer, mayor, city or consultant engineer,30 or DPW were, not unexpectedly, named as influential in rate decisions. Only one of the two SEOCWA jurisdictions listed the authority as important in the setting of rates, membership in SEOCWA not appearing to be a significant constraint on local independence. Of the seven jurisdictions which. have raised rates recently, four report that the change was in response to DMWS initiative; three reported that the initiative came from the city managers in response to the general DMWS increase in November, 1967. In the remaining three jurisdictions, one maintains 28. In one case the council sits as the water commissiono 29. In the last three instances, each of the individuals named has significant executive responsibility in the city, either in water supply alone or in a combination of functionso As in the small townships, need and availability are key determinants in who acts in what executive capacity. 30. In small cities city engineers are invariably consultants rather than full-time employees, despite the differentiation in title. 42

51 the original rate established at the time of its initial DMWS contract in 1959J one joined the system early in 1967, and its initial rates were most probably set with the knowledge that a general DMWS increase was forthcoming. In the remaining small city the respondent, recently elected, had little knowledge of actions taken by former elected and appointed officials. Two of the small cities indicate that water main extension decisions are made solely by the council. In two others they are made by the council working with the city manager. In one it is the council and the city engineer. In one it is the council, a consulting engineer, and the Department of Public Works which consider decisions of water main policy. In one city, water main policy decisions are left to the city manager. In another, the DPW supervisor is charged with this responsibility by the city charter, working closely with a consultant engineer and the accountants retained by the city. In one city the council acts as an approval body for recommendations made by the Oakland County DPW. Finally, in one city all water main policy decisions are, in effect, made by a consulting engineer with pro forma approval by the city manager and council. In the remaining jurisdiction water main policy decisions are of a fundamentally different nature than those in the other small cities because the mains were laid and the system developed fifty years ago. The city has, unfortunately, made no provision for reserves for replacement and in 1969 introduced a depreciation schedule for the first time. Thus, in this community water main policy must deal with replacement, not with system development and engineering. In the jurisdiction in which the council, alone, makes water main extension decisions, system maintenance decisions are also made by the council. In only two others is the council concerned with this type of decision: in one approving policies established by the city manager,32 and in the other approving policies recommended by the Oakland County DPW. In one city the city manager and DPW supervisor plan for system maintenance. In three jurisdictions such decisions are made by the water superintendent. In the remaining two the DPW bears this responsibility. While most of the communities in this population category are limited in the potential to expand or further develop their geographic area for varied reasons, all are engaged in systems planning and engineering-including the two jurisdictions whose water systems are fully built up. In one city the manager and city engineer make such decisions; in another it is the manager and council (also responsible for maintenance decisions). In but one31. When the rates were set in 1959 they were set high enough to pay the costs of a construction and expansion bond issue in addition to operation and maintenance. A ready-to-serve charge insured the solvency and profitability of their operation. Today they have not found it necessary to increase rates. 52. The total staff of the city numbers eight employees, including the city manager. 43

jurisdiction the council assumes sole responsibility, but most probably upon the recommendation of the village manager. In six cities primary systems planning and engineering decisions are made by consulting engineers.33 In the remaining jurisdiction the Oakland County DPW provides basic system engineering and planning services for approval of the council, as it does in the case of main and maintenance decisionse In only two of the small cities is responsibility for water main policy, maintenance, and systems planning decisions clearly centralizedo Yet it can be assumed that in all these small cities, where the total number of city employees does not generally exceed ten, there is extensive informal coordination of these related kinds of decisions. Since all councils report some to extensive reliance on engineering firms for engineering and planning advice, it can also be assumed that there is substantial. coordinated expert, professional input into the making of decisionso In only two jurisdictions did respondents in key positions indicate that they had fewer than seven years' experience in water supply work. In those two each reported three years' experience. In the remaining eight jurisdictions the respondents indicated a minimum of seven to a maximum of twentyfive years' experience in various water management capacities from meter readers to superintendent, to experience in providing contracting services. While some of the reported experience may be of limited relevance, none of the respondents seemed unfamiliar with the kinds of problems most likely to arise in their small jurisdictions. In addition, respondents recognized that they can call on the business and engineering experience of the DMWS staff (three jurisdictions frequently do) when local difficulties arise. In three jurisdictions respondents asserted that they do not seek technical or planning advice from DMWS. Of the three, one is a member of SEOCWA, one is served by the Oakland County DPW, and the last has a completely developed water supply system and thus seems not to need such assistanceo The latter jurisdiction is also the only one which does not seek or use legal assistance in the water supply function. Each of the others utilize city attorneys or corporation counsels (all part-time consulting law firms) for purposes such as bond advice and assistance on rights of way. In three jurisdictions water supply decisions are not explicitly related to a planning process; in one of these the city water supply system is already fully in place (although in the other completed system in this category, water and general planning are tied together). 335 Of the five consulting engineering firms reported, one serves three cities and provides total systems engineering and planning services for two of these. Two other firms serve two jurisdictions; each of the firms provides total planning services for one of the two jurisdictions it serves. Each of the remaining two firms provides services to one of the cities.

Seven of the jurisdictions contract out all new construction. One uses contracts for ninety per cent of its major construction projects, with 10% being done through force account. In one jurisdiction there has not been, nor is there current planning for, new construction. In the final city new construction is done by developers with the approval of the county DPW. System maintenance, however, is a major responsibility in all except on small city and in the county DPW-served city. One city contracts out 20% of its maintenance, and one 10%. One other city contracts out 100% of its system maintenance work. Personnel and Finance Factors Only two of the ten small city jurisdictions have a merit system for city employees; none has a classified civil service. Four of the cities have unionized Departments of Public Works. One, with a highly qualified city manager, reported that "Stahl" personnel concepts were followed.34 In none of the jurisdictions has unionization had any reported substantial effect on the operation of the water supply systems. The small number of jurisdictions with merit systems and/or employee bargaining units is more likely a function of size of the jurisdictions than of unconcern. In each jurisdiction separate water budgets and water accounts are maintained. In six of the jurisdictions budget recommendations on water supply are made by the city or village manager. In one, the city clerk makes them. In another it is the mayor. In the remaining two responsibility is shared between the mayor, the DPW director, the Supervisor of DPW, a consulting engineer, and the city auditors. In six of the jurisdictions the water budget is kept separate from the general budget. In two jurisdictions it is part of the general budget. On two jurisdictions no information was provided. A State statute establishes general guidelines and procedures for letting of contracts by Michigan municipalitieso Yet there is considerable diversity among the small cities in bidding procedures. One community reported, for example, that there is "no real bidding procedure" conducted; a second reported its bid procedures to be very informal, selecting the low bid from the two or three generally submitted. Two jurisdictions reportedly select the low bidder, but, as with the first two, do not list any minimums over which contracts must be bid upon. One city reported that it "lets out" all its contract work to a local contractor. One community respondent preferred not to discuss the bidding procedures in his jurisdiction. Several, however, do report stringent contract letting policies. One, for example, insists on 34. 0. Glenn Stahl is a recognized expert practitioner, teacher, and author in the field of public personnel administration.

proof of insurance and bonding with submitted bids, and the council requires retention of 1% of the contract amount for one year to assure satisfactory performanceo In another city all contracts over $500 are bid on a competitive basis; where the contract will exceed $2,000 the city charter requires that a professional engineering be consulted. Finally, in one city, under its charter, the council selects from among sealed bids that bid which, in its judgment, will result in the best performance (not necessarily the lowest bid). In five of the cities the city or village manager controls purchases for the water department.35 In the other manager city purchases for water functions are made by the Oakland County DPW which acts as agent for water supply services for the city. In the city in which the city clerk acts as city executive, he controls all purchases. In one, the treasurer is also the purchasing agent and may make purchases up to $100 without approval of the council; in another, the Director of the Department of Public Services may purchase up to $500 without council approval; in a third, the water superintendent may make unapproved purchases up to $25. In only one manager city did the respondent report that the manager could make purchases up to $500 without council approval; none of the other respondents specified a limit, although a cursory follow-up indicates that some limits are set on purchases by city managers without council approval. Michigan communities are restricted to a maximum statutory limit of 6% payable interest on all public bond issues. Two communities reported that they failed to attract bids for recent issues for water supply system development, but in both instances they were successful on their second attempt.36 System Relationships All ten of the jurisdictions report having satisfactory relations with the Detroit Metropolitan Water Services.37 Eight of the jurisdictions reported that DMWS was responsive to the needs of local communities, one enthusiastically. One reported no problems and, therefore, no need to contact DMWS; the other reported little contact. Three of the jurisdictions rated the quality of DMWS service as "very good'?; the remaining seven characterized it as'"excellent." None of the jurisdictions reported any difficulty in contract negotiations with DMWS. All 55. As noted, in these small cities the water department is frequently the department of public works. 560 One other reported no bids for sewer bonds in 1969 either on the original issue or on reissue. 37. Choices of response were limited to satisfactory, unsatisfactory, and difficulto 46

reported their present contracts with DMWS as being reasonable-one with a minor disclaimer that the "hooker" in the contract was the requirement that they buy all their water from Detroit or none at all; another respondent expressed satisfaction with the relationship because the suburbs are represented on the Detroit Water Board. Only one jurisdiction reported that its contract contained special provisions to take its special problems into account, specifically a technical matter concerning equipment. Few of these small cities maintain other than standard relations38 in water supply with local or state governments and only infrequently with the federal government. Only two reported receipt of federal grants to help defer the costs of development of their water supply system.39 Only two of the communities supply a few customers outside their jurisdictions in nearby townships. A number reported "gentlemen's agreements" among several of the jurisdictions to assist each other in water supply emergencies. Only one city reported a conflict with another jurisdiction, i.e., after it had secured funding and the transmission mains to its boundaries had been completed, a contiguous township wanted to "take advantage" of the proximity of the transmission while refusing to assume any financial responsibility for the mains. Local Public Relations None of the small cities reported any commercial-industrial customer dissatisfaction with the quality of water or services being provided. In only one instance was there residential customer dissatisfaction reported where 517 of the residences are plagued by low pressure. Of those jurisdictions which have joined the DMWS system since 1955, two reported an increase in customer satisfaction over the hard-water services formerly provided through municipal wells. All communities reported satisfaction among their commercial-industrial customers over the rates they were charging. (One has a single commercial customer, a boat club; it serves no industrial customers). While all of 58. Standard relations would include those with the State Health Department for tests of water quality, with DMWS, with fire departments or other local jurisdictions, and with the State's Municipal Finance Commission. 39. One which received assistance under the Accelerated Works program for the development of its supply system credits a guaranteed water supply as the key factor in attracting an automobile stamping plant. The plant employs more than 3,000 workers in a community with a population of less than 2,000 residents. The recent location of this plant has given the community (Woodhaven) a tax base which has, in turn, resulted in the highest State Equalized Value per pupil ratio of any school district in Michigan. 47

these cities have very few commercial-industrial customers, the general favorable reaction to the rate structure is borne out in the larger jurisdictions, as reported below. In only two of the small cities was there reported dissatisfaction by residential customers with the rate structure. One gave no reason for the dissatisfaction; the other stated the cause for dissatisfaction as due to sewer charges which make-up two-thirds of the water bill. One respondent reported no dissatisfaction by customers, but expressed the view that the rates charged by Detroit were too high, primarily because they were imposed and not really negotiated. One other reported no dissatisfaction with the rate structure-but a deal of dissatisfaction with the size of water bills. In the latter instance the respondent suggested that the complaints are registered because of combined water and sewer rates, the latter the cause of dissatisfaction. Seven communities reported little negative customer reaction to the most recent rate increases. One, in which there was a substantial rise in rates, reported that "the blow was softened" since the increase came as a result of joining the DMWS system with water superior to that provided from municipal wells. The attitude of business and industrial leaders in these communities ranges from "indifferent" to "good" in reaction to water supply. In one small jurisdiction, a resort community, the business leaders have reacted very favorably since a guaranteed supply of water has resulted in a, sharp reduction in insurance premiums. In only two of the communities has water been a political issue. In one, the issue (in the 1963 municipal elections) was whether to join with the DMWS system. The anti-DMWS council and mayoral candidates were defeated. The pro-DMWS faction was aided when the State Health Department condemned the use of the highly polluted Clinton River which had been the source of its water supply. In the other city, water was the key issue in the incorporation election of 1964 after the township, of which it had formerly been a part, refused to provide water because of lack of adequate financing. After incorporation the system was constructed with the aid of a federal grant. Another political fight in the same community was then joined over the issues of poor management and nepotism in the water department.4 After a newly-elected mayor took his battle to control the water department to court, the court levied three mills special taxation to clear the indebtedness of the system, and affirmed the mayor's power in the strong mayor city. An advisory 40. The water department had been a virtual independent entity in the city structure. Today it is part of the DPW. Of the ten DPW employees, nine are in the water department. 48

committee, appointed shortly thereafter, will have its report ready for presentation soon. It was in this same city that the only report of dissatisfaction with water supply on the part of its political leaders was registered. In only four of these communities (one of the ten does not have a local paper) do the news media concern or interest themselves in water supply problems.*1 In two, the interest was problem-centered around issues of control or joining DMWS. In the other two cities the local media have taken positive positions on the issue of water supply, generally with regard to increased rates. Otherwise, the news media, as the communities they serve, evince little concern about or interest in water supply. CITIES AND VILLAGES FROM 9,000 to 18,600 POPULATION Organization and Administration Of the eleven cities in this population category on which information was received, nine are manager cities; the remaining two are strong mayor cities. In ten of the cities general distribution policies are established by the council. In one city such policies are established by the water superintendent. In this city (Ecorse) the city engineer is legal head of the water department under the provisions of the charter; but it was reported that the water commissioner, a political appointee, actually "runs" the water department. In turn, the commissioner has delegated most of his responsibility to the water superintendent. In one strong mayor city (River Rouge) the mayor works with the council in the development of general distribution policy. In each of the manager cities the managers have key responsibility for recommendations for such policy. In one city each, the city engineer (but not in the city where he is charged with responsibility), the DPW Supervisor, and the head of the accounting department are consulted by the city manager; in three others-only one is a manager city-the superintendent of the water department is also a source of recommendations. It should be noted here that in numbers of employees in water supply, the cities in this category are very similar to the cities in the first category. Several are two- to four-man departments, although three employ ten to fifteen. More than half deliver less than 90,000,000 cu ft yearly; only two serve heavy industrial loads. It is not surprising, therefore, where the superintendents or foremen are working rather than supervisory employees42 they are not significantly involved in establishing basic policy. 41. There has been much more active interest in the problems of sewage disposal and water pollution. 42. In more than one instance the supervisor was characterized as spending more than half his time in a manhole. This is generally true, too, in the smallest cities. 49

In only one city (Troy) is the administrative organization of the city dictated by its charter; in another (Farmington), the charter grants the city manager authority to establish organization. In three cities the administrative organization of the water and other departments has been determined by the councils by ordinance. In one city, the mayor and council share organizational responsibility; in two it is the council acting upon the recommendation of the city manager. But in one city (Ecorse) which delivers about 190 million cu ft of water yearly, control over organization of the water department is shared jointly by the mayor, council, city engineer, and water commissioner. In eight of the nine manager cities the manager was listed as a key decisionmaker in water supply matters, generally together with the DPW Supervisor, or the water supervisor or foreman. In one instance, the city engineer was involved and in another the accounting department. In four cities the councils were not listed as key decision-makers in water supply. In two cities it is probable that the council acts as an approving or legitimating body for the recommendations of the manager; in the other two the respondents discussed day-to-day operations and stated that the councils seldom interfere. In both strong mayor cities, the mayor was listed as a key decision-maker-in one in conjunction with the council and in the other along with the council, the city engineer, and the general foreman. In one instance the Detroit Metropolitan Water Service (DMWS) was listed, along with the city manager and the DPW Supervisor-apparently because of recent detailed contacts between the city (Farmington) and DMWS, particularly in connection with negotiating sessions on contracts rates. In response to a question about key people in rate decisions, this city did not list DMWS as being important although one other did. The latter city, a member of the Southeastern Oakland County Water Authority (SEOCWA) also listed the authority, the city council, and the city manager. In one manager city, the manager alone, according to the response, has responsibility for the setting of rates. In only one manager city was the manager not mentioned; there the response indicated only the council. In each of the other manager cities the manager was listed along with the council. In one strong mayor city, the mayor and council determine rate levels upon the recommendation of the water superintendent; in the other strong mayor city the council, but not the mayor, was indicated. In one instance each the city clerk, the accounting department, and DPW were mentioned along with the council and manager. Six city respondents reported that their most recent rate increases had been initiated in response to the increase in base rate by DMWS. Three other respondents reported the city manager as initiator; one listed the Department of Public Works; and the final city reported that it was the city manager together with the city treasurer who recommended the most recent rate increase. But it is clear, in checking the dates of recent rate increases, that each 50

45 city raised its rates in response to a DMWS increase. Some cities included other elements or costs in their increases: some councils, for example, increased rates to consumers by a percentage equal to that of the DMWS increase, and this resulted in higher dollar increases than if they had simply added the increment in the DMWS base. But only one respondent indicated that recent rate increases were based on any other justification than the DMWS increase. In two cities water main extension decisions are made by the councils. In a third, the council shares responsibility with the city manager and director of DPW, in a fourth with the water superintendent. In a fifth city the council shares the responsibility with the city engineer. In one city water main extension decisions are the responsibility of the DPW superintendent; in another he shares the decisional responsibility with the city manager. In one city the water superintendent and the city engineer share the decisions; and in another the city engineer has primary responsibility for mains decisions for which he sometimes consults with the DMWS staff. In the final city, with its system fully installed, only minor main decisions, generally of a maintenance nature, need to be considered. We should reemphasize that major decisions about main extensions, size, materials, etc., must be reviewed and approved by DMWS in accordance with its engineering standards. Even if DMWS is not consulted when such decisions are being taken, the standards set by DMWS provide important decisional parameters. System maintenance decisions involve the council alone in just one city (Beverly Hills-SEOCWA). In a second city, maintenance decisions, like main extension decisions, are made by the council, DPW, and the city manager. In three municipalities, systems maintenance decisions are made by the DPW supervisor; in three others they are made by the water superintendent. In one city, the decisions are shared by the DPW supervisor and the city engineer; in the final city, the city engineer is responsible for maintenance decisions. In one upper class residential city, which has almost reached the limits of its growth capacity, there is no systems planning and engineering done; its system is complete and is served by a three-man department. This same city (Grosse Pointe Park) reported only minor water main extension decisions. In a second city the council, DPW supervisor, city manager, and city engineer do systems planning and engineering; in two cities-manager cities-the councils, 45. In one city the council, faced with upcoming elections, refused to increase water rates in response to the DMWS increase. The water superintendent reported that the council was losing $9,000 per month in water revenues but that he expected a rate increase after the election; his prediction was borne out. Water bills in all cities have been increased at other timesbut due to increases in sewage billings, and not in response to water rate increases by DMWS. 51

but not the managers, are charged with this responsibility. In only one of the nine manager cities (Fraser) does the city manager alone bear primary responsibility for planning and engineering on the city water system. In all but one of the remaining cities the water superintendent, city engineer, or consultant engineer generally bear such responsibility. In the final city (Huntington Woods-SEOCWA) the responsibility is shared by the DPW supervisor and the accountants for the city. In no instance did any of the three SEOCWA cities list the authority as influential in main extension, maintenance, or planning decisions. In each of the cities in this population category there is at least one focal office-such as the council, city engineer, or DPW supervisor-where main, maintenance and engineer decisions are all considered, unlike the smallest cities. In more than half of the cities there are two or more such focal points. If there is anything unusual in the responses of the cities about key decision-makers in water main extension, maintenance, and planning and engineering for their distribution systems, it is the fact that only two of the nine manager cities reported involvement by the city or village manager in such decisions. Respondents in five of the nine manager cities were the managers themselves; in one additional city the recently retired manager was one of two respondents. In at least four of six instances, then, it was the manager who identified his own lack of involvement. A part of the explanation may be that in eight of the nine manager cities a department of public works or services within which the water supply function is located carries substantial responsibility. It does not seem unusual, where responsibility has been delegated or charged to a DPW or DPS supervisor, that such responsibility also includes the making of decisions vital to the functions performed by that department. In any event, such decisions normally pass through the manager for presentation to council for final approvals We assume, therefore,that although the responses do not indicate direct involvement on the part of most managers in this category of cities, the manager does exercise influence on the decisions made. Five of the eleven cities have just about attained their growth potential and there is little residential or industrial development since their areas are largely built up. Indeed, at least two of the five cities are losing population. In the other six jurisdictions, water mains in new developments or subdivisions are installed by the developers. In one city, standards for mains installation are negotiated by the city manager and the developer. In the remaining five cities, recommended DMWS standards or standards set by consulting or city engineers are applied. In all six instances there is full time inspection of water utility construction by a qualified representative of the city or through direct purchase of such services from the DMWS force account 52

Six of the cities use consulting engineering firms as a primary source of engineering and planning advice; three others depend upon their city engineers.44 In one of the remaining two cities, the city manager (an engineer) is the source of planning and engineering advice; in the second it is the Director of Public Services. Six of the cities seek technical and/or planning assistance from DMWS ranging in degree from frequently to occasionally.45 In eight of the eleven cities, water decisions are tied in with general planning decisions for the communities. In the three cities which responded negatively about the relationship between water and planning, all have completed or virtually completed water systems; two of the three are residential communities that have almost reached maximum development; the third is a community which has reached the limits of residential and industrial growth, being bounded on all sides by another incorporated city. Just little more than superficial knowledge of the cities involved gives one the realization that all those cities which do engage in planning activities to a lesser or greater degree are cities which have not yet reached growth limits or whose water systems have not yet been completed. Three of the cities reported that they have no necessity for legal services. No reasons were offered by them in explanation. In six of the jurisdictions the city attorney provides services for easements, rights of way, contract procedures, etc. In one city such legal services are provided by a consultant attorney, and in another by the corporation counsel. In the final city, the respondent stated that legal services are provided by the city engineer('). In two of the eleven jurisdictions (Grosse Pointe Park and Riverview), cities with limited growth potential, all new construction is handled completely by public employees, either by force account or through standing arrangements with the Department of Public Works or Services, the parent agency for the water department. In four of the jurisdictions, all with small water departments, new construction work is let for contract. In three cities only major construction is contracted out, generally from 15 O to 10% of total new construction. One city (Huntington Woods) reported that no new construction has been undertaken in ten or more years. In nine of the jurisdictions all maintenance work, major and minor, is conducted by public employees from either the water department or from other city agencies. However, Riverview, which handles all its new construction 44. In comparison to the responses about policy determination in systems planning and engineering, only five cities indicated the use of city or consulting engineerso 45. All three member cities of SEOCWA were among the five cities responding negatively to a DMWS assistance request query. 53

with public employees does contract out major maintenance, about 51 of total maintenance, on its system. In Beverly Hills, a one-man, one-truck department, all maintenance work, as all construction, is let for contract. (A member of SEOCWA, Beverly Hills pumps nearly seventy-four million cu ft of water annually.) Personnel and Finance Factors Three of the communities in this category of cities and villages do not have either merit or classified civil service systems for their water employees. One city has a, one-man water department; the other two are small (two-to-fourman) departments. Five of the cities do have merit systems; four have classified civil service systems for their water employees. Only three of the jurisdictions do not have unionized water departments; one is the one-man department and both others have three employees. The latter two cities do, however, haver merit systems. All eight cities which have unionized departments have recognized the American Federation of State, County, and Municipal Employees as the employee bargaining agents. In only two of the eight unionized departments did the respondents indicate any effect resulting from unionization: one indicated that unionization has been restrictive of administrative flexibility-that jobs today are assigned on the basis of seniority rather than ability. In the other, the only effect reported was that overtime agreements have now been formalized through negotiating procedures. Personnel interviewed during the survey reported a wide range of current and past experience in water supply activities. While most of the respondents indicated none to a few years' experience in water supply before their current responsibilities, several had up to twelve years' experience. It was unusual, in this category of cities, for respondents with a few years' current responsibility to have had little or no prior experience; indeed, short-term key water supply people generally had long prior experience, except in the case of political appointees. In eight of the cities the respondents reported from ten to twenty-three years of experience. Ten of the jurisdictions reported keeping a water budget and separate water accounts. In one of the ten (Huntington Woods) the water budget is included 46. One interesting note comes from a comparison of interviews with two individuals in one community, the mayor (of a manager city) and the superintendent of the water department. The water superintendent provided information on unionization and its effect in the water department; the mayor reported that the water department was not unionized. While we may only conjecture, it is not improbable that, in dealing with such a nonsensitive issue as water supply, the mayor's office is a far distance, especially with an intervening city manager, from the water department.

within the general budget but it is handled and totalled separately. In another city (River Rouge) the budget is separate but all profits from the water department are transferred to the general budget; this was the only city which did not report profits "staying in" the water department. However, one respondent did indicate that, because of the need to build a "bit of a cushion" in his budget for mandated secondary treatment of sanitary sewage, the water bills are slightly inflated; the inflated profits are transferred to the wastewater treatment fund. In five of the cities, basic budgetary recommendations for water supply are made by the city manager, generally after consultation with supervisory water personnel. In two of the cities basic budgetary recommendations are generated by the water superintendents; in another it is the responsibility of the Superintendent of DPW. In one city, the politically appointed water commissioner has assumed responsibility for making basic recommendations although, by the city charter, such responsibility is mandated to the city engineer. In another city, budgetary recommendations for mains extensions are made by the city engineer; all others are made through the Director of the Department of Public Works. In the final city (Riverview) it was reported that "...everyone who has anything to do with water supply helps to put the budget together." In only one instance was it reported that the water budget recommended by the city manager was always approved by the council. In each of the other cities it was reported that budget recommendations were usually approved unchanged by the council. As in the category of smallest cities, purchasing for the water department varies from city-to-city. The responsibility for water purchasing ranges from the water department head through the city manager, depending upon jurisdiction; one jurisdiction alone reporting central buying for all city departments through a city purchasing agent. (The degree of freedom for purchases agent.) The degree of freedom for purchases without council approval also varies considerably. In one city, it was reported that on specified items bids must be let for purchases as low as $30, although on other items the city manager may make purchases up to $1,000 without council approval. Contract procedures, too, exhibit the same variation although all contracts let must be advertised for bid. One city alone reported that no contracts are used for the water department; the same city does, however, seek bids on its purchases providing, in effect, contractual relationships. In no instance was it reported that the "best" rather than the low bid, after determination of the bidder's capabilities, could be selected by the councils. In one city, bonds have never been issued for the development of the water system; all development, apparently, was through the use of special 47. In this city all construction and maintenance work is done by public employees. 55

assessments in this wealthy community. Two other cities have no current bonded indebtedness; nor do they intend to issue any bonds in the foreseeable future. In the other seven municipalities which responded to the question concerning participants in the bonding process, the most frequently mentioned were the city manager, bond consultants, financial consultants, and the city council. In addition one council each listed the city attorney or the city engineering department.48 In seeking advice about prospective bond issues, all cities except one consult legal firms which specialize in municipal finance; the exception relies on its Municipal Advisory Council. Approval of bond issues is required, by law, by each council; each of the cities so responded. But only four of seven respondents listed the approval of the State Municipal Finance Commission as necessary, as required by State statute.49 One bond house was listed as serving four different communities in marketing their bonds through or by three major banks. In the other three instances local banks were named as the financial houses through which the issues were released. None of the communities reported that any recent water bond issues had been defeated. In one instance, however, the respondent reported that a 1962 sewer bond issue was defeated twice by the voters. Since that time the community has not attempted to float general obligation bonds which require voter approval. As noted above, one SEOCWA bond offering of $1,500,000, at 60 annual interest, failed to attract any bidders on its first issue in 1969. One city, not a SEOCWA member, failed to attract bidders on a September 1966 water issue although it was marketed successfully in December of the same year. System Relations In response to a question about their relations with the Detroit Metropolitan Water Services (DMWS) all respondents recorded their relationships as being satisfactory.50 In addition, eight communities reported that DMWS is 48. Of the bond counsels or attorneys named, one served five communities while a second served three of the same five; one additional firm named serves a single city not served by either of the multiple-city firms mentioned. In the single community which has never utilized the bond process for finance of its system, it has not been necessary to go outside the elected officers of the community for financial advice. The respondent for that city reported that the council "... is loaded with finance people; and the mayor is the retired president [of one of the major automobile manufacturers.]" 49. In one community the several respondents characterized the Municipal Finance Commission as a harrassing agency staffed by young nit-pickers who hinder rather than aid cities in the issue of needed bonds. 50. The choice of responses was limited to satisfactory, unsatisfactory, or difficult. 56

responsive to the needs of the communities it serves; the remaining three cities are SEOCWA members.51 In addition, seven of the cities, including one SEOCWA city, rate the quality of DMWS service as excellent. Two other cities rated the service as very good, including one SEOCWA city. And two cities, including one SEOCWA member, rated it as good. None of the cities described their contract negotiations with DMWS as difficult, although three cities are not totally satisfied with the rates they pay to Detroit for their water supplies. In one of the latter three cities the complaint was that the city, a heavy consumer, had to pay more for its water per unit than the small users within Detroit city limits; the complaint was about fairness, as he defined it, of rates, not about the per unit cost of water. All jurisdictions reported their present contracts with DMWS-or through SEOCWAas being reasonable although the same three respondents restated their complaints about rates. In addition to special provisions in SEOCWA member contracts, two communities reported that their contracts with DMWS contained special provisions in recognition of local problems. In one the contract provides for the community to use local wells if the DMWS supply is interrupted; in the other, the contract recognizes the right of the city to use its six municipal wells for part of its water supply, in addition to the DMWS supply. In the latter community the size of the DMWS service line is too small to provide water to all the residences and businesses within its limits. The water superintendent of one community served by Detroit for fifty years reported that his city has no formal contract with DMWS; nor does he believe that DMWS is aware of the fact. (He also stated that a second community, served for more than sixty years, does not, to the best of his knowledge, have a contract either.) Respondents in six cities reported that they maintain relatively constant contacts with DMWS in seeking varied kinds of assistance from its staff. One respondent reported that he seeks assistance on pressure maintenance; two others reported seeking operating assistance. One other city utilizes its contacts with DMWS as a primary source for financial assistance and advice. Another seeks operating, planning, and management assistance. The final citythe first city to contract with Detroit, in 1900-apparently carries on a long tradition of seeking assistance and advice from DMWS on the whole range of activities it performs in its distribution function. (A respondent in this latter community characterized the general manager of DMWS as "a great guy" and stated that DMWS "bends over backwards" to help.) 51. Two respondents in one SEOCWA city related, however, that several years ago the managers of the SEOCWA units decided to "get tough with Remus." (Mr. Remus is the general manager of DMWS.) When they met, he continued, Remus talked-and when he finished there were no questions. The manager of this SEOCWA unit, as well as one other, today characterize Mr. Remus as an excellent water manager and an outstanding man. Indeed, one manager would like to see SEOCWA go out of existence since he believes the authority is no longer necessary. 57

Outside of standard relations with the State Departments of Health and Highways, the Municipal Finance Commission, and other State agencies, and normal contacts with county health, road, and drain commissions and agencies, only four of the eleven cities recorded instances of intergovernmental cooperation or relations with other jurisdictions.52 Two contiguous cities have exchanged keys to equipment boxes so that needed equipment and supplies will be available in the event of emergencies. One city contracts its major repair work to a neighboring city. In the final city, purchases of water are made from the County DPW (for DMWS water) for that portion of the city recently annexed and served formerly by the DPW. Intergovernmental relations in water supply then seem to be restricted to contacts mandated by State statute or through formal contractual arrangements with DMWS and/or SEOCWA. The fragmentation in distribution, in a system in which production and transmission have been regionalized, remains unrelieved in this population category of cities through either formal or informal cooperative arrangements~ Local Public Relations In eight of the cities it was reported that commercial and industrial customers are generally satisfied with the water supply system serving them. Two of the communities have no industrial and few commercial customers. One other residential city reported no commercial or industrial customers on its system. Of those cities joining the DMWS system since 1955, all three reported prior dissatisfaction because of the taste and hardness of the water formerly supplied from municipal wellso All of the communities recorded their residential customers as being generally satisfied with the water supply system. One city respondent reported that commercial and industrial customers served by his system complained of the high rate structure in the city-yet, of all SEOCWA cities, its mark-up over the Detroit base is lowest among authority memberso (He also reported "a few grumbles" among residential customerso) But in another city in which the rates are higher than those of the SEOCWA city previously mentioned, it was reported that its rate structure was responsible for attracting industrial customers to locate there. One other jurisdiction reported some complaints from commercial and industrial customers-but complaints about tap-in charges, not about the rate structure. One respondent reported complaints about his city's rate structure from residential customers. The complaints come, apparently, from new residents 52. Only instances of cooperation were reported. No conflicts with other jurisdictions distributing DMWS water were noted by any of the responding communities. Relations with federal agencies, dealing with water supply, invariably are restricted to financing and grantso 58

in the city who had paid less in Detroit or other suburban Detroit cities. However, no jurisdiction reported any significant complaints or noticeable negative residential consumer reaction to recent rate increases. Nor did any community record any significant negative reactions to rate increases, specifically, or their water systems in general, on the part of business and industrial leaders in their communities. Three respondents reported that water supply is or was an issue in local city politics. In one community the council denied a rate increase to the water department in a municipal election year (with a resultant loss of $9,000 in monthly water revenues). In a second jurisdiction there is usually an advocate of lower water rates seeking a seat on the city council. And in the final city there are areas within its jurisdiction that are still without water; until the entire city is supplied through its distribution system, this will continue to be a sensitive political issue. Only five respondents reported that local news media have shown an interest in local water supply, usually restricted to reporting on rates. In the city in which the distribution system does not extend into all areas of the city, and which reported water supply as a politically sensitive issue, the local news media were reported to have no interest at all in water supply. Finally, despite the reported political sensitivity in three of the cities, none of the respondents indicated that the political leaders within their communities were other than satisfied with the conduct of the water supply function. Because the issues are so narrow in scope or in duration-for example, the denied increase in rates was granted after the election-and because water supply, except in crises times, has traditionally had a low profile, political leaders in the cities here do not really need to concern themselves. And the political leaders reflect the lack of concern in their constituencies. CITIES AND VILLAGES, 20,300 to 32,200 POPULATION Administrative Practice Nine responding cities fall into this population category. Seven are manager cities; one operates under a weak mayor form of government; and one is organized under a strong mayor form. Two of the manager cities are members of the Southeastern Oakland County Water Authority (SEOCWA). In eight of these cities, general water policy is established by the councils; in one of them, SEOCWA was also reported as sharing such responsibility.53 In the strong mayor city (Southgate), however, general policy is 53. But this would seem to be inconsistent with general information on SEOCWA; see Appendix H. 59

set by a water board, appointed and chaired by the mayor, on the basis of recommendations of the water superintendent. In two of the manager cities recommendations for policy are made by the manager alone; in three other manager cities the manager shares the responsibility for recommending general water policy with the city engineer and the finance director in one city, with the DPWS Supervisor in a second, and with the water superintendent in a third. In the weak mayor city (Hamtramck), policy recommendations come from the DPW Supervisor and the head of the water department. In one city the manager has delegated recommendations for basic policy to the head of the water department and the DPWS Supervisor; in another, to the water superintendent in conjunction with a consulting engineer. In the SEOCWA city of Birmingham, the water function is shared by four departments and coordinated by the city engineer; the fire department controls fire hydrants and maintains standby wells; finance is responsible for billing; DPW maintains and installs service connections; and engineering controls new construction and the water meter department. In the weak mayor city, the administrative organization of the water department is specified in the city charter. In the strong mayor city the superintendent of the water department has the responsibility for organizational decisions, while in four instances the city manager has this responsibility for organization, in two cases in conjunction with the council, and in two others along with the DPW Supervisor or water department head. In three manager cities, organizational structure is determined by the council upon the recommendation of the managero Respondents recognized the city councils as key decision-makers in water supply in only four of the nine jurisdictions, including both mayor-council cities. In both mayor-council cities the mayor was listed as a key decisionmaker along with the water superintendent; in the weak mayor city the DPW supervisor was also identified, while in the strong mayor city the city attorney was so listed. In one manager city the DPW Supervisor, but not the manager, was listed as the sole "key person" in operations. In another jurisdiction the city manager and head of DPW were identified as key decisionmakers; in another it was the DPW Supervisor and his crew chief who were so identified, but not the manager. Additionally, in manager cities, the city engineer was identified in two instances and the water superintendent in three. In two manager cities the finance director was also considered a key member for decisions affecting water supply. Unlike the two categories of smaller cities, none of the cities in this category identified DMWS as a key factor in the decisions on water rates, although in one city respondents reported that the last rate increase was stimulated by the DMWS wholesale rate increaseo The councils were named as key determinators of rates in eight of the jurisdictions-but only because rates and charges are set through city ordinanceso Not unexpectedly the city manager was listed as one key individual. in rate determination in each of the manager cities, as were the mayors in the mayor-council citieso In the one city which reported a water board, the board was also so designated. In three 6o

cases the DPW Supervisor was named as a participant and in three others each, the finance director or comptroller, and the water supervisor. With the exception of the councils, the same individuals were also generally named as having initiated the most recent increases in their respective cities. Five of the nine cities in this population category are either built up or have almost reached density limits. It is not surprising, therefore, to find the council solely responsible for water main decisions in a city which reached its limits of expansion more than fifteen years ago, since in fact few decisions remain to be made. In one area in which there are no subdivision developments, the city engineer has responsibility for water main decisionsand in two others in which growth is still taking place the city engineer bears sole responsibility. In only two cities is responsibility shared for water main decisions, in one by the water supervisor and the city engineer and in the other by a consulting engineer and the water supervisor. In the remaining three jurisdictions the council makes final main decisions based upon the recommendations of the city manager and DPW supervisor in one, the superintendent of water in the second, and the city manager in the last. Systems maintenance decisions are made by the councils in only two cities, in one upon the recommendation of the city manager, DPW Supervisor, and the water superintendent. In five of the cities it is the water superintendent or supervisor who is charged with such responsibility. In another it is the DPW director. In the last city, it is the city manager who makes such decisions based upon the recommendation of the DPW Supervisor. No respondent reported that either a city or consulting engineer takes part in systems maintenance decisions. But in five of the cities the city engineer does play a prominent role in systems planning and engineering decisions, in four instances sharing the responsibility with the water superintendent or DPW Supervisor. In a sixth city, the council makes such decisions for systems planning and engineering, based upon the recommendations of the city manager; in another city the DPW Supervisor and the city manager prepare recommendations for the consideration of the city council. In the final city, the water superintendent and the city manager work together in sharing systems planning and engineering decisions. In few of the communities do these three types of decisions-water mains, systems maintenance, and planning and engineering-seem to be considered in a comprehensive or holistic fashion; in only three instances was there reported a single office or position where these decisions are treated in a coordinated fashion. As reported by the jurisdictions, responsibility for water supply decisions appears to be highly fragmented in most cities in this category. In one of the cities (Hazel Park) which spent three years, from 1964 to 1967, modernizing its systems, the reported absence of a common decisional nexus seems most unusual. 61

Respondents from two cities reported that they use both their city engineer and a consulting engineer as the source of engineering and planning advice.54 Two reported the use of consulting engineers, while four rely primarily upon a city engineer. Of the four, two also seek planning and engineering aid from DMWS.55 Neither of the SEOCWA members listed the authority as a source of adviceo One SEOCWA city responded that it keeps no one on a regular basis for engineering or planning adviceo If the need arises, it may contract for such assistance. Legal services in eight of the cities are provided by a city attorney; in the other, such services are provided through a consulting attorney. Water decisions are tied in to general planning decisions in seven of the cities, including three cities that are nearly 100L built up.56 Two cities in which water planning and general planning are reportedly not related (Hamtramck and Harper Woods) are totally developed. In the four cities where subdivision development and other major industrial or residential development continues (five of the cities have reached the limits of growth), the developer is responsible for installing water mains in three jurisdictions, and "almost alwaysY responsible in one. In each instance where the developer does the installation there is full-time inspection of the installation by the DPW, the water department, or a consulting engineer. In one city, DMWS aids in such inspection. Standards for development must, of course, meet DMWS specifications, and in one specified instance, health department regulations. But it is not unusual for the cities, through relevant departments, to specify additional installation standards. In only two instances do cities in this category do most of their new construction through force account; both of them are almost 100% developed. Two others reported that public employees are used for 10% and 27o of new construction, respectivelyo One of these has a water and sewer department in which the number of employees fluctuates between three and seven according to need and assignment. The remainder contract out all new constructionO One city (Hazel Park) utilized its force account over a three-year period for modernizing its distribution system. With two minor exceptions, all the communities use public employees for maintenance of their systems; the exceptions contract out one to 0 of major maintenance, 54o One, Hazel Park, had a complete systems study done by a consulting firm upon which its systems modernization a short time later was based. 55. Of four consulting firms named, each serves a different city in this population category. 56. One of the cities, Grosse Pointe Woods, has, however, no planning department. 62

Personnel and Finance Factors Four of the cities have merit systems for their water employees; the other five have classified civil service systems. But in addition, eight of the cities are also unionized.57 Under recent Michigan law, municipalities are mandated to recognize, for bargaining purposes, the agents chosen by their employees. One city (Harper Woods), in which collective bargaining was begun on a voluntary basis in 1954, was one of the three responding that unionization has had no appreciable effect on the operation of the water departments. One city reported, not unexpectedly, that the unionization of the department has had an effect on wages, hiring, and grievance procedures. Another respondent indicated that the costs of operation have increased, especially labor costs. In one other jurisdiction a minor difficulty was overcome when overtime procedures and pay were included in the contract. In the final two cities unionization does seem to have created some difficulties in operation: in one the respondents reported "...all sorts of trouble with the union..." mainly, in their estimation, because the water foreman is the union president; in the other city, there has been difficulty in balancing union demands with the provisions of its classified civil service system. Among those interviewed, the DPW Superintendent of one SEOCWA city reported the shortest experience in water supply, one year-but his was the unusual case. Most interviewees in management positions reported from a minimum of six to more than twenty-five years' experience. Indeed, of the sixteen individuals responding in the nine cities only four had less than sixteen yearsv experience in various capacities in water supply.58 In one city (Ferndale) the water distribution superintendent has been with the department for nineteen years, and the Director of Engineering and Public Works for nearly twenty of his twenty-nine years of public service.59 While experience is no guarantor of ability, several of our interviewers were impressed with the recall of longtime employees about technical and other aspects of their systems. Each jurisdiction maintains a water budget and separate water accounts. Basic recommendations for water budgets, as in the smaller categories of cities, come from a wide range of individuals responsible for water supply, varying from city to city. While the water superintendent was named most frequently, the city manager, director of DPW, and finance director were also 57. The employees in seven jurisdictions are represented by American Federation of State, County, and Municipal Employees locals; those in the eighth are represented by the Brotherhood of Teamsters. 58. One long-time employee, a water superintendent, reported that the office to which he reports-Superintendent of Public Works, is filled by political appointees. There have been nine in twenty years, but five in the last three years with one removed from office after only three months. 59. The city has had only three city managers over the last thirty-five years. Two respondents characterized the city's employees, many of them longtimers in service, as one big happy family.

mentioned in two or more instanceso In one other case the city engineer was mentioned along with the finance director and city manager. In one unusual instance, the respondent indicated that basic budgetary recommendations made by the superintendent of public works (who is also the water superintendent) were not usually accepted by the city manager and council. In all other cases the respective councils most usually accepted the basic budgetary recommendations. In only one instance was it recorded that the water budget was not separate from or unrelated to the general budget of the jurisdiction. In that city (Harper Woods) the costs of the water system are taken from the general fund. The general fund is then reimbursed from water revenues-which usually includes total water revenues. All profits from the water department are, therefore, transferred to the general fund. In one other city, although the water budget is separate from the general budget, approximately $56,000 worth of general city employee salaries-all non-water people-are charged to the water departmento As in the categories of smaller cities, a, variety of contract procedures was recorded. All. items let for contract must be put out for bids, in three jurisdictions for contracts of $500 or more, and in one for contracts of $1,000 or more. Six of the jurisdictions require specifications on the items let for bid to be prepared by a city or consultant engineer. Not all respondents indicated who prepares specifications nor the amount at which contracts must be let for bid. But in each instance the lowest bid must be selected for contract; none of the cities has a charter provision or ordinance-as in one smaller citywhich allows the council to select the "most promising" rather than the lowest bidder. In only one of the seven manager cities does the manager not play a direct role in water department purchasing. In that jurisdiction the finance director and water superintendent, jointly, control purchasing and are allowed to make purchases up to $1,500 without council approval. In four other manager cities the city manager generally makes purchases jointly with either the comptroller or water superintendent. In one manager city all purchases are made by the manager; in another all purchases are made by requisition which must be signed by the city manager. In the weak mayor city, water department purchases are controlled by the water superintendent and the supervisor of public works. In the strong mayor city the water superintendent, who is also the superintendent of public works, controls water department purchasingo 60. It might be noted that in this city water rates are lower today than they were in 1929. All its bonded indebtedness was paid off nearly ten years ago. It was reported, however, that the city council, "hit" the water fund for $115,000 in the 1961 and 1962 budgets which was never repaido The water service director was successful in having the item removed after 1962o 64

Relationships Among the Systems All of the jurisdictions reported that their relationships with DMWS are satisfactory.1 All jurisdictions also reported that DMWS is responsive to the needs of local communities, two responding enthusiastically. Four of the cities reported the quality of DMWS service as being "very good ") five characterized it as "excellent."6 Each city except one reported that its present contract with DMWS was reasonable, although one reported that it felt the DMWS base rate was a little high. In the other city, we assume, on the basis of preferred responses, that the contract is not considered unreasonable. One respondent reported that his city's contract with DMWS contained special provisions to meet local needs; DMWS changed, to a minor extent, the specifications of pipe from its general standards for that local community. No other cities reported any special provisions. Five of the jurisdictions reported receiving special assistance from DMWS. One seeks planning assistance; one other, under contract since 1902, frequently receives planning and operating assistance. Three other jurisdictions get assistance in the purchase of new products, in the repair of large meters, and for water main tests and the production of plat maps, respectively. In making their contacts with DMWS, most respondents specified that they deal through Mr. Leonard Petrokowski, Senior Associate Civil Engineer, whether the municipal contactor was the city manager, water superintendent, city engineer, or director of public works. In several instances the respondents volunteered that they preferred to work through Mr. Petrokowski because results through him were invariably better than through some other DMWS officer. 6 There were few reported instances of either intergovernmental relations or conflicts in this category of cities. Other than standard relations with the State Department of Highways, the State Municipal Finance Commission, and like agencies, intergovernmental relations generally result from one municipality providing water services to consumers living in other municipalities just across its borders. 61. Responses were limited to satisfactory, unsatisfactory, and difficult. One respondent replied that their relations with DMWS "...are beautiful-but we don't talk to them." Although one city reported a low-pressure problem, it, too, deemed relations satisfactory and the quality of DMWS service excellent. 62. One SEOCWA city responded "very good," the other "excellent." The water authority (SEOCWA) acts as intermediary between these cities and DMWS. 63. Mr. Petrokowski, as a point of contact within DMWS for the solution of municipal problems, was mentioned most frequently by name by respondents in all categories of cities. Most refer to him as "the Suburban Engineer." Mr. Remus, the General Manager, was second-most named. 65

Only three of the nine cities reported having issued bonds for their systems in the last fifteen years.64 In the one mayor city responding, the mayor, council, and city attorney were named as the major participants in the bonding process; major advice on bond issue was sought from the State Municipal Finance Commission. The bonds were let through a local banking institution. In the other two cities, the manager, council, city attorney, and in one instance the city financial director, were listed as primary participants. The primary sources of advice in these two cities were, however, a firm of bonding attorneys in one, and the city manager and water superintendent in the second. The bond issues in one were let through a firm of financial consultants, and for the second through a large Detroit bank. The latter two institutions were also named by several cities in other city categories. Local Public Relations Eight of the nine jurisdictions reported that their commercial and industrial customers (one city has no industrial customers, and only'o of its load is commercial) as well as residential customers are generally satisfied with the quality of water services. In the City of Grosse Pointe Woods general satisfaction was reported despite the fact that about 8% of its residential service is below standard because of too-small lines and dead ends in the system. Harper Woods, too, reported general satisfaction with service although its respondents reported that many residents felt that rates were too higho The City of Wayne reported current satisfaction; in 1966 they "lost" a factory because of low pressure and before they installed pressure pumping on their system. In the one city in which it was reported that commercial and industrial and residential customers were not generally satisfied with water supply services, there were several reasons expressed by the respondent. Commercial and industrial customers in Hamtramck express dissatisfaction with the rate structure because residential rates do not, they feel, pay a fair share of system costs. It was reported, too, that residential customers are dissatisfied with the rate structure-although no reason was giveno Hamtramck also reported real complaints by customers because of muddy water caused when the recreation department opened city fire hydrants without consulting the water department. In this city there has also been a. high turnover in the position of Superintendent of Public Works to which the water department is responsibleo It was reported that, because of "politics" (which was not defined by the respondent), water rates are too low generally and the water superintendent's recommendations for rate levels during the city's last increase were ignored. 64. Two other cities are members of SEOCWA which has had recent issues. But neither of these cities report any bonds outstanding now for their municipal distribution systems 66

No other city reported either commercial, industrial or residential dissatisfaction with rate structures although the City of Southgate did report that it expected some complaints from nonresidential customers after their most recent rate increase goes into effect. As in the categories of smaller cities, what customer complaints are registered are against total water bills, which include sewage charges, and not about local rate structures or basic unit costs of water. Indeed, none of the cities reported any serious customer reaction to their last rate increases. Nor, with the exception of the muddy water problem in Hamtramck, did any city report any serious public relations problems with its customers. Five cities' respondents indicated there was little or no reaction to water supply registered by the business and industrial leaders of their communities. One city, Ferndale, which is approximately 65o industrial, reported "very good" attitudes on the part of such interests. Grosse Pointe Woods, which has no industry and very few commercial establishments, reported generally good attitudes on the part of the entire community since an assured supply of water for fire protection has resulted in good insurance rates. In Harper Woods the attitudes of business and industrial leaders was of general unconcern except for managers of one small factory and developers of a major shopping center where complaints were registered that the city did not pay total costs of water main construction to their establishments. In only one city, apparently, has water been an issue in municipal politics, in Hamtramck which was discussed above. In Hamtramck, it was reported, municipal politicians "...shudder when water is mentioned." All other cities reported that the political leaders in their jurisdictions express satisfaction with the provision of water supply services. Local news media report on water supply, in these cities, generally through the occasional publication of a comparison of water rates with those of nearby municipalities, or when specific water supply problems arise. Much more attention is given by the media to problems of sewage and drainage. Water supply is not, apparently, a very reportable issue. 67

CHAPTER IV DIVERSITY IN FRAGMENTATION: THE MANY GOVERNMENTS DISTRIBUTING DETROIT WATER-PART II Cities and Townships CITIES FROM 37,000 TO 62,000 POPULATION Administrative Practice Of the twelve cities responding in this category, seven are manager cities, three have strong mayor forms, and two are weak mayor cities. Water (or water and sewer) departments in this category are mostly separate departments reporting directly to the mayor or city manager, but two are headed by water commissioners and two are subdivisions of public service departments. In ten of these cities the councils were reported to establish general water policies, sharing responsibility in both weak mayor cities with the mayor who sits as a member of council. However, there was a wide variety of individuals named as involved in making the recommendations upon which the councils base such policy. In three manager cities, the manager and water superintendent; the manager, water superintendent, auditors and bookkeepers; and the manager and. DMW supervisor, were listed respectively. In two strong mayor cities the mayors were listed, in one with the water superintendent, and in the second with the water superintendent and clerk-treasurer.2 In eight of the ten cities in which the councils set general distribution policy, the water superintendent was named as a key source of recommendations.5 In one city the controller and 1. The city manager of East Detroit sits as a member of the Detroit Water Board. Until its recent mandated reorganization, he was also a member of the Finance Committee of the Wayne County Board of Supervisors. 2. In the latter jurisdiction (Garden City), the clerk-treasurer appears to have assumed many executive responsibilities through his control of city finances, despite the presence of a full-time mayor. In water supply the clerk-treasurer's office is responsible for billing and collection; the clerktreasurer is also responsible for the preparation and presentation of the water department budget. 3. In one of these, Lincoln Park, the city controller acts as water superintendent and water office supervisor. 68

in another the city engineer were also named. In only one of the seven manager cities (Inkster) was the manager reported as having major responsibility to establish general distribution policies, usually upon the recommendation of the water superintendent; this city manager heads the water department. In one other city (Roseville), according to the city charter general distribution policy is determined by a four-man water board, appointed by the mayor. But, it was reported, the board does not play a policymaking role, policy in effect being set by the city mananger on the basis of recommendations from the water superintendent and city comptroller. In five of these cities the administrative organization of the water department is specified by the council through city ordinances; in two it is determined by the city manager. In three cities administrative organization is established by the water superintendent (and in one of these the controller is acting water superintendent). In the City of Taylor, the (strong) mayor determines the organization. And in the strong mayor jurisdiction of Garden City the organization of the water department is reported to be established "mainly on precedent. " While all city managers were recorded as being key decision-makers for the provision of water supply, the councils were so recorded in only half the cities. Most frequently mentioned as key decision-makers were the water superintendents; in Allen Park the water department head was reported as being the individual most important to the operation of the department.4 Others mentioned in several instances were the city engineer, the city comptroller, city clerk, general foreman, water office manager, city auditor, superintendent of public works. One of the two weak mayors and two of the three strong mayors were also reported to play key roles in water supply decisions. The councils were listed as key decision-makers in rate determination in ten of the cities, usually acting upon the recommendation of city managers, water superintendents, finance directors, city treasurers or city attorneys. In Lincoln Park, a weak mayor city, the mayor establishes water rates upon the recommendations of the water superintendent. In the strong mayor City of Taylor, water rates are set by a water commission appointed by the mayor. In five instances it was reported that the last rate increases were stimulated by DMWS. In two cities the water superintendent was recorded as initiating rate changes; in one instance each the city auditors, DPW superintendent, city manager, and finance director were indicated. In one city (Taylor, which recently changed its governing organization from township to city form) 4. The head of the water department is a full-time salaried city employee who has had no title nor formal position in the fifteen years she has worked in the department. Allen Park's charter requires that a water commissioner be appointed but the office has been vacant for a period of years. 69

the last rate increase was initiated in 1956 by the former township board.5 In all except one city, responses indicate that their most recent rate increases were in direct response to DWS wholesale rate increases. One other city respondent indicated that its rate increase also was intended to provide the city with a capital fund for the improvement of its delivery system. In seven of the responding cities the councils make water main extension decisions, usually on the basis of recommendations by the water supervisor or city engineer; in Garden City; however, it was reported that all city departments are consulted by the council before main extension decisions are made. In Oak Park, which is almost totally built up, the council alone makes main extension decisions, it was reported. In three cities such decisions were recorded as being made by the city manager, the city engineer, and the water commission, respectively. In the final city such decisions are shared by the water superintendent and city engineer. East Detroit was the only city which reported that its council makes final decisions about system maintenance, based upon the recommendations of the city manager and water superintendent. Eight of the cities reported that system maintenance decisions are within the purview of the superintendent of the water department. In the remaining three cities, maintenance decisions are made by the water commission, city manager, and department of public, works respectively. While city or consulting engineers were not mentioned as having any responsibility for system maintenance decisions, in half of the cities they have been delegated primary responsibility for system planning and engineering; in two others they share such decisions with the water superintendent, and in one of these two with the council. In one other the water superintendent and a consultant make the recommendations upon which planning and engineering decisions by the council are based. In one jurisdiction such decisions by the council come from recommendations by the city manager and water superintendent. In the last two cities systems planning and engineering are done by the city manager and water commission, respectively. Like the three categories of smaller cities, few of the responding cities in this category reported one or more offices or positions where main extension, maintenance, and planning and engineering decisions can be related without the necessity of establishing coordinative-and perhaps cumbersome-mechanisms. In Roseville and Southfield the water superintendent has responsibility for all 5. In 1956 the Township Board set water rates sufficiently high to pay off the Township's water bonds and to provide a surplus large enough to build a new city hall. But the rates set in 1956 are not high enough to meet 1969 costs. At the time of interview the city was in the process of determining new rates. 70

three types of decisions; in East Detroit the council, manager, and water superintendent share responsibility; and in Taylor the water commission makes such key decisions. Although only six cities indicated that city or consulting engineers do their system planning and engineering work, eleven of the cities reported consulting or city engineers as their primary source of engineering and planning advice. In addition, four cities reported other primary sources as DMWS (two cities), the county planning commission, and the city planning department,7 respectively. One city (Westland) reported that DWS standards are used as a major source of planning and engineering criteria, but that neither engineering nor planning assistance is sought from DJIS. A total of five cities did report, however, seeking and receiving assistance on engineering and planning matters from DIVS. In ten of the cities the respondents indicated that property developers install water mains in subdivision development.8 Personal and Finance Factors Two of the cities in this category were reported to have a merit system plan for water employees. Seven of the cities reported to have classified civil 6. One respondent reported in general conversation that the Taylor Water Commission does not in reality make policy; it makes recommendations for policy to the council. The commission, he continued, really serves more as a buffer for the mayor for politically touchy issues. He did not define what such issues were. 7. An investigation by two research assistants on the role of planning departments in water supply in Southeast Michigan indicated few functional relationships between city and/or county planning departments and water departments. The extensive contact between DIWS and the Detroit Planning Department is notable among the few exceptions. Several regional water supply and wastewater plans have been developed, however, as indicated elsewhere in this report. But the recent Transportation and Land Use Survey (TALUS), potentially a broad source of planning material, paid scant attention to water supply planning and treated wastewater planning in cavalier fashion. All twelve cities reported, however, that water planning and general city planning are tied together; few explained the tie-in mechanism (generally a master plan with specified capital improvements), however. 8. In Oak Park, which is almost completely developed, the council is required to approve the contractor doing such work. The contractor is also required to place a proportion of installation costs into an escrow accouWnt to guarantee the quality of installation. Although we do not have extensive data on this practice, it is not an unusual practice in Michigan municipalities. 71

service systems. Two of the cities have both classified civil service and merit systems for their water employees. One city (Garden City) reported having neither a merit nor a classified service system. Each of the jurisdictions reported that its water department, at least as far as hourly employees are concerned, is unionized.9 In one jurisdiction (Allen Park) the respondents indicated that unionization has improved performance in the water department. In seven of the cities the respondents indicated that unionization has had from no effect to little effect on the operation of the respective departments. But in four cities the respondents reported that unionization has resulted in higher labor costs-with, stated a respondent in one, a decrease in productivity. Of fourteen respondents in the twelve cities with major responsibility for water supply, the shortest period of water supply experience reported was six years; two others reported fewer than ten years' experience, but five recorded twenty or more years in municipal water supply. In seven of these cities 99% to 100% of new construction is let for contract; three other cities let out 70% to 90% of new construction. Only one city, Lincoln Park, was reported to use water department employees for all new construction. In Oak Park it was reported that water department employees are responsible for all service connections, but the construction of mains is let for contract. Three jurisdictions reported that more than 10% of maintenance work is contracted out, recording 25%, 500, and 60%, respectively.10 While one additional jurisdiction reported that 10% of its maintenance is contracted out, each of the others reported that all to nearly all maintenance is done by public employees. Respondents in eleven of the cities reported that, where contracts are let for bid, sealed bidding procedures on the basis of engineering specifications are used. In one city it was reported that all items for each job performed must be let for bid-but in the city which does not use a bidding procedure, the city has contracted with a small water and sewer construction firm, especially for major maintenance items. While the two latter cities represent the limits of the range in contract procedures in this category (i.e., from no bidding to bidding all items) several of the jurisdictions reported that bids are let generally for anything over $500 (in one city $750), although one city respondent reported that bids are required only on contracts of $5,000 or more. Purchasing procedures in these cities are as diversified as the general bidding procedures. In three cities all purchasing is done through a central 9. The Teamsters has organizedthe employees in one city; in each of the others the employees are represented by AFSCME. 10. In the latter jurisdiction, Southfield, all service installation and heavy maintenance is done by contract. 72

city purchasing agent, in others by the city manager, while some delegate purchasing responsibility to the water department superintendent with approval of the city manager or finance director usually being required. In one jurisdiction the superintendent of water can make purchases up to $500; any purchases above that amount are made reportedly by the council. The limits for purchases without council approval range from $500 in most jurisdictions to $5,000 in one city. All of the cities maintain separate water budgets and separate water accounts. Respondents in ten of the cities reported that their water budgets are separate and independent from the general city budgets; one other indicated that while his budget was separate, some funds for administrative salaries and space are transferred to the general budget. One jurisdiction (Sterling Heights) reported that although the water budget is included in the general city budget it is totalled and handled separately. In all these cities water profits apparently remain in the water departments. Basic recommendations for water budgets in these cities come from a broad variety of sources. The water superintendent, with five mentions, was indicated most frequently-in one case along with the city manager and in another with the city auditors. In other jurisdictions the city manager, city controller (in two cities), city clerk, superintendent of public works, and the mayor, respectively, were named. Two cities, Allen Park and Garden City, have no current outstanding bonded indebtedness on their water systems; one other, Westland, has had no issues since it changed its municipal status from township to city in 1966.11 In each of eight other cities where recent bond issues were reported there was a wide variety of individuals and offices listed as participating in the bonding process. Most frequently named in the cities were bonding attorneys or counsels, most infrequently named were those directly involved in the provision of water supply. Councils, clerks, city managers, controllers, and treasurers were all named in two-to-four instances. In one jurisdiction the informant listed that the people and the state Municipal Finance Commission as "formal participants"; 11. The city is still responsible, of course, for full faith and credit water bonds issued through Wayne County for the former Nankin Township. 12. In six instances where a specific firm was named, one firm was named as serving five cities. This same firm was named by about one-third of the cities and townships responding in the survey. Since our questionnaire did not ask specifically for the name of such firms, it is entirely possible that these attorneys (Miller, Canfield, Paddock, and Stone) serve a higher proportion of the jurisdictions. We made no attempt to measure the impact of such a firm on decision-making involving municipal finances but it is obviously substantial. 73

the city manager and council were identified as "informal participants' in the bonding process. As primary sources of advice on water bond issues, bond attorneys or counsels were again most frequently mentioned-in all but two cases. In one city the controller was mentioned; in fact, according to the city charter he is the key person to all bond issues in Lincoln Parko In one other city (Oak Park) the water superintendent and. Director of Public Works were indicated as those whose advice was sought on water issues. The approval of the State Municipal Finance Commission must be obtained for any municipal issue. But the MFC was mentioned in only five cities. 13 In each other case the approval of the mayor and council or the council and manager were noted. In three instances one legal firm of consultants was named as the financial house through which their most recent issues were let. In five cases, where specific names were mentioned, five separate banks or firms were named. In only one instance was it reported that a recent water bond issue had failed to attract bids. The City of Southfield (Aa rated) did not have any bidders on a $lo5 million, 6% issue in June of 1969.14 System Relationships The respondents in eleven of the cities reported that their cities' relationships with DMWS were satisfactory15; the twelfth city is a member of SEOCWA and did not respond to the question. In response to a question about the quality of DMWS services, seven cities' respondents characterized it as excellent,16 four as very good, and one as good. In addition, ten of the 13. This is more probably an indication of the internal focus of most municipal officials and employees growing from a hoary veneration of Home Rule rather than an ignorance of State legal provisions. 14. Southfield is a rapidly growing citty. The bond i.ssue was intended to develop its capacity to meet future needs. If the city had been unable to successfully let its issue at a later time, it would have been unable to build in anticipation of growth rather than in response to it. The failureto market such an issue could have a severe impact on all other decisions made for the system. 15. Answers were limited to satisfactory, unsatisfactory, and difficult. 16. While generally enthusiastic about the quality of DMS services, three respondents in one city seemed not to like the "bigness" of DMWS and complained that DIWS makes a "profit" of $3,000,000 a year.

jurisdictions noted that DIWS was responsive to the needs of the citiesalthough one respondent hedged his answer by stating that eventually "...you have to do it their way....' One respondent indicated that SEOCWA, through which Southfield is served, is responsive. In the final city, served by Detroit since 1928, the respondent answered cryptically, "We don't need them," indicating, perhaps, that DJWS is not unresponsive. Only one respondent reported that contract negotiations between his city and DMWS were difficult. Madison Heights negotiated the first contract for a main extension to a city not on the border of Detroit. The negotiation of the contract, a new concept for DVWS and the first operational evidence of its thrust to regional service, was, apparently, arduous for both sides. Although stating that contract negotiations were not difficult, respondents in three other cities modified their answers: in one it was suggested that the cities have no real choice, therefore no real negotiation takes place; in a second city, with a five-year automatic contract reopener, it was stated that there is no real negotiation, just a signing of the contract; and in the third city, formerly served through the Wayne County system, it was reported that when Detroit "took over," DIWS raised its rates by 6% with no explanation for the increase. Respondents in three of the cities, all of whom had characterized DMWS as responsive to local needs and one of whom reported difficulty in contract negotiations with DEWS, indicated that they did not feel that their current contracts with DMWS were reasonable.17 One respondent suggested strongly that it was unfair for others on the system to have to contribute to water lines to Flint. Flint, he stated, should pay for its own line. In the second city (as in one of the cities in which it was stated that contracts with DIWS were reasonable) the respondent indicated his dissatisfaction that the suburbs have no real say about contract rates. In the third city the respondent registered the strong complaint that DI)WS was dictatorial; either the cities did business with DNWS or went back to wells; that DMWS "...runs the system like East Germany runs the government." Yet one of these three respondents specified that his contract contains special provisions to take specific local problems into account, although he gave no examples. And in the "We don't need them" jurisdiction, DMWS operates a 5,000,000-gallon reservoir for the city. Although the respondents in five cities had stated that they receive planning or technical assistance from DMWS, only three indicated they receive assistance in operating and planning for their water systems; one of these also receives technical and testing assistance. 18 Respondents in eight cities, however, 17. The cities have been served by DNWS since 1922, 1928, and 1953, respectively. 18. One respondent who had previously given a negative response gave his later positive response. Five who had given prior positive responses now responded negatively. And one who had failed to respond to earlier question responded positively. 75

stated that they maintain contacts, in several instances close working relationships, with DMWS. In the six cases where specific individuals in DMWS were named as points of contact in these relationships, Mro Gerald Remus, the managing director, was named in four instances; Mr. Leonard Petrokowski, "Suburban Engineer," was named three times; and the assistant chief engineer was named once. 19 Various persons from the local jurisdictions making the contacts were identified as mayors, a city manager, a water superintendent, a DPW director, city engineers, and a "bunch of us." Outside the expected relationships between the SEOCWA city and its parent water authority, only four instances of systems relations or conflicts were reported in the twelve cities. One city had sold water to three others in the past. Two cities have emergency valve connections with other cities. In the only instance of reported conflict with others on the DMWS system, the respondent in the City of Westland reported recent conflicts over the ownership of transmission mains which served. the city in common with the cities of Wayne and Dearborn Heights. Westland also has an exclusive contract to supply water to the Wayne County Hospital; as a result, officials of the Westland Water Department feel that they should also be allowed to sell water to residents of the city in which the hospital is located. Representatives of at least one city in this category, reported the water superintendent, had formerly met with representatives of other cities in anticipation of chartering the Southeast Michigan Water and Sewer Authority to act as bargaining agent for its prospective member cities with DMWS. No formal action to secure a charter was taken, however, and the meetings were discontinued. Local Public Relations In all twelve cities in this population category the respondents reported. that their commercial, industrial and residential customers are generally satisfied with the water services they receive. In the only jurisdiction (Westland) in which commercial, industrial and residential dissatisfaction was reported prior to the time the city joined the DMWS system, the reason given was hot weather water shortages. In Southfield, it was reported, commerce and industry have been attracted by the availability of land and a guaranteed supply of water. There was one instance reported where commercial-industrial consumers were dissatisfied with the rate structures in the municipalities. In Southfield, the last rate increase recommended was proportionately higher for large-volume water users than for others on the system. The water superintendent of the city (in office for over two decades) had recommended the variable increase in order to make the rate structure more equitable for all users. After the increase had been recommended the single largest customer (a very large shopping center) convinced the city administrator that the increase was disproportionately large 19. Several respondents listed more than one name. 76

with the result that some of the recommended increase was reduced. Thus in the new rate the alleged inequities of the structure were partially corrected. It was in the same city that the only residential complaints about rate structures were reported-but of a very special nature: new residents, especially from the center city, in new housing developments, whose water uses increase precipitously (i.e., larger lots, swimming pools, etc.) figuratively go through the roof when they receive their first summer quarterly bills. No other respondent reported more than "the usual" residential complaints. In only one city was there more than minor consumer reaction to the most recent increases in water rates. But the reaction came to the increase in combined water and sewer billings; the reaction was interpreted as being against significantly increased sewer charges, not against the water rate structure. The attitudes of business and industrial leaders in these communities to water supply, as in all other city categories, ranges from "seldom expressed" to "very satisfied." (Only one city in this category (Westland) is basically a residential community. ) Nor, apparently, is the issue of water supply a political issue in these cities. The last political involvement over the water supply function occurred, apparently, in Oak Park in 1952. But it was reported that in Roseville the council increased the water rates only after the municipal election while the recommendation for the increase was made some time before the date of election. In each city it was also reported that the political leaders of each respective municipality were satisfied-very much so, responded one-with the way the water function is implemented. In four of the communities it was reported that local news media evince some interest in water supply. In one instance the local newspaper was partially credited with the success of the most recent rate increase through the very accurate reporting of the issue. Indeed, in these communities it appears that the only time the news media report on water supply is at the time of rate increases. Like the citizens they serve, and like the political leaders in these municipalities, little interest is taken in water supply until times of crisis. CITIES FROM 80,700 TO 195,000 Administrative Practice Eight cities in this population category took part in the survey. Four are council-manager cities; four are strong mayor cities. One manager city, 77

Royal Oak, is a member of SEOCWA. In the strong mayor city of Warren there is a service director with executive responsibility for all public service divisions. In six of these cities, general water distribution policies are established by the city council or commission; in the strong mayor city of Livonia the responsibility is shared with the mayor. In the City of Pontiac, general distribution policy is set by the DPW supervisor based in part on the recommendations of the water supervisor; such policy must be approved by the council and city manager. The primary source of recommendations upon which general distribution policy is based varies from city to city. In the strong mayor cities the respondents identified the city engineer, water superintendent, and controller in one, the mayor and DPW supervisor in a second, the city engineer, the water and sewer board in a third, and the service director and water superintendent in the last. In the manager cities, the manager was identified in one city, the water superintendent in a second, the city manager and director of public works and engineering in a third, and the manager, water superintendent, and controller in the last. In all except one of these cities, the water departments are part of a department of public works or services; in St. Clair Shores the water department is directly under the city manager. In two of these cities the general administrative organization of the water department, and all other city departments, is determined by the city charters. In two others, the determination of administrative organization is delegated to the city managers by the charter. In the remaining four cities the water superintendent, mayor, and council on the basis of recommendations by the water commission, and service director were named, respectively. Three mayors, in strong mayor cities, were identified as key decisionmakers for water supply in their cities. In two of these cities the water superintendent was also named; in the third the DPW supervisor was identified. In one (Warren) the council, city controller, and service director were identified in addition to the mayor and water supervisor.21 In the strong mayor city of Dearborn, however, it was reported that routine decision items pass directly from the water superintendent to the council with only pro forma clearance from the mayor. While the mayor is important in decisions on new policies, the need for new water policy is rare in Dearborn. 20. The service director is closely akin to being a city manager or city administrator. He is responsible for the divisions of water, sewage, building, engineering, DPW, and service (complaints). We include Warren as a strong mayor, not manager, city. 21. One respondent reported that, in twenty years' experience with the water department, the council had always accepted the technical recommendations of water managers. In nearly every city or township-there are few other exceptions-the legislative body usually accepts such recommendations. 78

The city managers were identified as key decision-makers in the manager cities, usually along with the DFW director, water superintendent, and in one case, the city controller. Reflecting the much larger size and number of employees in some of these water departments (several have departments of public works with 500 employees with from 50 to 100 employees in their water departments or divisions), respondents also indicated the distribution and service superintendent of one department, and the assistant water superintendent in a second. In identifying the key people in rate decision in these communities, respondents listed the councils in each instance; in two manager cities the manager was also identified and in two others was listed as a primary source of recommendation; in the strong mayor cities the mayors were identified as key recommenders. Since it was not unusual in this category of cities for at least four primary or key recommenders to be identified, city controllers were listed in five instances, water superintendents in four, directors of public works in two cases, and in one instance, each, a city engineer, a water and sewer board, a consulting engineer, and a service director. In one instance (Flint) where an initial DMWS contract was recently negotiated, DMWS was also listed as a key decision-maker in local rate determination. In five of these cities, DMWS was identified as having initiated their most recent rate increases,22 although in four of the cases it is more probably true that they raised their rates in response to an increase in the DMWS base rate. In the three instances in which DMWS was not named, those identified as primarily responsible for initiating the rate increases were an assistant director of DPW, a city manager, and a service director. It was reported that water main extension decisions in one city, Flint, are made solely by the city commission. But it became evident during interview that the recommendations upon which main extension decisions are based came from a wide variety of departments and individuals. With heavy State and interstate highway construction underway within the city, it is obvious, for example, that main location and/or relocation decisions are partially circumscribed by highway planning. Because the Flint contract with DMWS requires the city to attempt to effectuate sales of DMWS water outside its city limits, and under the master water plan prepared by the city manager, feeder mains of sizes larger than those necessary to serve an in-city consumer population are being installed. Fire hydrant location, too, will have an impact on the kinds of final mains decisions made by the council, as will recreation, zoning and planning, and other community needs. The point to be made here is that, in Flint, as in every other city and large township which recorded its council as making mains extension decisions alone, there is a wide data base in which the council toots these rather narrow decisions. And although most respondents reported that only those who are 22. In Flint the rates which were negotiated in the 1964 contract were imposed with the delivery of DMWS water to that city. For a case study of DMWS-Flint contract negotiations see Appendix D. 79

directly involved in water supply make basic recommendations for these decisions, other city officers who may not at all be involved in water supply may frequently impinge on-or may actually make-such recommendations (e.g., city attorney). The councils of two strong mayor cities were also reported to make main extension decisions, in one upon the recommendation of the city engineer, and in the other sharing its responsibility with the water superintendent, the assistant director of DPW, and the mayor. In the other two strong mayor cities such decisions were reported to be made by the mayor and DPW director in one, and the city engineer in the other. In the remaining three manager cities, the city manager was indicated as sharing such decisional responsibility with either the water superintendent or DPW director, and in one city with the city engineer as well. A smaller number of individuals was reported to be involved in systems maintenance decisions in these cities. Mentioned most frequently was the water superintendent. In four cities he was the only individual reported; in two others he shares the responsibility with a city or counsulting engineer.23 In the remaining two cities, the assistant director of DPW in one and the maintenance superintendent of the water department in the other have been delegated the authority to make systems maintenance decisions. City.or consulting engineers or city engineering departments were listed as primary participants in systems engineering and planning decisions for seven 24 of the cities, generally in cooperation with the water superintendent or director of DPW. No mayors nor councils were identified as key to such decisions; only one city manager was so listed. One city respondent, in Royal Oak, listed a consulting engineer and the city planner as sources of engineering and planning advice; in addition, the city also receives some planning assistance from DEWS. In Flint, it was reported, planning and engineering advice is generated internally by its engineering and planning departments. Although six cities' respondents reported receiving at least occasional planning and technical assistance from DMWS,25 only one city (Warren) reportedly utilizes DMWS staff as a regular source of engineering and planning advice. Respondents in all cities 23. In separate interviews with two respondents in one city, the mayor indicated that a consulting engineer makes such decisions; a high-level employee of the public works department reported that the water department superintendent makes such decisions. Therefore we record them here as sharing the responsibility. Of the many multiple interviews conducted in single municipalities, this was only the second jurisdiction where frequently conflicting answers were recorded. 24. Four engineering firms were named; each serves a different city. 25. One other city also reported receiving assistance from DWS with its personnel system. 8o

reported that water planning decisions are tied in with general planning decisions for their respective jurisdictions. (In the one jurisdiction where conflicting responses were recorded, the mayor responded positively and the water superintendent gave a negative response.) Specific assistance received from DMWS was reported in the areas of planning, operations, accounting, engineering, and personnel systems. Legal counsel for easements, rights-of-way, condemnation proceedings, contracts, and other matters is provided through the city attorney in five of the cities, and by Corporation Counsels in the remainder. Personnel and Finance Factors One city maintains a merit system for its water employees; three cities have classified civil service systems; three cities maintain both merit and classified service systems. Only one city (Pontiac) reported having neither. All the cities, however, have unionized water departments.27 In three cities it was reported that unionization has had no particular impact on water department operations; in one other the mayor stated there was no impact while the water division superintendent reported that there has been a great deal of interference by the union in day-to-day operations. Three cities reported some negative impact since they have been unionized: in one it was reported that it is difficult today to fire even incompetent employees; in another it was reported that some difficulty has ensued because of "seniority bumping" on reductions in force; in the third it was reported that the union has had a negative effect on the classified civil service system. In one city (Pontiac), however, it was reported that unionization has improved the management of water supply, mainly because it was necessary to establish an effective communications system between management, on the one hand, and employees and union representatives on the other. Of the fifteen individuals with managerial responsibility for water supply interviewed in these eight cities, most had sixteen or more years' experience in water supply, mainly within the same water department. Only one individual, a politically-appointed director of public works, reported as little as two years' water experience, although he has extensive other municipal experience; his water division superintendent, however, reported twenty-one years' experience. In the case of water superintendents and most directors of public works or services, the interviewers were highly impressed by what they 26. Corporation Counsel is another name for City Attorney, especially in the larger Michigan cities. 27. In Dearborn clerical employees are represented by the Municipal Employees Association; laborers are represented by the Teamsters. Employees of all other city water departments were reported to be represented by AFSCME.

considered to be evidence of professional competence and capability, especially in comparison to some key water people in smaller jurisdictions. In each jurisdiction it was reported that systems maintenance work is usually done by public employees from the water department or department of public works. In two jurisdictions, Dearborn and Livonia, however, major maintenance jobs are contracted out. The use of public employees on new construction projects varies from city to city. One city respondent reported that all new construction is done by private contractors; a second reported that about 95% of new construction in his city is done by contract. In two other cities the respondents indicated that less than 10o of new construction is let for contract. In the City of Pontiac, where large-scale new construction on the water system is in progress, approximately 50o of the work is done through force account and the remainder is let for contract. In Royal Oak wall service line construction is done by public employees; mains work is done by contract. In the remaining two cities, conflicting responses were offered: in one the mayor reported that all new construction is done by private contractors-but the DPW director indicated that 90% of all new construction is done through water department employees; in the second the city manager reported that feeder main construction, about 5% of all new construction, is contracted out-but his water superintendent reported that all water system construction is done through contract. Contract procedures in these Home Rule cities is varied. In each of the jurisdictions it was reported that equipment and supply purchases, as well as construction items, must be let for bid; specifications are established for all bid items. In Flint it was reported that the water department bids on construction contracts in competition with other firms. In the instances where specific dollar values were reported for bid items, one respondent reported items over $1,000 must be let for bid, while a second reported that bids are required only on items that cost more than $3,000. Purchases of supplies and equipment also vary according to local custom; in these cities purchases are usually made by the city controller through the purchasing department, or by the purchasing department with the approval of the city manager necessary on large purchases. In one city (Warren) it was reported that the mayor and council and service director jointly make water department purchases. Each of these jurisdictions maintains separate water budgets and separate water accounts. In seven of the jurisdictions it was reported that the water superintendent or manager (or his equivalent, i.e., deputy director of DPW) makes the basic recommendations on which the budgets are based, most frequently through the city manager, mayor, controller, or director of public works. In one city (Royal Oak) basic budgetary recommendations are made by the director of Public Works and Engineering through the city manager. In all jurisdictions it was reported that the basic budget recommendations are usually accepted by the legislative bodies. 82

In six of the jurisdictions the water budgets are separate from the general city budgets. In Pontiac the water budget is incorporated in the general budget but is handled as a separate fund; the water department makes payments into the general budget in lieu of taxes for adminstrative services. In Royal Oak, although the budgets are handled separately, the water department pays $180,000$200,000 yearly into the general budget to meet city right-of-way charges for mains. Only one city, Dearborn, has not had recent bond issues for its water system. In each of the other cities a variety of individuals was named as key participants in the process of issuing water system bonds. In only one city, according to the responses, are general obligations bonds issued; in St. Clair Shores, it was reported, the council and people must approve of the issues. Each other respondent indicated that approval was necessary only by their city councils and the State Municipal Finance Commission. In only one city was a variety of participants not reported: in Warren the key participant is the city controller. Of the seven cities where bonds have been issued recently, advice was sought from bond consultants or attorneys in five,28 in the other two, bond attorneys and engineers were consulted. Finally, none of the cities has had any bond referenda defeated; nor was it reported that any recent water issues failed to attract bidders. System Relationships In this category of eight largest cities it was reported that relations with DNWS are satisfactory in six; in one of the six, however, one respondent (a city manager) characterized, the relationship with DMWS as difficult because of rate negotiations. The mayor of Dearborn Heights characterized his city's relationship with DNMS as somewhere between sat:isfactory and unsatisfactory; again, rates are the central issue. The mayor is an advocate of State control over the rates charged by DJWS (but not over suburban resale rates although he would accept the latter if necessary to control DvWS's wholesale rates). He believes such control is necessary because suburban jurisdictions do not have access to the "necessary knowledge" to judge the fairness of rates. The mayor and the assistant director of public works in Livonia characterized their relationship with DMWS as "impossible" and "barely satisfactory," respectively. These two respondents also identified themselves as "Remus' primary opponents." (Mr. Remus is general manager of DWS. ) Several reasons were reported as the basis for such difficult relations. First, and perhaps most basic, the city spent a large amount of money looking for leaks on the system that were costing the city about $12,000 per month. It was later 28. One firm was named in five instances, Miller, Canfield, Paddock, and Stone. This firm serves approximately one-third of all municipalities in our survey. 83

discovered that DMWS was charging Livonia for water delivered to Redford Township through Livonia lines; there was no significant leakage. DMWIS returned the overcharge but would not pay for the costs incurred in "discovering" the DIWS mistake. A second point of conflict is the belief that there is no negotiation over rates or rate increases; in their words, "Mr. Remus rules by fiat." A third issue raised was that both respondents feel that the suburbs are unjustly criticized for not contributing to the central city. It is their belief that the suburban distributors are subsidizing DEWS and they therefore want DIWS regulated. Finally, they were disturbed because DNWS would not allow them access to the confidential engineering report which was purportedly used to justify the 1968 DIWS wholesale rate increase. Yet despite all these reasons, both men viewed DIWS as being cooperative with, and helpful to, the suburbs, "from the managing director on down." In fact, respondents in all of the cities characterized DMWS as being responsive to the needs of the suburbs, except perhaps on the issue of rates. Respondents in five cities reported the quality of DEWS service to their cities as excellent. The remaining three cities were reported to receive very good service.29 In two of the cities it was recorded that negotiations for DMWS service were difficult; none of the others reported such difficulties. (Royal Oak has its contract negotiated through SEOCWA.) In Flint the negotiations were long and difficult, as is reported in Appendix D to this study. In Livonia, too, difficult negotiations were reported, mainly because it was felt that contract rates are imposed, not negotiated. It is because of the alleged non-negotiability of rates that the respondents in Livonia judge their current contract with DJWS to be unreasonable. With one minor exception, all other respondents judged their contracts as reasonable. 0 Respondents in four cities reported special contract provisions which deal with specific local problems. One city has agreed to provide part of the water supply to three other DMWS cities; one city contract contains a special provision for industrial purchases; a major aqueduct is being constructed through a third city to provide service to communities in an adjoining county. But the contract for the City of Pontiac contains a flexible policy for the discontinuance of service upon one year's notice. With the exception of contracts with 29. However, one respondent in one city in which a second respondent had replied "excellent, listed the service as very good. A second respondent in another city called it good as opposed to a colleagues very good response; in a third instance conflicting replies of excellent and good were received. 30. The city manager of St. Clair Shores stated that the only difficult part of the negotiations with DMWS is on the question of rates. That part of the contract dealing with rates was deemed by him to be unreasonable. 84

the few cities which purchase water to supplement local production, no other city contract contains such a discontinuance clause. (Contracts are generally for a thirty-year duration with, in most instances, five-year rate reopeners included.) Few relations or conflicts with other communities or State or local agencies were reported, although at least two of the larger cities have mutual aid pacts with neighboring communities.31 But in Flint, instances of both intergovernmental cooperation and conflict were reported. Construction of a large segment of interstate highway cuts through the center of the city. Because major water mains must be relocated, Flint will be able to use part of the highway funding to lay new and larger mains. The cost to Flint will be the difference between the cost of the old and new diameter mains. The decision to relocate the mains was made in reaction to decisions of State and federal highway officials-but the decision is one that redounds favorably to the benefit of the Flint water system. The intergovernrmental conflict-if it can be called such-arises from a provision of the DMWS-Flint contract. Flint has agreed to handle sales of DMWS water to surrounding communities and industries. The city manager of Flint is chief negotiator with the outlying communities. To introduce an orderly expansion of a Flint-based delivery system, the city manager has prepared a master water plan for the out-county area.32 Several communities, however, have resisted the county-wide grid system (master plan) approach because of their proximity to DMWS's Lake Huron-Flint aqueduct. They would prefer to tap in to the big main rather than purchase through Flint. Despite a federal planning grant to two of these communities-which hope to receive financial assistance later on-it is improbable that their plans will receive the approval necessary from the Genesee County Metropolitan Planning Commissiono In addition, the 31. Formal ntatand informal conaacis and relations of an intra- and interlocal nature, and with state agencies (Public Health, Water Resources Commission, and Municipal Finance Commission) appear to be taken so for granted in these larger jurisdictions that they were not mentioned in response to the question. 32. One noteworthy exception to the usual acceptance of the manager's recommendations by the city commission was the rejection of his idea for a master plan. At the time the commission preferred a fragmented system of contracts, mainly because it was felt that the master plan idea would give the County Drain Commissioner (appointed by the County Board of Supervisors as its water supply agent) too much power since he could "favor" contracts for the unincorporated municipalities he represents. It has been only recently that the city commission has accepted the master plan idea. The outlying rural areas have resorted to a single agent as negotiator since a Michigan statute requires that local unincorporated jurisdictions secure the full faith and credit of the county in order to issue bonds. 85

contract commits Detroit to a quasi-authority approach controlled by Flint. It is highly improbable that any Genesee County communities will be able to negotiate their own contracts with DNWS successfully. With the general exception of such holdouts, it is reported that the master plan expansion approach is moving forward. Local Public Relations Respondents in all of the cities reported that their commercial, industrial, and residential customers are generally satisfied with the water supply. In those instances where dissatisfaction was reported prior to joining the DWS system, complaints had been registered because of insufficient pressure and supply, and about the discoloration and odor of water from municipal wells. In Flint there was no prior dissatisfaction with quality noted, but there was worry about the incapacity of the system to meet rapidly expanding demands. Respondents in seven of the cities reported that their commercial and industrial customers were satisfied with the rate structures in their jurisdictions, including those jurisdictions in which the respondents had complained about the DMWS wholesale rates to their cities. Indeed, the respondents in Livonia reported that their rate structure was responsible for attracting much industry to the city. In Dearborn Heights there was reported "some dissatisfaction" about the rate structure on the part of commercial, industrial, and residential consumers. But in six of the communities it was reported that residential customers express no real dissatisfaction with local rates. In the City of Flint, however, where industry takes an average of 57% of water delivered, but pays 350% of the total water bill, some residential customers have expressed complaints about the steprate structure. But, it was pointed out, since the marginal costs of delivery to Flint residences is in fact higher than those to industry, the water managers believe the rate system to be equitable-although many residential consumers remain unconvinced. Customer reactions to the last rate increases in these cities ranged from "no reaction" to "minor protest." In Royal Oak where the minor protest was registered, some public relations problems were encountered in "selling" the rate change to the consumers. No other city reported any public relations difficulties about rates or any other facet of their systems. In six of the communities it was reported that the attitudes of local business and industrial leaders range from "no complaints" to "satisfied but disinterested." In Pontiac, a city with large industrial concerns, the attitudes of business and industrial leaders have been very satisfactory because of both the quality of water and the capacity of the Pontiac system to expand to meet increased demands. In Flint-the only city in which it is reported that business and industrial leaders take an active interest in water supply- industry, particularly General Motors, had been' extremelyconcerned about the capability 86

of the Flint system to meet increasing industrial and residential demands.33 The experience of General Motors in the past, in communities with their own water supply systems, had been unsatisfactory with GM plant expansion and limited municipal capacity to meet increased water demands. (General Motors has plant locations in thirty-five communities in southeastern Michigan.) As reported in Appendix D to this report, it was the active involvement of GM representatives which generated governmental interest in Flint to explore DMWS as a source of supply. Today Flint's business and industrial leaders express real satisfaction with the city's capability to meet their water needs. In six of the cities, respondents indicated that politics has not been involved in water supply at all for at least ten years. In Livonia it was reported that water became an issue in municipal elections when the water department registered a $45,000 deficit in 1961. In Flint it was reported that water has taken on political overtones in the out-county areas. In general it was also reported that the political leaders in the municipalities were satisfied with the conduct of the water supply function, except in Flint where some city commisssioners have used the step-rate structure as an issue to attempt to gain some political advantage. No respondent reported any extensive interest by local news media in water supply.34 Several papers do publish periodic rate comparisons (for example, the Royal Oak Tribune) and occasional feature articles. But as in most other local jurisdictions on the DMWS system, water supply is not news. TOWNSHIPS Sixteen townships took part in the study. With the exception of townships supplied by the cities'of Flint and Mount Clemens, all except one of the townships served by DMWS are included. The exception is Southfield Township, a member of SEOCWA (see Appendix H). 33. As reported by Mr. Osmund Kelley, Executive Director of the Manufacturer's Association of Flint, which represents primarily General Motors which has eleven industrial plants in the city. In addition, Mr. C. S. Mott and the Mott Foundation (whose philanthropic contributions to Flint are extensive) has taken a direct and extensive interest in water supply and pollution abatement in the Flint area. 34. As reported in Appendix D to this study, the local news media reported extensively on Flint-DMWS contract negotiations and, of course, on indictments for fraud in land acquisitions during the abortive attempt to develop an. independent production system for Flint on Lake Huron. 87

The townships surveyed range in population from 200 (Northville) to more than 75,000 (Redford). The smallest township, with a one-man department, pumps about 720,000 cubic feet of water annually; the largest pumps in excess of 370,000,000 cu ft annually. Together the sixteen purchased almost 10% the quantity sold to suburbs in 1968. If one were to utilize other indices, i.e., miles of mains, number of connections, number of employees, annual revenues, etc., one would find the same broad range of characteristics. Yet there is one characteristic that all Michigan townships have in common: organizational form, since under the Michigan Constitution and Statutes all townships are very similar, whether unincorporated General Law or Charter (Home Rule) Townships. The number of trustees on the Township Board may differ (two or four based on population), and some will be more complex in organization because of the number of municipal functions performed-but all have the same general organizational structure. Administrative Practice Although the townships are basically similar in their organization there is wide diversity in decisional and operating practices by which broad and explicit water supply and other policies are determined and executed. All final township authority rests with an elected Township Board composed of a supervisor, treasurer, clerk, and trustees.35 However, the township boards generally proved to be policy-approving rather than policy-initiating bodies. In each township there is an appointed advisory commission-variously called the water and sewer commission or board, or public works or service commissioncharged with the responsibility of recommending water policy.36 The role of the advisory commission changes from township to township. In several, the commission members, five to nine in number, are appointed by the elected supervisor and the commis sion is used in an advisory capacity by him; in such cases the supervisor plays a direct role as township executive in the day-to-day operation of the water department. It is the supervisor (along with the water superintendent in the larger water-using townships) who makes the basic recommendations on policy and who, in effect, controls the operation of the system. In most other townships the commission is advisory to the township board; in RedfordTownship, however, the commission is advisory to the Director of Public Works. In no instance was the commission recorded as advisory to the water superintendent unless the township supervisor (as reported in several instances) or other elected official held the position of water superintendent. 35. Only Ash Township, in Monroe County, reported a Board of five members, i.e., two trustees. All others reported seven-member boards. 36. In Canton Township, the only incorporated (Charter) township, the township board is the water board. 88

There is no common pattern of supervisor involvement in water supply. Involvement is most likely where the supervisor is a full-time executive. (In some townships the supervisor and clerk are the only full-time township board members.) In the few townships where the supervisor is part-time the water superintendent, or a director of public services or works in a larger jurisdiction, administers water policy. In Plymouth and Royal Oak Townships the treasurer heads the water department. In Canton Township the supervisor acts as township manager and, as manager, administers all municipal services, including water supply. In the part-time supervisor townships other executive arrangements are evident. In one, for example, there is a township manager; in another the treasurer performs the role of chief executive; in another the "supervisor's clerk" (a legally authorized position) performs in a daily executive capacity in the manner of (but to a greater extent than normally expected of) an administrative assistant. Because water supply looms large among the functions performed by smaller townships, these individuals play an important role both in day-to-day operations and in the promulgation of new policy. In every township the consultant engineer plays an important role in water supply. While technical engineering information, advice, and services can be provided through DMWS, few townships make requests for such assistance. While nothing in. our research allows us to draw definite conclusions, the evidence available indicates that heavy reliance on the engineering consultant is part of the local control syndrome.37 His role varies, however, from township to township. In some his function is to provide technical review of policies and plans for the township board as well as technical services for operation. In others, his advisory and review function is performed with and through the public service or water commission. And in several, his advisory role-perhaps even an administrative role-is more pervasive on a day-to-day basis. In several townships it seems that the consulting engineer is the single most influential individual in water supply decisions. Although he may be seldom involved in the final determination of general policy, he is a primary source for several policy recommendations in four townships. In five other townships he was reported to be a key decision-maker with respect to water. In only two townships (Farmington and Pontiac), which are served through the Oakland County Department of Public Works, is planning and engineering not the responsibility of a consulting engineer In more than half of the townships the consultant engineer is mainly responsible for water main extension policies; in seven he is responsible for setting the standards for installations in new developments, and in ten townships he is 37. Even in townships that are strong supporters of and mai.ntain excellent relations with DJMWS, extensive reliance on consulting engineering services is an obvious fact. Indeed, the establishment of an office of consulting engineer is recommended by law and custom. See Paris!, op. cit. 89

responsible for installation inspectiono38 In every township he is the basic source of technical engineering and planning advice (although seven townships also seek technical advice from DMWS, and one, Grosse Ile, gets planning assistance from the township planning board). In ten townships the administrative organization for water supply is determined by the township board by ordinance, in many instances after recommendations of the water commissions. In two others, it is the treasurer who determines the administrative structure, with the approval of the township board. In Brownstown Township the appointed water board determines the simple organization of its small department. In Van Buren Township the elected supervisor and clerk are so responsible; they are also responsible for the day-to-day operation of the system. In Northville Township the assessor, clerk, and water commission share such responsibility jointly.39 Respondents in the sixteen townships identified a wide variety of individuals as key water decision-makers. The township board was named in eight instances, the water superintendent in seven, consulting engineers in five, the water commission in three, and the township supervisor in four. But treasurers, office managers, DPW commissioners, and a county Board of Allocation were also named. 4 Even in sparsely populated townships there were multiple individuals or offices named emphasizing, perhaps, the factor that water is one of the few municipal services provided. Water main extension decisions are made by the township board in eight of the jurisdictions; in three of these, basic recommendations are made by the consulting engineer and in two others by the water superintendent. In one of these townships where the water superintendent and consulting engineer make basic recommendations the water commission acts as a rubber-stamp approval body.41 38. Of eleven townships in which consulting engineers were named, eight different firms were reported, one by two townships; two townships use engineering services provided by the Oakland County DPW which manages the water supply function. 39. In the final township the part-time supervisor who responded to the question stated that he had no idea who had such responsibilty. Nor was he cooperative on other answers-except to make his vehement dislike of "city slickers" known. 40. In only two townships, Brownstown and Royal Oak, was a single individual or office named as the key decision-maker. In Ash Township, one of the two jurisdictions in Monroe County served by DVWS, the Monroe County Board of Allocation was identified (along with a consulting engineer and the township board), because the Board of Allocation must approve the total township budget subject to rather severemillage limitations. 41. It is unusual in any of the townships to find the water commission more than an approving body; in only few instances were they recorded as policyinitiating. 90

In Shelby Township the water committee, informally established by the township board, has been delegated authority over water main extensions and shares system maintenance decisions with a consulting engineer. In Grosse Ile Township, such decisions are made by the Public Works Commission, as are final decisions on maintenance and systems planning and engineering. In eight of the townships the consulting engineer is responsible for decisions or is a primary source of recommendations for such decisions. 42 Systems maintenance decisions fall to the water department superintendent in six of the townships, in two instances shared with a consulting engineer. In three townships the full-time supervisor assumes such responsibility; in three others it is the township board which makes such decisions. In one township (Royal Oak), where the treasurer heads the water department, he is responsible for maintenance. In Grosse Ile and Plymouth Townships the public works commission has been given such responsibility, while in Northville Township it is the water commission. In fourteen of the townships, systems planning and engineering decisions are primarily the responsibility of consulting engineers. While respondents in only four townships underscored the necessity for township boards to approve planning and engineering, their final approval is necessary in each jurisdiction. In the last two townships, planning and engineering services are provided by the Oakland County DPW which provides almost all functions for the distribution systems except meter reading and billing. Despite the small population size of these townships (three have fewer than 700 population, ten have less than 10,000 population), only three have single offices or individuals where mains extension, maintenance, and planning and engineering decisions are considered holistically. Nor, as indicated by respondents, is planning for the water system tied into general planning for the jurisdiction in four of the townships; yet two of these four have experienced recent rapid growth. Two of the townships (Plymouth and Pontiac) have not had any rate changes since 1960; Ash Township, which joined the DMWS system in 1969, operates under its initial contract rates. In the other thirteen townships, a variety of individuals was named as primarily responsible for rate decisions. While township boards were most frequently named by the respondents, treasurers, water superintendents, consulting engineers, and water commissions were also named. Unlike city jurisdictions where multiple individuals were generally named as involved in rate determinations, two or more individuals or offices were named in only five townships. But as in the cities, the most recent rate increases in the townships seem clearly to be responses to the increase in the DIWS wholesale rate. 42. In several townships DEWS was also named since its staff sets the general standards for construction of' mains. 91

In twelve of the townships, developers are responsible for the installation of water (and sewer) lines in new housing development; in two others they are sometimes responsible. Standards for new installations are set through a wide range of offices, but standards set by consulting engineers (guided, of course, by minimum DMWS engineering standards) are used in most of the jurisdictions. And consulting engineers make inspections of the installations in all except four of the townships. A supervisor in one, the water superintendents in two, and a township plumbing inspector in a fourth, conduct such inspections in the exceptions. Personnel and Finance Factors Eight of the townships have merit systems for their water employees (including Romulus where its system was described as a "semi-merit system" for the 27 employees) despite the fact that several are one-employee departments. The largest township, Redford, maintains a classified civil service system. Seven of the townships, mainly one-to-three man departments, have neither merit nor classified service personnel systems. Reflecting the small size of most of the water departments in the townships43-and perhaps the rural-small town conservative political character of most-only the two largest water departments, Redford and Romulus, are unionized. One reported no appreciable effect on water department operation as a result of unionization. In the other it was reported that the effect has been largely negative: management and labor have polarized into separate camps. Of the nineteen managerial respondents interviewed in the townships, only one had water supply experience (state and county) prior to his current responsibilities. No other respondent had water supply experience (one had been a plumber) before his election or appointment.44 The range of current experience is from one to eighteen years. More than half of those interviewed have five or fewer year's experience, all of them in managerial positions within their townships. Only two respondents reported that any new water system construction is done by public employees: in Bloomfield Township 10% (for tap-ins) and in Canton Township 50% of new construction is done through force accounts. But respondents in ten townships reported that 90%o or more of maintenance is done by force account personnel-even in two-man departments. Only two townships 43. Almost all township departments are small in numbers of employees (or other indices). In several townships the water supervisor of superintendent is the water department. 44. In many of the townships water supply is a relatively new municipal function. Before joining DMWS, the residents of several had been self-served from wells. 92

(Huron and Northville) contract out all maintenance. In the remainder it was reported that only major maintenance is done by contract.45 In all except one township (Sumpter) a water budget is maintained. In Sumpter Township the water department is budgeted as part of the general budget. In two other townships the water budget is part of the general budget but is totalled separately. In Ash Township the water budget is also included in the general budget for the township. The general budget must be determined within the limits of a 15-mill levy based upon the State Equalized Valuation of property. Only if it stays within that limit will the Ash Township budget be approved by the (Monroe County) Allocation Board. Income raised to finance revenue bond issues do'not, however, come under the jurisdiction of the County Allocation Board. In all townships separate water accounts are used. But it was reported in three townships that all "profits" from the water system (or water and sewer fund) are returned to the general fund or used for other township capital construction project: several new townships and community halls have been built through water "profits"-including township jurisdictions which did not report any transfer of water profits. As in the cities, all contract work is let for bid according to engineering or township board-approved specifications. None of the informality reported in the smaller cities was reported in contract procedures in the townships; the informal Township Manual is used as a rather stringent guideline. In the five townships which reported a minimum contract amount which had to be bid, $500 was the cutting line upon which bids must be let. 46 In one township, however, it was reported that bids are made on a yearly basis with the successful bidder serving as contractor for the township that year. Purchasing in all except the large townships comes under the close scrutiry, if not control, of the township board. Even small items may not be purchased, in most instances, without board approval. In the larger townships the water department managers can make small purchases; large purchases can be made only by the township boards. Only Grosse Ile Township, on the DWS system since 1938, has had no recent bond issues for its distribution system. Because townships may utilize three differing bases for the issuance of bonds (special assessments, revenue bonds, and general obligation bonds), and several townships have used at least two, 45. All construction and maintenance for Farmington Township is done, apparently, by the Oakland County DPW which services the township system. 46. When emergencies such as main breaks occur it is general practice in most townships to effect the repairs, even. by private contractors, without bids. 93

there were a variety of participants reported taking part in the township bonding process. Because general obligation bonds are issued under the full faith and credit of the counties in which the townships are located, the county was named frequently as participating in approval. Bond counsels and financial consultants were also often reported. Township boards were named, of course, in every instance and (unlike the city respondents) the formal role of the State Municipal Finance Commission was indicated in all except one of the townships (serviced by the Oakland County DPW). A significant number of bond and banking houses were named as handling the township issues. No respondent reported any general obligation issues as having failed in the polling place, nor did any township report a failure to attract bidders on its water bond issues. System Relations Respondents in all of the townships reported that their relations with DnWS are satisfactory. (Two respondents called the relationship "excellent" despite requested answers of satisfactory, unsatisfactory, or difficult.) In two townships the respondents hedged their answers by reporting that recent relations with DMWS have been difficult. Shelby Township, it was reported, has been taken to court by DNWS over a distribution point and transmission line placed without DMWS approval; the case had not been adjudged at the time of interview. In Northville the difficulty was reported as the control over rates which the respondent felt were forced on the township by DWS.47 But it was also reported that there were no complaints by the township residents after their most recent rate increase. In fourteen of the townships it was reported that DMWS was responsive (very responsive replied some) to local needs and problems; several townships gave specific examples to demonstrate their answers. Ash Township, new on the Detroit system, could not make any judgment without more experience, according to the respondent. But the respondent in Van Buren Township reported that DMWS was not responsive. Reacting to complaints of bad tasting water by consumers, Van Buren Township contacted Detroit and was allegedly told it was the township's, not DMWS's, problem. Two additional reasons given were that the water managers didn't really feel that they had a contract as much as a dictated policy, and they believe they pay too much for wholesale water from DMWS. 48 47. It was the impression of the interviewer, considering the tenor of the total interview, that the complaint over rates was directed against the "big city," not against any specific rate hike. 48. The township has a markup of more than 260% over the base rate charged by DMWS. Part of the displeasure in the township may be related to a recent DWS "explanation campaign" about combined local water and sewer rates and local ready-to-serve charges to Van Buren residents who complained about what they considered to be excessive charges. 94

Seven of the respondents characterized the quality of DMWS service to their townships as excellent; in seven other townships it was reported as very good while Northville Township's respondent called it good. Respondents in four townships reported that contract negotiations with DNWS (either on a new or renegotiated contract) were difficult. In the smallest township, Northville, it was reported that contract rates were "arbitrarily" set, not negotiated; in Van Buren the complaint was also about rates. In Plymouth Township the difficulty of original contract negotiations (with the former Wayne County system) was not caused by the negotiating parties, but by the City of Plymouth which attempted unsuccessfully to block the contract.49 In the largest township, Redford, the difficulty reported is of a different nature. In 1965 the then-supervisor of Redford Township believed that he had concluded a verbal agreement with the General Manager of DMWS to install a transmission main along Schoolcraft Road larger than was necessary to meet immediate township needs. In return, he felt that DMWS had agreed not to raise rates to Redford Township. Thus when the general DNWS rate increase was put into effect in November, 1967, the township refused to pay the increase. They deducted the increase from the charges by DMWS and paid for their supply under pre-raise costs. DMWS sued the township. At the time of interview the case was still in court, with a total amount at issue in excess of $100,000. Few respondents reported any provisions in DIWS contracts with the townships to meet special local problems. The few that were reported deal with the supply of other municipalities through their mains. The standard contract seems to be sufficiently broad to cover most local contingencies. No supplemental or subsidiary agreements were reported in any township. In only one township was it reported that the water department did not maintain either formal or informal relations with other agencies or departments within the jurisdictions. Not unexpectedly most intragovernmental relations 49. The township had originally entered into negotiations with the city for an increased supply of water. The city insisted on annexation as a condition of supply. Unwilling to submit to annexation, the voters of the township approved a four mill assessment for the purpose of building a township systemand the township then negotiated its contract with the Wayne County system. The ability to provide good water at low rates is believed to be an important factor in the township's growth. The City of Plymouth is completely surrounded by the township which is enjoying both industrial and residential expansion. One interesting sidelight is that the respondent claims that his current total water bill is less than the cost of his bill for water softener when the township was supplied by the city's well water. The township supervisor, John McEwan, is an out-city member of the Detroit Water Board and a long-time strong supporter of DMWS. His appointment to the Board in 1968 may be a reflection of that support rather than generating it. 95

reported were of an informal nature, underscoring the small size of most of these governmental units. Standard relations with state, federal (including development aid for water and sewer systems in four townships), and county governmental units were reported in each of the townships. Conflicts with other governmental units on the DMWS system were reported in Redford and Plymouth Townships, both reported above.50 Several instances of cooperation were noted, too, mainly through emergency agreements or supply of a small number of consumers in a neighboring township, or supply to a neighboring unit through township mains. Local Public Relations In each township it was reported that commercial, industrial, and residential consumers are generally satisfied with the conduct of the water supply function.51 In each instance where a township has joined the DIS system since 1955, customer dissatisfaction under former supply arrangements was related invariably to bad, shallow, or bad tasting well water. Few difficulties were reported about commercial-industrial reactions to the current rate structure in most townships. Contrariwise, in townships where commercial-industrial growth is taking place, most respondents recorded as a major reason for such growth the quality and generally low cost of water. But residential customers are less obviously satisfied with rates in at least four townships: in Brownstown it was reported that 10% of residential consumers feel the rate structure is too high; in Canton, severe complaints are registered by new residents who have moved there from Detroit; in Sumpter there have been numerous complaints about debt service and meter charges which make up a portion of the total bill; and in Van Buren, several serious complaints were registered after the most recent increase in rates went into effect, but the complaints are most probably about combined water and sewer rates, not water rates alone. But no other township respondent reported other than mild consumer reaction in those jurisdictions which did increase rates. 52 50. In Grosse Ile Township it was reported that the supervisor, a staunch supporter and constructive critic of the General Manager of DMWS, maintains a running conflict with the mayor of a nearby city who has made public statements in opposition to the General Manager and DMWS expansion. 51. Some of the townships have no industry and few commercial customers. 52. One jurisdiction did not raise rates but did increase tap-in charges significantly. 96

In only one township was a serious public relations problem reported. In Shelby Township it was stated that a better publicity campaign was needed to convince those individuals still on well water to join the township system because of very high nitrate concentrations in the wells. Where the attitudes of business and industrial leaders were reported they ranged from good to very positive. Where very positive attitudes were recorded they were because of a guaranteed supply of water and lowered insurance rates. As in the cities, water is not "in politics" to a great extent in the townships, although in one township where all issues are sensitive political issues, water, too, becomes a periodic campaign football. In Canton Township, a homeowner's association in a new subdivision-mainly new residents from Detroit-is conducting an extensive campaign over what they consider to be too-high rates.53 In Huron Township the issue of whether the township would or would not provide a municipal supply for its citizens was the central issue in the municipal elections of 1959; the pro-supply faction was elected. Political leaders, it was reported, have reacted favorably to the way water supply is handled in all except one township where water and all other issues are politically sensitive, as noted above. In many instances political leaders (supervisors and treasurers) are the managers of township delivery systems. Unlike the cities, ten of the sixteen townships were recorded as being served by local news media which take an active interest in water supply and waste water management. Most of the media report favorably, especially in those jurisdictions which have recently contracted for DIWS water. In at least one township the initial impetus to a DWS contract probably was generated by local newspaper reporting. Some Notes on Diversity We would have preferred to present the materials from the administration questionnaire in tabular form, rather than in narrative fashion. But our conscious choice of an open-ended questionnaire (exc.ept for a limited number of questions) resulted in a wider range of responses than even our pre-test led us to believe; the data gathered was too extensive to present in tables of manageable size. To have presented individual tables for each set of data would have resulted in too many tables. 53. Frequently, central city residents moving to new suburbs consume more water (i.e., more bathrooms, more appliances, larger lawns) and th thsthe fact of higher rates is compounded by higher consumption. 97

Neither have we used organization charts to describe administrative structures; too many would have been required (fourteen by count) just to have described administrative and organizational relations in the townships alone. We believe that the narrative presentation is more accurate and more appropriate to portray the wide diversity of organization forms and administrative arrangements even in jurisdictions of comparable size. For example, in medium or larger sized cities with a city manager, where there is almost invariably a department of public works or services, policy-decisional, operationsdecisional, and operating tasks fall to differing individuals from city to city. Even the decisional role of the water superintendent (or department head) differs from city to city in this similar class of jurisdictions. In the smaller cities and townships there is less differentiation of tasks and activities, especially decisional tasks, than in larger cities and townships. But, as the data above indicate, differing kinds and combinations of tasks fall to differing individuals; even executive arrangements differ from city to city and township to township in the smaller municipalities where there is no city or township manager. It is also obvious that the kinds of decisional and managerial structures which have grown in the municipalities are based on individual local history, need, and custom-especially in charter cities where local residents have established the governmental form and municipal functions to be performed through charter referenda. But even in townships with a mandated similar form, functions, activities, and their method of implementation have deep roots in local needs and custom. And local custom can limit alternative organizational and administrative structures in much the same way that a prior decision to lay transmission mains will constrain water main extension decisions. We do not mean to imply that such diversity in the localities means that one set of institutional arrangements is superior to another in water supply (or any other function). While it was the impression of investigators that the water supply function was performed more effectively and efficiently in some municipalities than in others, efficiency and effectiveness in operation seemed to be more a function of quality of personnel than of organizational design; design alone is no guarantor of performance. Nor do jurisdiction size and population seem to be critical variables in performance. There is a tendency for larger municipalities to develop their own professional and technical engineering, planning, and operating staffs which are beyond the financial capabilities of the smaller jurisdictions-but distribution systems in some small townships and cities seem to be as well managed as larger ones. 4 Indeed, with a large number of construction and operating standards established and enforced by DMWS, the number of alternatives to consider in technical and professional decisions is reduced for all jurisdictions. 54. Extensive technical and professional inputs in smaller jurisdictions are usually made on a consultancy basis. Unable to afford a full-time engineer, the small jurisdictions appear to make good use of consultants. 98

CHAPTER V TRENDS IN SYSTEM OPERATION This chapter provides a commentary on the information presented in the Tables V-i, V-2, and V-3, each of which presents data from 1954, a year when regional aspirations were still muted, Over the fifteen years from 1954 to 1968 DMWS billed revenue about doubled, from 15 million dollars to over 30 million. For the same period revenue received by DMWS from the suburbs on wholesale business increased from 3.5 million dollars to 15.7 million dollars. The percent of total DMWS revenue from the suburbs increased from just over 235 to almost 52%. Revenue increases reflect rate increases during the period, but quantities of water pumped reflect other relationships, moving from 21.7 billion cu ft in 1954 to 29.6 billion cu ft in 1968. Thus total pumpage increased by more than 36% in the period. But the growing importance of suburban consumption is indicated by the increase in water pumped to the suburbs, from 5.3 billion cu ft in 1954 to 13.4 cu ft in 1968. While the suburbs had accounted for 24.635 of the quantity pumped in 1954, by 1968 they accounted for 45.24o% Per capita consumption of water in the region fluctuated around 150 gallons per person. But this figure is misleading. Since it represents simply the total consumption, it reflects economic activity, drouth, and other variables. And, in Detroit, economic activity means primarily the status of the automobile industry. Thus 1954, 1955, and 1956 were peak auto production years as were 1965 through 1968. The estimates of population served over the fifteen-year period reflect both the growth of the region and the expansion in service areao In 1954, the Detroit Water Board estimated that it was serving a population of 2.75 million people. In 1968 the estimated population served had increased by one million, to 3.73 million. Again, the Detroit-Suburban relationships are noteworthy. The population inside Detroit's city limits in 1954 was estimated at 1.89 million; in 1968 the comparable estimate was 1.59 million, Meanwhile the suburban population served grew from 881 thousand to 2.14 million. Over this same fifteen-year period the area served expanded from 310 square miles to 677.75 square miles. The area of Detroit remained stable at 139.60 square miles, 1o In the "Year 2000" report DMWS experts to serve 8 million consumers in an area of 4,000 square miles, 80% of the population being outside Detroit. 99

TABLE V-1 TRENDS IN DMWS OPERATING DATA 1 2 3 4 5 6 7 8 9 10 11 12 Total Total Percent of Total Yr Daily Total Total Percent of Total Amount Percent Population (Estimated) Square Miles Served Year Dasupily Billed Revenue Revenue Annual umped to Pupedto Consumption Pumped to Pumped to Revenue, from from Pumpage, per Capita Revenue, from from Pumpage, Suburbs Suburbs Total Detroit Suburbs Total Detroit Suburbs $ Suburbs, $ Suburbs M cu ft 1968 162 30,55332,691 15,767,161 51.96 29,609,478 13,395,658 45.24 5,735,400 1,590,000 2,145,400 677.75 139.60 538.15 1967 169 26,922,713 13,349,345 49.58 29,033,206 12,559,087 43.26 3,503,800 1,630,000 1,873,800 622.70 483.10 1966 163 25,537,031 12,450,199 48.76 27,632,070 11,729,569 42.45 3,466,300 1,640,000 1,826,300 599.60 460.00 1965 165 24,740,564 11,552,095 46.62 27,265,116 10,962,640 40.21 3,378,300 1,620,000 1,758,300 580.70 441.10 1964 160 25,660,104 10,591,464 44.77 25,958,639 10,258,274 39.52 3,316,400 1,618,000 1,698,400 562.60 423.00 1963 152 21,137,044 8,679,335 41.06 23,792,982 8,587,295 36.09 3,211,600 1,670,100 1,541,500 509.70 570.10 1962 152 20,697,168 8,474,906 40.94 23,387,728 8,461,556 56.18 5,164,000 1,670,100 1,495,900 499.40 359.80 1961 1553 20,860,669 7,839,990 37.58 23,121,770 8,271,742 35.77 3,152,800 1,670,100 1,462,700 488.70 349.10 1960 154 20,122,333 7,052,395 35.04 23,616,443 8,389,297 35.52 3,078,200 1,654,100 1,424,100 387.44 247.84 1959 150 17,008,571 5,413,074 31.83 23,259,729 7,527,328 52.36 3,199,500 1,875,000 1,324,500 375.99 236.39 1958 152 16,607,011 5,027,707 30.27 23,245,665 7,332,303 31.54 3,159,200 1,910,000 1,259,200 364.65 225.05 1957 152 16,127,862 4,597,758 28.51 22,884,433 6,967,065 30.44 3,127,700 1,910,000 1,217,700 340.00 200.40 1956 160 16,565,319 4,341,431 26.21 23,222,993 6,572,980 28.30 3,057,200 1,910,000 1,147,200 332.00 192.40 1955 162 15,709,792 3,943,707 25.11 22,325,232 5,956,848 26.68 2,879,000 1,902,000 977,000 521.60 181.60 1954 160 15,85,944 5,544,250 25.04 21,676,051 5,338,177 24.63 2,755,000 1,894,000 881,000 310.00 170.40 1955 155 153,379,400* 2,751,000 1952 150 145,192,300* 2,680,000 1951 154 143,795,000* 2,604,000 1950 151 136,087,500* 2,497,371 *Gallons (M) H 0 0

TABLE V-2 FIFTEEN-YEAR TRENDS IN WATER CONSUMPTION WITHIN THE CITY OF DETROIT Total Revenue Domestic Commercial Industrial Other* Pumped Less from Year Sales to Billed Number of Consumption, Percent Percent Suburbs, Sales Less Accounts M cu ft Pumpage (A) (B) (C) (A) (B) (C) Suburban (B) (C) M cu ft Suburbs, $ (A) (B) (C) Pumpage** 1968 16,213,820 14,565,530 355,141 5,277,397 17.82 28,811 3,779,797 12.77 2,172 4,192,416 14.16 45.24 2,964,210 10.01 1967 16,474,120 13,573,368 356,828 5,380,002 18.53 29,614 3,850,260 13.26 2,163 4,073,428 14.03 43.26 3,170,430 11.12 1966 15,902,501 13,086,832 358,448 5,067,860 18.34 30,330 3,637,474 13.16 2,190 4,045,159 14.64 42.45 2,152,008 11.41 1965 16,302,477 13,208,469 360,786 5,238,716 19.21 30,516 3,727,429 13.67 2,172 3,857,019 14.15 40.21 3,479,313 12.76 1964 15,700,365 13,068,639 360,776 5,308,779 20.45 31,866 3,624,634 13.96 2,190 3,669,051 14.13 39.52 3,097,901 11.94 1963 15,205,687 12,457,709 561,191 4,855,429 20.41 32,013 3,413,524 14.35 2,175 3,630,618 15.26 36.09 3,306,116 135.89 1962 14,926,172 12,222,263 362,637 4,780,754 20.44 32,169 3,448,301 14.74 2,205 3,298,456 14.10 36.18 3,398,661 14.54 1961 14,850,028 13,020,679 3635,5391 5,057,782 21.87 32,261 3,389,320 14.66 2,172 3,176,102 13.74 35.77 3,226,824 13.96 1960 15,227,146 13,070,938 364,143 5,563,349 22.71 32,558 3,719,236 15.75 2,182 3,515,831 14.89 35.52 2,628,730 11.13 1959 15,752,400 11,595,497 363,754 5,217,198 22.43 32,179 5,430,353 14.75 2,151 3,264,717 14.04 32.36 3,820,182 16.42 1958 15,913,362 11,579,304 362,656 5,105,962 21.97 32,066 3,544,599 15.25 2,228 3,4553,056 14.85 31.59 3,809,745 16.39 1957 15,917,368 10,530,104 361,592 5,011,163 21.90 32,151 3,629,258 15.86 2,310 3,783,805 16.54 30.44 3,493,142 15.26 1956 16,650,013 12,223,887 360,246 5,451,217 23.47 31,895 3,758,606 16.18 2,316 4,280,650 18.43 28.30 3,169,540 13.62 1955 16,369,384 11,766,085 357,967 5,227,070 235.41 31,790 3,494,981 15.66 2,544 4,196,043 18.80 26.68 3,451,290 15.45 1954 16,337,875 11,841,714 355,636 5,018,464 25.15 31,557 3,524,313 16.26 2,651 4,620,143 21.31 24.63 3,174,955 14.65 *Includes U. S. Government construction, municipal usage, leakage, but not suburban. **Subtract from 100% to get within Detroit consumption. H 0 H

TABLE V-3 FIFTEEN-YEAR TRENDS IN WATER CONSUMPTION AMONG THE SUBURBS PURCHASING WATER FROM DETROIT M Cu Ft Amount Percent Percent of Number of Suburban Suburban Year to Paid By of Total Total Billed Suburban Population Area Served Suburbs Suburbs Pumpage Revenue Distributors Served (sq mi) 1968 13,395,658 15,767,161 45.24 51.96 69 2,145,400 538.15 1967 12,559,087 13,349,345 43.26 49.52 64 1,873,800 483.10 1966 11,729,569 12,450,199 42.45 48.76 63 1,826,300 460.00 1965 10,962,640 11,532,095 40.21 46.62 61 1,758,300 441.10 1964 10,258,274 10,591,464 39.52 44.77 60 1,698,400 423.00 1963 8,587,295 8,679,335 36.09 41.06 53 1,541,500 370.10 1962 8,461,556 8,474,906 36.18 40.94 52 1,493,900 359.80 1961 8,271,742 7,839,990 35.77 37.58 50 1,462,700 349.10 1960 8,389,297 7,052,395 35.52 35.04 49 1,424,100 247.84 1959 7,527,328 5,413,074 32.36 31.83 48 1,324,500 236.39 1958 7,332,303 5,027,707 31.54 30.27 46 1,259,200 225.05 1957 6,967,065 4,597,758 30.44 28.51 46 1,217,700 200.40 1956 6,572,980 4,341,431 28.30 26.21 45 1,147,200 192.40 1955 5,956,848 3,943,707 26.68 25.11 40 977,000 181.60 1954 5,338,177 3,544,230 24.63 23.04 40 881,000 170.40 O r\)

Trends Within Detroit City Limits As the previous data imply, Detroit was a relatively stable element in the consumption situation over the 1954 to 1968 period. But the data deserve additional comments (Table V-2). First, water consumed in Detroit in 1954 was almost exactly the amount consumed in 1968. Because of rate increases, and because of changes in the composition of consumption components, revenues from billed sales within the city increased from 11.8 million dollars to 14.6 million in 1968. It is standard practice to distinguish among three major classes of consumers: domestic, commercial, and industrial; and this breakdown provides some significant insights into the Detroit load. It is unfortunate that similar data are not available on the suburban loads, for it must not be assumed that suburban loads are entirely domestic, or domestic and commercial. A number of Detroit's suburbs are, in fact, highly industrialized, while others are stereotyped bedroom communities. The number of domestic within-city accounts varied only slightly from 1954 to 1968, and domestic consumption within the city similarly remained at about five billion cu ft. But the quantity of water pumped for domestic uses within the city as a percent of total pumpage in the system (including suburbs) declined from just over 23% to under 18%. Commercial consumption increased from 535 to 3.8 billion cu ft, but the percent of total pumpage in the system declined from 16.261% to 12.77% of total pumpage, and in this category the number of accounts also declined from 31.6 thousand to 28.8 thousand, Industrial accounts within the city declined from 2651 to 2172, while cubic feet consumed by this category dropped slightly from 4.6 billion to 4.2 billion, with considerable fluctuation over the period. But as a percent of total water pumped in the system, the within-city industrial load fell significantly from 21.31% to 14.16% by 1968, Suburban Trends The number of suburbs contracting with DMWS in 1968 was sixty-nine, an increase of twenty-nine over 1954. The population of these suburbs increased from 881 thousand to almost 2,2 million. The area served (and in terms of future load prospects this may be the most significant figure) increased from 103

170.40 square miles of suburban area to 538.15 square miles.2 Unfortunately, as already mentioned, we were not able to get data on suburban loads indicating domestic, commercial and industrial components, so it is not possible to present aggregate figures. Nor can we present such a breakdown community by community. The following data simply presents, for selected years, jurisdiction by jurisdiction: (1) an estimate of the population served; (2) the number of service connections; (3) the quantity of water received from Detroit; (4) the amount paid to Detroit, in total; and (5) the average rate per M cu ft paid to Detroito (Resale rates are dealt with in Chapter VI). DMWS frequently organizes its data on the suburban customers in terms of: (1) cities; (2) villages; (5) townships; and (4) institutions. The 1968 DMWS Annual Report listed "Suburban Systems Supplied With Detroit Water (as of June 30, 1968)" (po 82): Cities Allen Park Belleville Berkley* Birmingham* Center Line Clawson* Dearborn Dearborn Heights East Detroit Ecorse Farmington Ferndale Flint** Flushing** Fraser Garden City Gibralter Grosse Pointe Park Grosse Pointe Woods Hamtramck Harper Woods Hazel Park Huntington Woods* Inkster Keego Harbor Lathrup Village* Lincoln Park Livonia Madison Heights Melvindale Northville Oak Park Pleasant Ridge* Pontiac River Rouge Riverview Roseville Royal Oak* St. Clair Shores Southfield* Southgate Sterling Heights Taylor Trenton Troy Utica Warren Wayne We stland Woodhaven Villages Beverly Hills* Grosse Pointe Shores Novi Townships Bloomfield Brownst own Canton Huron Northville Plymouth Romulus Royal Oak Shelby 2, If density increases tems may have difficulties in stalled may be below required beyond present expectations, the distribution sysproviding adequate service for them. Mains incapacityo 0o4

Clinton*** Pontiac Sumpter Farmington Redford Van Buren Grosse Ile *Supplied through Southeastern Oakland County Water Authority (SEOCWA). **Supplied through Flint system. ***Supplied through Mt. Clemens system. In addition, DMWS serves several public institutions: Wayne County General Hospital; Detroit House of Correction; and Wayne County Child Development Center. Map V-l includes most of the present system except for the proposed Lake Huron intake (under construction) and the City of Flint. On a smaller scale Map V-2, prepared by DMWS, presents the several counties involved in present development plans. Map V-3 provides an overview of the system. Map V-4, reproduced from the Detroit Edison-Wayne State University-Doxiadis Associates project, "Developing Urban Detroit Area Research Project," projects population densities to the year 2000, It might be noted, in this connection, that DMWS development plans are in the areas of greatest projected population density, as are those of the Detroit Edison Company. That a kind of self-fulfilling prophecy, or more simply, feedback, may be involved here seems obvious. 105

Highland Twp Milford Top LyonTwp 0 WASHTENAW CO. Salem Twp Q 4 r Commerce Twp _n White Lake Twp I Waterford' Avon Twp Twp Avon Tap ~'" 90 t BloomfiBeldIR n ~ CLAWS ^ ILiS ROYAL l 2 OAK K t ERtOW N ro BERKLwy\ S rmtjoton Twp <I o' SOUTHFIELD H.i f-' O A K., - A.EL PR( IFERNRDALE | PARC A| N j D PARK< R KC 0 Shelby Twp Wes 0X NOVI 1 Sterlingl wp. Far WARREN M A C 0 M Macomb Twp. Chesterfield z$ Tap. J -"-. 4 r I_ - _. —--—.- Tap Clinton Twp ROSE- -' /' VILLE s- I rcI EAST DETROIT/ \ I B C 0.. omr%. I Northville Twp.Plymouth T PlymouthT Superior Twp Canton Twp Ypsant T Ypsilanti Twp t^ Van Buren Twp r\I- I - r A2: P N f\ E C i POINTE LIVONIA1 4 -. 31 1 D ET R O I T DOFRBOM Nr3T. C. I, Y _ ~Y - Nankin Tp EAR BOR WAYNE E=LVIN W/2/qUGE *,SYSTEM CONTROL 3^ ^ ^' -' O WATER TREATMENT PLANTS I WATER WORKS PK. STA. Romulus Twp Taylor Twp - 2 SPRINGWELLS STA.,$ I, 7' ll 3 NORTHEAST STA. 4 SOUTHWEST STA. O.,t DORESERVOIR & REPUMPING STATIONS RIVERViEW I 1 NORTH SERVICE CENTER zt r.. Jr,,J,,., 2 NORTHWEST STA. Huron Tap I i /3 CHICAGO RD. STA. Huron Twp HuronTWP | / //4 FORD RD. STA. _ O jd'\5 MICHIGAN AVE. STA. E| _ ~ )7 i 6 ELECTRIC AVE. STA.' J,- 1 J7 EAST SIDE STA. AnROoCK — v / * WEST SERVICE CENTER Iotown O:aiA 9 NEWBURGH STA..Twp ALN 0 0 LINE BOOSTERS.... ~~ 1 EIGHT MILE RD. & KINLOCH TEMPORARY 2 SIX MILE RD. STA. Augusta Twp Sumpter Twp 1* ~ ~~~ k I 3 ADAMS RD. BOOSTER STA. TEMPORARY CENTRAL SERVICE CENTER i SEWAGE TREATMENT PLANT Map V-l. Source: From the 112th Operating Report of the Department of Water Supply and Sewage Treatment, City of Detroit, for fiscal year ending June 30, 1964. 106

I.,:, -. i: Interchange ge.:.,;'' t0~~ ~'..,-:~ ~~~~~~~~... _ ~.".T0':: f..~~~ iSTO NQ, pipe t.$. tC':LA:R K L A N D.. ~. V. 1 N., f COM B:::}f:?':PRESENT SERVICE AREA COMPLETED _: CONS. TO STARTIN 1968 UE, 7.::j d..; -~... F,;a;t-_-,Lake St. Clair W A'I $.H T E N.::A. W Ann r. ~ f. Map V-2. Source: MWS information leat'let.

Map V-5. Source: DnWS (1967). -....BURNSIDE F |. |N iR MAPLE SPEAKER REM T WOR aBRANl, VALLEY:~_:_ _.____............__..............__._ —-: _ _ INTAKE ^*~~" Lake St. Clair LEGEND Transmission Mains Existing Proposed Color Code - I Complete Water Plants EXETER I, tke Eric -., Storage Reservoir Repumping & Booster Stations Booster Pumping Stations R Storage Reservoir & Repumping i ] Stations CONSTRUCTION SCHEDULE Periods Color Code Constructed Since 1959 00" Completed or Under Construction in 1967 _ _ 1968 - 1970 1970- 1980........... 1980- 2000.. Present Service Area Area Presently Negotiating for Service s NOTE: Schedules, routes and locations subject to acquisition of right-ofway, development of sub-surface or surface obstructions and growth of the load pattern. The service area shown will be developed providing contracts are made with the constituent communities. The layout shown provides the most economic solution to the water supply problem for the area. JUNE 1967.0io8

: t t I I: I t i B- Bay C T ty y.::I* -M61 1 S4} 8'1= * e_ 4 Midlnd 1 @ 1. 1SIo.' now mFm^^^^^ —-^-^n ".Ir.' " <1 - i- ^- 4ti ~ — 7-,4: -- -|I-i-i- -r —-4-t LAKE HURON. M 5 0 S - 5 0 5 10 20 30,,9 I~~,..,..-,, F I IN -' UDA is expected to continue its dynamic growth. High population density is projected for the year 2000 in the areas of metropolitan Detroit, Port Huron and Toledo. Map V-4. Projected density dcstribu.l;ion year 2000, alternative 120. Source: Leaflet distributed bv Detroit Edison.

CHAPTER VI PRICING, RATES, AND CHARGES: NOTES ON POLICY AND PRACTICE A crucial policy issue in regionalization of water supply services is that of pricing, of deciding what rates and charges are to bee The first set of issues concerns prices as among segments of the userpopulation. Here a variety of theories dealing with what the appropriate price should be may be considered. In terms of practice, it obviously makes a great deal of difference whether the service is provided by a single agency, as in the case of electric or telephone service in most metropolitan communities, or whether regional service is based on a kind of:negotiated federalism with a sharing of functions among the several jurisdictions. Where the central city provides part or all of the services to suburban areas of a region, the policy issues are complex since the question is not only what to charge users within the city limits, but also what to charge users outside the city limits where local jurisdictions usually continue to perform some of the functions, usually distribution. A wide range of patterns may be found, and thereis no necessary logic to any of them since they reflect concepts of equity and the bargaining power of those who negotiated the particular arrangements. The Journal of the American Water Works Association, as well as other periodicals interested in municipal management, have from time to time dealt with these relational issues. A not uncommon view among central city interests is that "making a profit" on sales to suburbs is proper and desirable for a variety of reasons; mark-ups of at least 10o~ are frequently considered a proper starting point for rate negotiations. But generalized descriptions in percentage mark-up terms are usually rnot too informative, since the final decisions are usually based on an assessment of practical operating needs in particular situations, and not on generalized principles of rate-making, In addition, there is reason to suspect that few municipal water system accounting records are adequate for determining reasonable and proper wholesale rate policies. Municipal water rates and accounting practices are controlled by state regulatory agencies in only a few states, so this type of standardization is not generally operative. In any case, most central city/suburban agreements will range from simply providing stand-by emergency service, through provision of supplemental supplies, to taking over the total supply responsibility. In some communities, moreover, central cities have used provision of water service to new areas as a kind of club to secure annexations, with 110

considerable success where engineering or economic constraints limited the alternatives open to the new area. At the same time, water service policies have been subjected to considerable criticism because they have not been coupled with zoning and other land-use planning and control devices in order to help to achieve desirable patterns of settlement, and appropriate location of industrial and commercial activities within a larger region. This criticism, frequently made by planners, would apply to the Detroit region as well as to most other metropolitan communities where water supply is dealt with independently. The issue of water supply and land-use planning and control is an important one, but it is not a simple one, and it is vitally connected to policy issues of pricing and rates. It is, therefore, useful to state some of the dimensions of the problem categorically, even though the issues cannot be disposed of in this chapter: 1. Water supply decisions can and do in many situations influence the distribution of settlement and of commercial, industrial, and leisure time activities in a region, although whether they are primary or even major determining factors is more difficult to prove. 2. Water supply decisions could in many situations be more effectively related to other water problems in metropolitan or urban, specifically sanitary waste water management and storm drainage. Opportunities for creative management have not been exploited. 3. In some communities water supply decisions have been used to benefit particular land developers and to create what amounts to windfall profits (although this has not seemed a major problem in Detroit). 4. Water supply may often be a critical factor in industrial location, particularly in a micro context, i.e., in which part of a metropolitan region a plant will be located. Except in a very few and highly special cases, the initial broader decision as to whether to locate an industry in metropolitan area "A" or area "B" is made in a different context. 5. Finally, it must be recognized that for institutional and many other reasons, water supply policy is a very weak weapon in the struggle for more rational land-use. Those making water supply decisions are usually ill-equipped to deal with complex issues of long-range land-use goals; they share a dominant "public utility" ("we serve anyone") philosophy; and the public is just not ready in most situations to accept dynamic, forward-looking land-use planning and control, and would not sanction attempts to use water supply as a positive force in this connection, In this situation it is futile to expect to do indirectly what cannot be done directly. 111

The Institutional Structure The institutional system which evolves to handle water supply in any metropolitan region does not exist only to effectuate simply stated water goals, although goals may often be supeificially stated in such simplistic terms. If one were to seek institutional arrangements which would solve the simple, single-purpose goal of water supply, then it would seem logical that one would end up with a special district or a government corporation, isolated from the general government and seeking to provide service on a basis comparable to that of analogous private utilities in electricity or telephone service. An ideal (frictionless) model of government organization would perhaps be one which just exactly did the job which had been decided needed doing-at the lowest or optimal cost. But, of course, the situation in which such an institution finds itself is never static. A variety of forces are at work with respect to water supply (population growth and movement, economic development, suburbanization, decay of older communities, etc.) which push toward change in the structure and arrangements for service, while other forces act as restraints, inhibiting adjustments and change. Among the important inhibiting forces are the complex value commitments to small local governmental units. The simple job of water supply cannot be considered outside the context of associated motivations with respect to maintaining local autonomy and control. A recognition of these forces helps explain the persistence of some governmental institutions even when change (i.e., reorganization, merger, abolition) seems to be the logical and efficient course. It is not surprising, therefore, to find few situations in which the residents of a metropolitan region have created a service utility to provide water for the entire area as that area grows and develops. Neither the general expansion of central city systems nor the creation of new regional agencies to supply the metropolitan region has been common. More typical have been ad hoc arrangements under which a few communities may combine, or a central city may contract to provide water for a particular suburb (most frequently on a supplemental basis). Thus, in a report on this subject, the Advisory Commission on Intergovernmental Relations pointed out that... The general tendency has been to create additional water and sewer districts rather than expand the area of existing districts. 1. The general situation is thoroughly reviewed in the report of the Advisory Commission on Intergovernmental Relations entitled: Intergovernmental Responsibilities for Water Supply and Sewage Disposal in Metropolitan Areas, U.S. Government Printing Office, October, 1962. Report #A-13 (prepared by the Institute of Public Administration, New York, New York). See especially Chapters 3 and 4: "Patterns and Problems at the Local Level," and "Metropolitan Approaches to the Water Problems." 112

The Detroit situation with respect to pricing, rates, and charges, and with respect to allocation of costs as between central city and suburban systems, differs in a number of important respects from that which seems to prevail in most central city/suburban system relationships. The primary difference stems from the fact that DMWS decided to provide service to the entire region, as recounted in Chapter II. But also as recounted, DMWS had to accept, as a condition for regionalization, to serve simply as the wholesaler outside the Detroit City limits. Second, at least since World War II, Detroit has not used its quasimonopolist position as a means for achieving annexations. Third, as a matter of DMWS policy and to a lesser extent as a matter of State law, Detroit has established clear, unequivocal, nondiscriminatory rates for its suburban customers. At the same time, its offer to serve any and all communities on a "utility" basis, and its capacity to fulfill this offer has tended to minimize the effects of water as a dominant factor in the location of residential developments and industry in the region. It is almost literally true that water is available anywhere within the approximately 700 square miles served by DMWS, and that transmission mains are so located (and the situation will be improved when the Lake Huron intake has been completed) that any community and virtually any developer or industry can expect to secure water service with minimal difficulties and expenses. In this connection, it is standard practice in the region for communities to require housing developers to put in the distribution mains and connections (subject to local and DMWS inspection), these facilities then being turned over to the jurisdiction when the development has been completed. As a result of these practices it is clear that insofar as the wholesaling of water is concerned, DMWS has moved in the opposite direction from those who would wish to use water as a tool for better land-use planning and control, for in the DMWS service area wholesale water is virtually a neutral factor in locational and development decisions, except as "real" cost differences may be reflected in the five-factor rate structure to be discussed later in this chapter, In the suburban communities rates to the ultimate consumers are determined by each suburban jurisdiction with the result that there is a rather wide range among the rates charged by the seventy some distributors. These differences may affect the location of commercial and industrial establishments, and perhaps in some cases even influence patterns of residential development, although the latter consequence would seem to be more remote. In any case, it is clear that the rates charged ultimate consumers in the Detroit region (even in the case of the suburb with the highest rates) are still quite low compared with 2. This is inferred from a 1949 Michigan Supreme Court decision involving sewage charges, where, in what amounts to an obiter dictum, the court announced an "anti-profit" principle in curiously inverse language, stating that the City of Detroit "...may not charge the adjacent municipalities a rate sufficient to pay part of the cost of furnishing service to its own residents." In City of Detroit (Plaintiff) v. City of Highland Park (Defendant), 526 Mich. 78, 1950o 115

many other regions in the United States, But even if this were not the situation, DMWS is not politically able directly and forcefully to influence rate decisions of the distributors, and thus it cannot use its position to influence locational decisions. As a result, DMWS does not purport to have staff able to make the value judgments necessary to influence area patterns of development in the region as between particular suburbs, However, DMWS serves as the water planning arm for the Southeast Michigan Council of Governments and in this way is able, to a degree, to relate its information to that developed in the regional planning process generallyo3 The Rate Structure4 As implied in the previous section, it is our conclusion that the Detroit rate structure is a tenable one, and that it is generally reasonable, given the necessity for a system which requires DMWS to act as wholesaler with respect to users outside the Detroit City limits, and the local jurisdictions continuing to serve as distributors. It is worth emphasizing again that direct service by DMWS to all consumers in the region on a basis comparable to the direct service provided by Detroit Edison or Michigan Bell Telephone Company was not and is not a politically feasible alternative (any more than that the State of Michigan could take over the local highway function completely as was done in North Carolina and Virginia). No political leaders, no community influential, no government agency-local, county, state, or federal-at any time has proposed this course. To criticize DMWS because such a monolithic decisional and service structure does not exist (however rational and efficient it might seem to be) is the height of political unreality] 30 Detroit was one of the pioneering communities in the so-called "COG" movement, and to our knowledge relationships between DMWS and the Southeastern Michigan Council of Governments are cordial and reasonably effective. 4, In the discussion of rates in this chapter an "average" rate is used which has been calculated by DMWS to simplify discussion of rates, DMWS has a three-step rate both for its own residents and for the suburbs, The "average" used in this discussion is based on the third step rate plus one cent. The logic of this calculation rests on the fact that the volume purchased by the suburban communities is great enough so that they reach the third step, For example: Rate Schedule: First 10,000 cu ft per month at $1,59 per M cu ft. Next 90,000 cu ft per month at $1.355 per M cu ft. All over 100,000 cu ft per month at $1.17 per M cu ft. Thus, a community consuming 20,000,000 cu ft would pay $23,620.40, which averages out to $1.18 per M cu ft or one cent more than the third step. This method of "averaging" is used throughout this chapter and is considered generally valid. 114

Basic to the rate structure in the Detroit region is the distinction between the rates charged residents of Detroit and rates charged those outside Detroit's City limits. Within the city limits DMWS provides total serviceproduction, transmission, and distribution. Thus, one decision-making organization is involved, one set of policy guidelines, and one set of management data. Outside the city limits, however, at least two decision-making organizations are always involved, and in some cases three. DMWS, as wholesaler to some seventy jurisdictions outside the city limits, merely establishes the wholesale rate. And each jurisdiction is then free to charge as much or as little as it chooses, taking into account those factors that are relevant to its situation, including perhaps its desire to "realize a profit" from its distribution activities. The subsequent data and discussion indicate a rather considerable variation among the 70 distributors in the rates charged to ultimate consumerso It should be emphasized that these differences are based on more than arbitrary whim: they are implicit in fragmentation, since each jurisdiction has its own cost factors to consider. In a totally unified system, a "postage stamp" rate might be considered; but in a fragmented system such uniform pricing would be difficult, if not impossible.5 Within the city limits DMWS (or technically the Detroit Water Board) has long had a fully developed, virtually uniform rate structure. Outside the city limits, only the wholesale rate pattern (which is set by DMWS) can be clearly identified, for each of the seventy communities has determined its own retail rates without much attention to what neighboring communities may charge, and certainly with little attention to the entire suburban rate structure. For purposes of regional analysis it would be useful if DMWS were organized in such a way (and kept its accounts accordingly) that the distribution function and costs within the city were separated from the production and transmission functions. It would then be possible to compare wholesale rates both inside and outside the city limits, considering variations in the basic rates as required by such factors as elevation, distance, hourly or daily maxima, etc., as is now the case in the wholesale contracts to the suburbs. In its present accounts DMWS treats sales to the suburbs in the same way as sales to a large industry (and, of course, some large industries which are in the city limits and purchase directly from DMWS use more water annually than do many of the towns, villages, and cities). From one point of view, this 5. It is interesting to note that in a comparable situation the Tennessee Valley Authority started with a "postage stamp" rate concept, but was forced by local cost difference to depart from it in many of its distributor contracts. TVA had the advantage of being able to insist on resale rate control in its contracts (as well as uniform accounting). 6. The Michigan Municipal League periodic study of water rates takes no recognition of the regional system, dealing with the 70 distributors in the same way that it deals with all other Michigan municipalities. 115

practice is logical, and it certainly has much history to support it. But it tends to obscure the regional function of DMWS which is that of wholesaler to the entire region, and at times it probably contributes to unnecessary political pressures and complaints. The truly regional functions of DMWS are production and transmission; its retail functions involve only distribution within Detroit City limits; they are not regional. It would be useful if its accounts and other reports reflected this situation. WITHIN-CITY RATES Within Detroit City limits all sales are metered and the amount paid by consumers is determined primarily by two factors: 1o The size of the service connection, ranging from 5/8 inch to 48 inches; and 2, The quantity of water consumedin the billing period (quarterly for residential customers, and monthly for commercial and industrial customers) Consumers pay a minimum bill (which is of slight significance since most consumers far exceed the minimum), and an initial connection chargeo There are also charges for turning water on and off, but as the data on sources of revenue (below) suggest, the two primary factors dominate the situation to the point where these other charges can be ignoredo DMWS does not charge the City of Detroit for fire hydrant service (which can be particularly important in smaller communities), but it does charge industries and commercial customers for special fire fighting stand-by arrangementso Service to municipal departments and to schools is billed at the standard rates applicable to other consumers, The minimum bill or service charge (sometimes called a "readiness to serve" charge) is determined by the size of the service connection, ranging from $.40 per month for a 5/8-inch connection to $68070 for a 20-inch connection. The charge for a. 48-inch connection is $305o00. Some perspective on this matter of connection size is given in the following table: 116

TABLE VI-1 NUMBER OF SERVICE CONNECTIONS, BY SIZE (June 30, 1968) Number of Size, Service in. Connections 5/8 283,734 3/4 66,048 1 16,448 1-1/2 4,889 2 4,103 3 1,497 4 916 6 764 8 574 10 93 12 49 16 18 18 1 20 4 24 6 30 1 36 1 48 1 Total 379,147 Another perspective is provided by the relationship between the revenue produced by consumption charges (i.e., determined by the metered quantities) and service charges. For the year ending June 30, 1968, consumption charges accounted for $27,787,122.16 (which figure included income from water sold to suburban distributors on a wholesale basis), while service charges for the period amounted to $2,545,569.09 or 8.39%o of the total revenue from the sale of water. All other revenue in that year (not including income from investments) amounted to only $236,269.14. The rate to the ultimate consumer within the Detroit City limits is a three-step rate, being $1.09 per thousand cu ft for the first 10,000 cu ft per month; $0.92 for the next 90,000 cu ft per month; and $0.785 for all over 100,000 cu ft per month. 117

WHOLESALE RATES DMWS has established six basic rate categories which identify the several cost factors which are considered in determining the contract rate applicable to any particular community, 1. The level daily demand or maximum day rate category. If this rate is applicable, the community has agreed to a quantity (upper limit) based on an average daily demand figure, and the responsibility of DMWS extends to supplying no more than that quantity dailyo This figure usually applies to communities that have some pumping and/or storage capacity. Three communities have contracts based on this category and each pay DMWS $0o90 per 1,000 cu ft of water. This, of course, is the most favorable rate, involving the lowest commitment on the part of DMWS. 2o The level daily demand or maximum day plus pumping and transportation factors categoryo Again this category applies to communities which have some pumping and/or storage capacity, the significant difference from the first category being greater distance and/or elevation in relation to the DMWS pumping facilities, Pontiac, for example, pays $1.61 per 1,000 cu ft of water, 3, The variable demand or maximum hour rate category under which DMWS agrees to provide quantities of water (upper limit) specified in the contract on an hourly demand basis and to maintain pressure accordingly hour-by-houro Fifteen communities are under this category of contract and pay a uniform $1.18 per 1,000 cu ft of water. 4. The variable demand o maximum hour plus pumping and transportation factors rate category. This category differs from the preceding one in that distance and elevationsare given weight in determining the ultimate rate. Seventeen communities fall into this category, with the rate per 1,000 cu ft of water ranging from $2.01 (for three communities) to a low of $1.17 (for two communities). 5. This category applies to those communities which were being served or expected to be served by the Wayne County system, This is essentially a variable demand or maximum hour rate varying with distance and pumping requirements, although of the twenty jurisdictions to which this rate category applies, seventeen have the identical rate of $1036 per 1,000 cu ft of water; one jurisdiction pays $157, and two pay $1.59. 6. The category, applying to the Southeastern Oakland County Water Authority (SEOCWA), which was separately negotiated at $0,94 per 1,000 cu ft of water (see Appendix i). 118

To summarize, therefore, under these six rate categories the wholesale rates range from $2.01 per 1,000 cu ft to $0.90 per 1,000 cu ft. SUBURBAN RETAIL RATES The rates to consumers charged by the suburban distributors seem to follow no very definite pattern. Clearly there are some cost differences (in addition to differing costs of the water itself). Newer suburbs and those where considerable vacant land has been in existence and is being developed will generally have higher capital costs than older suburbs which have been substantially built up for many years. Costs of putting pipe in the ground will be higher in newer areas; lots are likely to be larger with greater distances between customers; and a number Qf other variables will influence costs properly attributable to water distribution. Economies of scale in distribution would seem to be relevant, but we have no data on this except that mark-ups seem to be higher in smaller than in similarly situated larger communities. This might, however, be due to many factors other than simply size of the operation. The following table gives some idea of the ranges in mark-up: TABLE VI-2 RANGES IN MARK-UP ANumber of Amount of Mark-Up Number of Distributors $0.75 - $1.00 9 $1.01 - $1.25 1 $1.26 - $1.50 20 $1.51 - $1.75 6a $1.76 - $2.00 6b $2.01 - $2.25 3C $2.26 - $2.50 1 $2.51 - $2.75 4d $2.76 - $3.00 1 $3.37 1 $3.39 1 $5.77 1 $5.91 1 $4.08 1 Includes Includes Includes Includes one SEOCWA member. one SEOCWA member. four SEOCWA members. three SEOCWA members. Note: The mark-up of SEOCWA members is on the rate they pay SEOCWA and not on the rate which DMWS charges SEOCWA (see Appendix H). 119

Another perspective on the rates the suburbs charge is provided by data on the percent of mark-up over the wholesale price, recognizing that the wholesale price varies as indicated in the previous section. In the case of the nine SEOCWA members, moreover, the mark-up involves, first, the SEOCWA mark-up on the Detroit price, and second, the mark-up by the distributing jurisdiction on the SEOCWA price. In this connection it is relevant to consider the total mark-up (ie., the difference between the Detroit wholesale price and the price to consumers in the SEOCWA cities), These various relationships are indicated in Table VI-3. 120

TABLE VI-3 DATA ON RATES OF DISTRIBUTORS Wholesale Rate Retail Price Mark-Up per M cu ft per M cu ft Jurisdiction - (i.e., Detroit's (i.e., to $ charge) consumer) Type 1 Contracts East Detroit $0.90 $2.18 1.28 142 Ferndale $0.90 $2.19 1.29 142 Oak Park $0.90 $2.30 1.40 156 Type 2 Contracts Pontiac $1.61 $5.00 3.39 211 Flint $1.31 - Type 3 Contracts Center Line $1.18 $2.95 1.77 150 Dearborn $1.18 $2.14 0.96 81 Ecorse $1.18 $1.95 0.77 65 Grosse Pte. Park $1.18 $2.56 1.38 117 Grosse Pte. Shores $1.18 $2.10 0.92 78 Grosse Pte. Woods $1.18 $2.05 0.87 74 Hamtramck $1.18 $2. 00 0.82 70 Harper Woods $1.18 $3.20 2.02 171 Hazel Park $1.18 $2.87 1.69 143 Lincoln Park $1.18 $3.22 2.04 173 Melvindale $1.18 $2.52 1.34 114 Redford Township $1.18 $2.50 1.32 112 River Rouge $1.18 $1.95 0.77 65 Royal Oak Township $1.18 $1.99 0.81 70 Warren $1.18 $2.65 1.47 125 Type 4 Contracts Bloomfield Township $1.89 $3.46 1.57 83 Farmington Township $1.59 $2.95 1.36 86 Fraser $1.44 $2.80 1.36 94 Keego Harbor $2.01 $3.40 1.39 69 Madison Heights $1.36 $2.71 1.35 100 Northville $1.67 $4. 0 2.33 139 Northville Township $1.67 $3.00 1.33 79 Novi $2.01 $4.58 $2.57 128 Plymouth Township $1.67 $2.44 0.77 46 Pontiac Township $2.01 $3.50 1.49 74 Roseville $1.17 $2.48 1.1 112 St. Clair Shores $1.17 $2.58 1.41 121 121

TABLE VI-3 (Continued) Wholesale Rate Retail Price M - Mark-Up per M cu ft per M cu ft Jurisdiction — (i.e., Detroit's (i.e., to $o charge) consumer) Type 4 Contracts (concluded) Shelby Township $1.88 $4.67 2.79 148 Sterling Township $1.57 $3.00 1.43 91 Sumpter Township $1.51$5.42 3.91 259 Troy $1.67 $3.52 1.85 111 Utica $1.86 $3.67 1.81 97 Type 5 Contracts Allen Park $1.36 $2.34 o.98 72 Belleville $1.59 $4.96 3.37 212 Brownstown Township $1.36 $3.48 2.12 156 Canton Township $1.57 $2.85 1.28 82 Dearborn Heights $1.56 $2.90 1.54 113 Garden City $1.36 $2.95 1.59 117 Gibraltar $1.36 $3.93 2.57 189 Grosse Ile Township $1.36 $3.98 2.62 192 Huron Township $1.36 $5.13 3.77 277 Inkster $1.36 $3.25 1.89 139 Livonia $1.36 $2.50 o.94 69 Riverview $1.36 $4.00 2.64 193 Romulus Township $1.36 $3.00 1.64 121 Southgate $1.36 $2.46 1.10 81 Taylor Township $1.36 $3.03 1.67 123 Trenton $1.36 $2.55 1.19 88 Van Buren Township $1.59 $5.67 4 08 257 Wayne $1.36 $2.42 1.06 78 Westland $1.36 $2.79 1.43 105 Woodhaven $1.36 $3.25 1.89 139 122

TABLE VI-3 (Concluded) Wholesale Rate Retail Price Mark-Up Juris n per M cu ft per M cu ft Jurisdiction (i.e., Detroit's (i.e., to charge) consumer) $ Rates Applicable to Southeast Oakland County Water Authority* $o.94 $3.58 2.64 281 Berkley ($1.65) (1.93) (117) $0.94 $3.12 2.18 232 Beverly Hills ($1.67) (1.45) ( 87) Birmingha $0.94 $2.54 1.60 170 Birmingham ($1.64) (0.90) ( 55) $0.94 $2.21 1.27 135 Clawson ($1.66) (0.55) ( 33) $0.94 $3.45 2.51 267 Huntington Woods $94 $351 267 ($1.68) (1.77) (105) t Villae$0o.94 $3.17 2.23 237 Lathrop Village ($1.86) (1.31) ( 70) Pleasant R e $0.94 $2.80 1.86 197 Pleasant Ridge ($1.69) (1.11) ( 66) Royal Oak $0.94 $3.10 2.16 229 ($1.64) (1.46) ( 89) Souhfel $0.94 $3.00 2.06 219 ~SouthfieM~ld _($1.66) (1.34) ( 81) *Detroit sells to SECOWA at $0.94, and SEOCWA wholesales to its members at the rate indicated in parentheses in each member oa the SEOCWA rate is in percent of the member mark-up on the fourth column. the first column. The dollar mark-up by parentheses in the third column, and the SEOCWA rate is in parentheses in the 123

FACTORS INFLUENCING RATE DECISIONS Most municipalities in the Detroit region (as well as elsewhere) in setting rates for particular services seek simply to make certain that income will be sufficient to cover all expenditure obligations. How income and expenditure obligations are defined is in part a matter of policy (eog., whether an activity should be subsidized), and in part a function of the accounting standards of the 7 jurisdictionr0 With respect to accounting format, DMWS has for many years followed the standards recommended by the National Association of Regulatory Utility Commissioners.8 As already indicated, we found the accounting standards as well as the accounts of the suburban distributors of varying quality and did not consider it worthwhile to attempt to analyze such materials as were available. The basic elements in determining DMWS revenue requirements are: 1o operating and maintenance expenses; 2, principal and interest payment requirements on bonded debt of the system; 35 bond reserve account requirements; and 4, capital addition and replacement expenses not financed from new bond issues. Giving substance to these four categories of costs requires engineering and managerial judgment of various kinds. Of particular significance is the judgment to anticipate future conditions (needs and likely expenses)O Thus, for Detroit system growth, expansion in demands of existing customers, inflation, future operating conditions, the physical condition of the plant, and similar factors must be given consideration both in terms of operating and maintenance expenses and in terms of capital addition and replacement expenses. Item "2" reflects prior decisions with respect to bonding and thus is a more or less automatic element in the cost structure. The same is true with respect to Bond Reserve Account requirements which reflect state statutory 7, It is our impression, for example, that municipally-owned utility systems, where not supervised by a state utility commission or other higher authority, often deal inadequately with depreciation and with reserves, finding it difficult to accumulate surpluses against the day when. major system replacements and repairs are necessary, 80 Formerly the National Association of Railroad and Utilities Commissionerso See Uniform System of Accounts for Class A and B Water Utilities, copyright by National Association of Reg. Utility Comm., 1958o Washington, D.Co 124

requirements as well as basic management policy. DMWS is, in this connection, very proud of its "AA" bond rating which in part reflects its reserve account practices.9 Of considerable significance with respect to future revenue requirements of DMWS are: (1) its agreement to purchase the so-called "Wayne County System" (discussed above) which involve payments of $43,770,000 over a twenty-two year period from 1970 through 1991; (2) the planned issuance of new bonds to finance the Lake Huron intake and related facilities; and (3) payments of present bonded debt. After income requirements have been determined the next step is the allocation of expected costs among classes of consumers. Questions of economic theory aside (these will be touched on in a subsequent section of this chapter), allocations involve such factors as: (1) the quantity of water used; (2) relative peak capacity requirements; (3) the number and size of services to customers; and (4) the investment interest of the City of Detroit in the system (designated "City Equity" in DMWS annual reports). As indicated, the major factor in Detroit's rate structure is quantity of water used, with some weight being given to the other factors. The problem of "peaking" is suggested by data on a recent year when the maximum day demand on the system was 1,060 million gallons (June 30, 1964) and the maximum hour requirement was 1,448 million gallons per day (which occurred early in the evening of June 29, 1964). The maximum day demand experienced has been calculated at approximately 2020 of the normal average day use, while the maximum hour demand is about 2760 of the normal average day use. If rationing, particularly with respect to lawn watering, is to be avoided, the system must be capable of meeting these peak demands. The crises in the early drought years of the 1950's reflected the inability of the system at that time to meet peak demands. Since then it has been able to meet them, and once the Huron intake is in operation, the system will have considerable excess capacity for some time. It might be noted, however, that the adequacy of the basic capacity of the DMWS system does not necessarily assure that the capacities of the various distributors will meet the demands placed upon them, both because their respective contracts set a maximum day or maximum hour limit and because the distribution systems may be less than adequate. DMWS has sought to avoid such contingencies through its general supervisory role with respect to distribution system design 9. City ordinances require that net revenue for the last completed operating year be at least 150% of the largest future annual debt service on the outstanding and proposed revenue bond issues. State statutes also require that after 4 years from the date of additional bonds the total annual principal payment on combined outstanding and proposed bonds shall not be less than one-third of the total amount of annual principal payment in any subsequent year. 125

and through its own projections of growth requirementso In fact, DMWS tends to be quite conservative in this respect. But the possibility of pressure difficulties in particular jurisdictions has not been completely eliminatedc RATE-MAKING CONCEPTS As already indicated, the fundamental concept underlying DMWS rates,'both for consumers within the city and for the suburbs, has been that rates as a whole must cover total costs. It became necessary, therefore, under this concept to increase rates by 14% across the board late in 1967, and further increases may be expected in the 1970's, But, of course, the goal of covering total costs still leaves unresolved very complex questions of allocations among areas and among different classes of consumers, and over time. In the Detroit region the problem of a.rea has in. part been resolved by a dual rate structure; a virtually uniform or "postage stamp" rate for consumers within Detroit City limits, and a differentiated wholesale rate for the approximately seventy distributing jurisdictions taking into acckunat actual cost factors (such as distance and elevation and peaking requirements), as well as certain bargaining factors (as in the cases of the former Wayne County customers and SEOCWA)o Cost analyses utilized by DMWS in setting its rates have followed standard practice in distinguishing three basic cost elements: customer costs, quantity of product costs, and capacity or demand costs. These distinctions are generally reflected in the classification of domestic, commercial, and industrial customers, but the emphasis in the rates for consumers within the city limits tends to be on quantity of product costs as measured by the volume of water consumed, and somewhat less by demand c-osts as measured by the size of the service connection, These same factors are built into the wh.olesale rates with considerably more emphasis on custome.r costs as measured by elevation and distanceo But it is not possible tc assess the concepts that influence the rates to the ultimate consumers in the suburbs, because these data were not available to us, It is clear that the suburban rate-makers also gernerally start with the concept that rates as a_ whole must c.over, total costs, but much more detailed research would'be required to determine how this concept is implemented and to describe allocation practices of the sevent-y jurisdictionsO Two impressions may be worth,. recording, howevero One is that some of the distributors have rates which may produce a kind of "Yprofit," as judged by what the rate might be if Detroit rates applied to the whole area, or by the rates of other jurisdictions in the DMWS service area under si:milar circumstances. The other is that some of the older communities have been charging ultimate consumers too little and will probably be faced with serious prcblems of financing when major replacement and rebuilding of the distribution system is required. This is a reflection of the point made earlier in this chapter that public agencies often find it difficult to handle depreciation 1.26

and reserve accounting effectively. When confronted with the necessity for major renovations, most local governments have been in the habit of floating bond issues, but this route is both more costly and politically more difficult today because of high interest rates and high construction costso It is for these reasons that some of the suburbs will be faced with substantial rate increases in the next decade in order to cover steeply rising costs. This situation will be compounded because it is likely that DMWS wholesale rates will also increase. THE EQUITIES OF THE DETROIT RATE SITUATION Our study has not provided the basis for any firm conclusions with respect to the DMWS/suburban rate structures; either in terms of their logical soundness, in terms of their conceptual soundess, or in terms of the equities among the thousands who pay for the water they use and the system that supplies it. At the same time, we have gained some impressions on these questions and feel that it is useful to record them, if nothing else as points requiring further investigation, 1. We feel that a more equitable rate system would probably result if DMWS provided service for the entire service area, and established reasonable and rational rates for that area. This is, as we have pointed out, politically not feasible. Short of this, perhaps, a pattern of state regulation of rates would seem warranted, if such regulation included setting service area boundaries on some optimal basis by combining smaller systems. 2. We feel that it would contribute to an understanding of the DMWS role if DMWS recognized that its truly regional function is water wholesaling, and that it should establish its internal accounting system accordingly. This would permit analyses and comparisons, and an appraisal of the equities for the entire regional wholesale system. 3. We are uncertain as to the equity or policy logic of a highly differentiated rate as compared to a "postage stamp" rate for parts or even for the entire region. But certainly we feel these alternative require analysiso 4. While we would not favor using the water system (or any public service function) as a means for raising general revenues (ioe., as a taxing device), we feel that the existence of a community of interest among those living and working in a geographic area by definition has distributive or redistributive impacts which cannot be allocated on a precise costs and benefits basis. Many illustrations come to mind0 Persons without children support schools by paying school taxes. City roads and streets are built to provide access and are not paid for in terms of the use made of them; the family with three cars and five drivers living in a house next to a family with one car and one driver, both houses being of similar value, pay identical read taxeso (In contrast, in the Interstate Highway System payment is at least roughly correlated with use through gas and similar vehicle taxes)o 127

In our view, water supply in urbanized communities is not unlike the street situation, at least in terms of the readiness to serve concept, And we are not impressed with attempt to deal with urban water supply pricring policy in terms of market conceptswhich in fact require assuming many sellers and many buyers, whose interests converge at the point where demand and supply are in balanceo Such models may have analytical usefulness, but they fail to take into account the fact that water supply is a monopoly and that its management is "vitally affected with the public interest," to use a term made popular in the public utility rate cases of fifty years ago,10 At the same time, we recognize that problems of urban water supply have not been analyzed either in terms of theories of monopoly, or in terms of the public interest components which we feel should be considered ein developing sound rate policies. 5, Illustrating the absence of useful theoretical concepts for dealing with urban water supply questions, we know of no!. analyses of the complex questions of how to deal with the fact that a watIer system (like a railroad, for example) has developed over many decades, and this clearly has some effect on differences in. the cost of service in areas that were developed fifty years ago compared to newly developed areas. To illustrate, one might argue that residents of Detroit would have a reduction in water rates had the "introvertive" policies of MNk, Lenhardt (see Chapter II) prevailed ratnher tha:r the reg1ional coSncepts of Mr. Remus, The point is that the Detroit system was substantially in place by 1950, and that by 1970, assuming reasonable maintenance, it would have been substantially paid foro One might assume, moreover, that the increased labor efficiency which DMWS has achieved would have occurred in any case, so that while capital, costs would have declined, other operating costs would have remained more or less stableo Under these assumptions cost of water to Detroit residents would also have remained stable or even declined, and there would have been no need tc build the Lake Huron. intake for Detroit residents, particularly siLnce Detroit's population h1as declined, Does this mean that residents of Detroit may be subsidizing suburban. water supply? Probably so-at least in a total and irstitutional senseo But it is our judgment that the metropolitan region and the State of Michigan (if not the UoSo economy) would have been poorer had DMWS -not become the regional supplier, Given economies of scale in water supply, suburban consumers would have had to pay considerably more for their water at wholesale (ioeo, comparable to what they are now paying DMWS) depending partly on the degree of fragmentation that would have developedo Small business in the public sector is no more efficient than small businress in the private, regardless of our mythology on the subject. Unfortu-nately, we do not know at what point bigness becomes socially dysfunctionalo With respect'to a service activity like water supply, however, it is our judgment that regionalization (bigness) with efficient administration is in the public interest and thus we favor generally the development of service agencies like DMWSo At the same time we recognize that there are numerous points at which'the set-up in the 10o See notes at the end of this chaptero 128

Detroit metropolitan region might be improved and made more effective, and that there remain many operating problems still to be faced by the DMWS management, the communities in the region, and the State of Michigan. COMMENTS ON "MARGINAL COST" PRICING PROPOSALS This chapter would not be complete without some comments on recent suggestions by theoretic (or academic) economists to the effect that the proper basis for water pricing is "marginal value in use." We cannot do justice to this subject, but it requires at least brief comment because it has come to dominate the academic literature, although those making practical decisions with respect to water rates pay the subject slight attention. Major proponents of the "marginal value in use" theory of water pricing have been Messrs. Jack Hirshleifer, James C. DeHaven, and Jerome W. Milliman, whose important book: Water Supply: Economics, Technology and Policy,11 has been used in many engineering and economics classes dealing with water economics, since it first appeared in 1960. In addition, parts of their analyses have appeared in article form, It is perhaps not quite fair to attempt to summarize a substantial work in just a few sentences, but perhaps our approach can be justified, if it needs justification, as one that raises questions that require consideration, rather than one that offers alternative approaches in fully developed form, The concept of "value in use" is succinctly stated in the following quotation from Hirshleifer, DeHaven, and Milliman: The value in use of any unit of water, whether purchased by an ultimate or an intermediate consumer, is essentially measured by the maximum amount of resources (dollars) which the consumer would be willin.>g to pay for that unit. Marginal value in use is the value in use of the last unit consumed, and for any consumer marginal value in use will ordinar.ily decline as the quantity of water consumed in. any period i`ncreases. The principle, then, is that the resource should be so allocated that all consumers or users derive equal value i-> use frosm the margin.al unit corsumed or used (po 37)0 One of the significant conclusions suggested by the Hirshleifer, DeHaven, and Milliman analysis is that society has "overinvested" in water supply facilities, and that such "overinvestment" is a direct consequence of pricing policies. To reach this conclusion, Hirshleifer, DeHaven, and Milliman have made a number of assumptions which are fully explicated i.' the voluminous literature on cost/ benefit analyses with respect to water development projects, They have also 11. Chicago, The University of Chicago Press, 1960; a RAND Corporation research study( 129

assumed that water is in short supply and hence that society should be concerned about rationing, i.eo, getting the water to those whose use of it would contribute most to economic development of the nation. Consistent with much contemporary economic theory, they reasoned that the market-price system was the most efficient resource allocation device, and thus they sought to develop and apply market-price concepts to water supply, emphasizing that in this way water would get to those who would use it wisest in society's i.nterest as well as in their own interest, as measured by their willingniless to pay for it, ioe,, outbid others who wanted the same unit of wate.r< It is clear that much of the Hirshleifer, DeHaven, and Milliman criticism rests upon the situation in the arid West, particularly as it has developed with respect to irrigation for agricultural purposes, One may readily concede that decisions to build irrigation projects (even with the'best" cost-benefit analyses) have been made for ot.}ler than econLomic reasons and that as a result there has been substantial overinvestment i.n. water supply facilities for agricultural irrigation.i One may concede, also, that as a result of the structure of irrigated agri.culture. urban (and we will assume generally "higher"') uses are confronted with shortages and. are forced to pay more for water than would otherwise be the case. I:n short, political-administrat'ive allocation. of water in the West leaves much to be desired Xin terms of natio.lal economic efficiency criteria, and is subject to criticism for other reasons, too, It should be pointed out, also, that water i.n agricultural production can be considered like other factors in production, and can. be anralyzed in marketprice terms, particularly since most uses of water in irrigated agriculture are on commercial cropso Thus, irrigation uses will be very sensitive to water price manipulationx But it is our view that the typical urban-metropolitan water. situation, particularly in Detroit and other cities having access to the Great Lakes or located in the humid Northeast, cannot be dealt with successfully as analogues of decision-making in the arid irrigation agriculture situation., and that marginal value analyses are not useful for handling questions of urbanmetropolitan water supply pricingo Some of the factors trhat lead us to t.his conclusion are outlined in the following paragraphs..Marginal pricing may be a reasonable way to avoid dri.scri.mination in.r allocating a resource which is actually in. shori supply, but water iSs n.ot in. short supply in communities having access to the Great Lakes, Erven on days of maximum pumping DMWS has not taken two per cent of the flow of the Detroit River, which is very stable even in dry years. (Just incidentally, DMWS returns slightly more water to the river than it takes out, as measured at its sewage treatmenLt plants, largely because the DMWS service area of approximately 700 square miles represents a sizable watershed). Such shortag e prolems as do arise in Great Lakes commun.it..ies (as in Detroit in the early 1950 s) involve intake and pump.ing capacity, treatment 150

capacity, main capacity, and not water shortages. What this means is that additional units of water need not cost more (except as general prices may change over time) than the first units. In fact, intake capacity, pumping capacity, and treatment capacity involve considerable scale economies. It is, of course, possible that at some point unit costs for these factors will increase rather than decline, but the literature on the subject (such as it is) leads us to believe that relative cost increases are not likely. Moreover, the system can often be managed in such a way as to eliminate the possibility of such cost increases. In this connection, it is recognized in some of the literature that marginal cost pricing is not applicable to situations involving the possibility of substantial economies of scale. The effects of inadequate transmission and distribution mains in creating "shortage" situations pose a. different kind of analytical problem. For one thing, these kinds of facilities involve "single shot" investment costs and not continuing operating costs, i.e., once installed they function for decades without maintenance. In addition, they have service lives up to as much as 75 years, far in excess of normal accounting depreciation periods and much beyond revenue bond financing periods, which in Michigan by statute may not exceed 40 years. In many cases, moreover, the inadequacies involve only a small subsystem, and not the entire system. Thus, an area, of 100 homes or businesses may have too small a main, or they may operate in such a way that they all turn on their taps at the same instant. To apply marginal value concepts as a device to ration use in such a subsystem would require rates different from those in the rest of the system, and the rates would have to be set by some sort of hourly auction to permit bidding on the basis of value in use. This is inconceivable' It should be noted in this connection that the costs of putting an 8-inch or a, 12-inch main in the ground does not increase in proportion to the increase in capacity. Hence, this, too, involves a. kind of economy of scale and ordinary prudence suggests that larger mains be installed than may initially appear to be needed. Another factor, already referred to, is the distribution of load over time-within the day, week, month, season, or year-so that the capacity of a particular main may be reached only a. few times each year. Drops in pressure provide automatic rationing, although they may not always achieve equity. Overinvestment in pipes (within reasonable limits, administratively determined) would seem to be a prudent and low-cost course. Pumping and treatment capacity are so directly tied to operation of the system that costs in short run terms correlate reasonably well with quantities consumed, and of course this is a primary factor in determining charges. The peaking problem poses some particularly difficult situations, but it is not clear how marginal pricing would solve this problem. Administratively adopted policies restricting lawn watering to certain hours, or even completely, limiting air-conditioning based on water cooling, etc., can minimize the effect of peak loads. But any attempt to deal with such urban consumption situations will run head-on into complex value problems that cannot feasibly be solved by 131

marginal pricing (although perhaps theoretically solvable through this means). For one thing, a whole range of uses is served from a single main or subsystem of mains, so it is not easy to distinguish the water used for high-priority purposes from water used for low priority purposes, nor to set prices accordingly. For example, a. hospital served by a 6-inch main will use some of the water it receives during a peak hour for "scrubbing" as part of a surgical procedure to save lives, some for sanitary purposes like hand washing, dishwashing, toilet flushing, laundry purposes, and some for lawn watering. Only if eachuse had its own metering and supply system could one contemplate a marginal pricing system that would be operationally feasible. Lawn watering is usually singled out for curtailment but this can more readily be accomplished by administrative ac tion than by price techniques, since a constantly varying price to conform to supply variability is just not practicable. And who is to say what the therapeutic effect of green lawns may be? The problem becomes even more impossible when the single main serves residences, beer halls, pool halls, soft drink plants, pharmaceutical houses, and other typical urban mixes, as well as a hospital. Hirshieifer, DeHaven, and Milliman deal with some aspects of these practical situations, as suggested in the following quotation: One important practical consideration is that, because of differing locations, use patterns, types of service, etc., the marginal costs of serving different customers will vary.... The correct solution is to arrange matters so that for each class of customers (where the classes are so grouped that all customers within any single class can be served under identical cost conditions) the prices should be the same and equal to marginal cost. Between classes, however, prices should differ, and the difference should be precisely the difference in marginal costs involved in serving the two. But this is not longer "marginal value in use," as they have defined it, for they have shifted from a consumer standard, i.e., from what the consumer would be willing to pay, to a cost or managerial standard. Moreover, grouping as they suggest is not operationally feasible since water users live in geographically defined neighborhoods, and water service facilities are also geographically located, neither of which provide the homogeneity necessary for such "grouping." Finally, costs of serving customers that are identical will not necessarily be identical, for as already suggested, identical customers A and AA may live in sections of the city developed at different times so that costs of installing pipes may be different by factors of X and 2X. These and many similar systems management factors would seem to make use of marginal pricing of dubious value in the typical urban situation. If marginal value in use is defined as the value in use of the last unit consumed, then the amount each consumer would be willing to pay could be a different amount, the last unit going to the highest bidder. Thus, each consumer would have his own rate structure based on his own "willingness to pay" 132

price. But this would be impossible in dealing with the approximately 380,000 customers in Detroit (ioe., the number of metered connections). But if it is suggested that some grouping must occur, then obviously the value in use concept has been violatedo As soon as the system ceases to deal with individuals, but instead deals with groups, an averaging process takes place, since no consumer is identical with any other. Yet it is average pricing that Hirshleifer, DeHaven, and Milliman criticize most severely. Another practical aspect of urban water systems that would seem to raise questions about the applicability of marginal pricing is the extent to which increments to the system occur in'lumps" of varying degrees of size. A new transmission main will be built to handle loads anticipated 10, 15, or 20 years in the futureo A distribution main will be projected on the basis of home, apartment, and other user connections, and the area served may be a decade or more in reaching this estimated capacityo DMWS will "carry" a new suburban distributor at a loss for five years with the expectation that the load will grow to its projected size. Treatment capacity, pumping capacity, and other capital improvements have this time/anticipation element to them. Even operating costs will not rise in a perfectly smooth way in direct proportion to quantity of water pumped or number of metered connections served. In addition to the difficulties flowing from service to a geographical area in which costs will inevitably vary, and in addition to the difficulties of dealing with customers tying into the system at different times (even decades apart) and using water at different times and volumes within a day or season, and for differently valued social purposes, marginal cost pricing fails, in our opinion, to deal effectively with the fact that an urban water system develops over time as a result of many small and a few large decisions. Thus, the technique of marginal cost analysis formulated for analyzing costs and benefits of a single project (Professor Hotelling's well-known toll bridge, for example), does not seem practicable of application to a total water system serving almost four million people which developed incrementally over more than 100 yearso Another serious weakness in the argument for marginal cost pricing of urban water supply lies in its assumption that water uses would respond to price changeso The evidence is mounting that price is not a major influence in present patterns of water consumption in most urban communities in the United States. With respect to residential or domestic water use, the definitive Johns Hopkins studies12 concluded: 12. Fo Po Linaweaver, Jr., John Co Geyer, anid Jerome B. Wolff, A Study of Residential Water Use. A report prepared for the Federal Housing Administratiocn, UoSo Department of Housing and Urban Development. UoS.GP.Oo, 1967. 135

Attempts to demonstrate the elasticity of water demands, which is a measure of the effect of price on demands, in urban areas have not been very successful because the extent to which other factors affect use has not been clearly understood. (p, 53) The Johns Hopkins investigators pointed out with respect to residential uses of water: Since domestic (household) use in metered and flat-rate areas shows little difference, it is evident that the cost of water does not influence the consumer's decision to purchase water using appliances. The cost of water probably tends to reduce the portion of lot area that a consumer devotes to lawn and shrubbery, but has little overall influence on water use to maintain the lawn and shrubbery, once the investment is made, (p. 51) It should be noted that the Jorhns Hopkins study did not offer any evidence for the statement that water costs may tend "to reduce the portion of lot area that a consumer devotes to law.. and shrubbery." This represents simply the guess of the authors, so strong is the doctrine of economic price behaavior' Only survey research of residential land purchases and landscapin!g decisions would prove or deny what must for now be labeled a kind of obiter dictum. What the Johns Hopkins studies did prove was that price did not influence even lawn watering decisions, but that these reflected social status values and that quantities of water used was a direct funct.on of the evapo-transpiration rate (ice., inverse to rainfall) and area of lawn watered, A different kind of study of Water Pricing Theory and Practice in Illi.n.os (by Hamdy H, Ho Afifi and V. Lewis Bassie),13 though geographically limited to one state, concluded: For any given group of consumers, thie demand for water is inrelastic, or insensitive, with respect to both price and income changeso In this respect it is on a par with gas and electric serviceso To the extent that water is heated, its use is joint with either gas or electricity in most. urban areas, Other uses also are necessary, customary, or habitual, and they go on at an established pace despite wide differences in water rates or income levelso Higher rates tend to have an adverse effect on consumption, of course, but in the complex of factors affecting water use, this influence is smallo (po 16) This last study seeks to explain this situation, suggesting that this low sensitivity to price reflects the fact that only a small part of the household budget goes to water, calculating, on the basis of average 1965 incomes in Illinois, that only 0.,4% of the average mon.thly income of a family of four (over $1,000 per month) would go towards the cost of water, They then suggest: 13. University of Illinois Bulletin Series: Number 935 Bureau of Economic and Business Research, 1969. 154

This 0,4% is approximately the same as the proportion of water expenditures to total consumption expenditures in the nation, as revealed by the national income and product data. The fact that this relatively low expenditure is not made at the time of use, but at some time later, when billed, also contributes to detachment of use from price. The lack of substitutes or alternative sources of supply works in the same direction. (p. 17) The evidence with respect to the effect of price on commercial and industrial uses is less clear, but even these uses would seem to be influenced by price: (1) only when the industry is a high water using industry, and (2) at the time of the initial locational decision. The Afifi-Bassie study suggests:...demands of industrial customers tend to be much more variable. When an industry requires really large volumes of water, it is likely to locate its factories in places where its own sources of supply can be developed. In other cases, water is much less critical, and the industry may purchase the bulk of its supplies from established utilities. (po 17) In passing, it might be noted that in the Detroit region. most industries purchase their water from DMWS or from the suburban distributors. Because the evidence that the demand for water is very inelastic is so strong, even in the case of commercial and most industrial users, we have considerable doubt as to whether manipulation of the price charged for water in urban areas could be an effective way to reduce investment in water supply facilities. A kind of correlary of this point is our conclusion that in urban areas in the United States in the 1970's consumers expect to have as much water available as they wish to use and are prepared to pay for this convenience or luxury. While this generalization is particularly true of residential or domestic consumers, it probably also applies to many commercial and industrial userso This is not so much an economic fact to be dealt with as a production cost, as it is a matter of consumer values and perceptions with repsect to the quality of life and appropriate life styles. Absolute physical shortages of water (which are not in prospect in most humid metropolitan regions in the near future) would, of course, result in changed priorities and expectations. But the issue would then be what devices for social control would be most effectiveand we are not convinced that any system of pricing would be effective in thus redirecting consumption. We end this chapter with a quotation from a very perceptive article by Roger Sherman entitled "The Design of Public Utility Institutions," which 14. appeared in the February, 1970, Land Economics: 14. Vol. XLVI, No, 1, pp. 51-58, at p. 54. 155

The main issue, then, is not which pricing rule is best but what organization. can give consumers who are willing to bear public costs an opportunity to agree on how to share them. We are persuaded that in the Detroit Metropolitan area DMWS has come to symbolize a regional point of view that is reasonably just in its distribution of public costs, well managed, and providing service of a quality that satisfied most consumers most of the time. We doubt that much more can be asked of any public utility' Chapter Addendum NOTE 1 - URBAN WATER SUPPLY INVESTMENT DECISIONS If investments in public urban water supply facilities were to be gover:ned solely by the object of achieving national economic investment efficiency (ioe., in order to maximize economic growth), then according to current economic theory such investments should be made at those places where water can be produced at the lowest cost, But costs are extremely variable over time, And in any case, costs of water (from such evidence as is available) do not exert much influence on the location either of residences or of industrial activity, because they represent too small a part of total costs to have a very significant influenceo There are particular exceptions, most notably at the extremes of the water-cost continuum. But even in such cases other locational factors may dominate to the extent that high, water costs will be absorbed. through application of technology to reduce water consumption (cpo The Fontarna steel plant of the Kaiser Corporation which is reputed to use ten times less water than. the Sparrows Point UoSo Steel Plant in Baltimore). To put the matter differently, locat+ional decisions involve many costs, no one cost being determiningo Thus, other costs, such as job opportunities, climate, schools, other services, raw materials, transportation, labor skills and costs, marketing costs, sunk costs where the alternative may be relocation, etc., work together to provide the matrix for decision. Insofar as industry is concerned (and probably residences, too) costs of any one factor will rarely be determining. It is for this reason that we feel that the focus on efficiency with respect to water investments for urban supply may be missing an important practical pointo At the present stage of the water supply situation, people and industry generally expect water to bet t erther be b ghto wthy w to cate, ater an being willing to locate where water may be more readily availableo, Investment decisions to provide water may thus normally follow (rather than determine) the decision to locate homes or industries, This is not to deny that in the unusual situation where water is just not available in quantities desired, location in l36

such a spot is precluded. But if the problem is simply one of enlarging the system, this is not a fundamental impediment, for among other things costs of adding to the system will in many cases be the same in community "A" as in community "B" unless one or the other has a surplus. Investment in urban water supply facilities must be made in general on the assumption that populations and industries are substantially in place and are growing in an anticipated way, based on sound projection techniques. This means that investment in urban water supply (although it may contribute to national economic growth) is more in the nature of a secondary benefit and occurs within parameters that are largely predetermined (dependent variables). The decisional choices are concerned then with questions of where in an area water can be produced at lowest costs to serve existing demands plus reasonable projected demands for the future. From the point of view of national economic investment efficiency, water supply additions should be made in areas with access to the Great Lakes where reservoir costs are zero, treatment costs low, and energy costs for pumping reasonable. Yet plans are underway for adding to the supply of Los Angeles by costly transfer from northern California. It seems unrealistic to argue that this is unsound, the reasons for people and industry living in the Los Angeles region being much too complex to be dealt with by the simple expedient of not providing water. In the context of these comments, the suggestions that municipalities have in general overinvested in water supply facilities seems far-fetched. Similarly, the suggestions that rates should be increased to ration water seems equally unrealistic. Perhaps the starting point for water supply planning in urban communities should be, not national economic efficiency and investing for economic growth, but simply that the goal of water supply agencies should be to assure that all consuming units in the community (residences, businesses, industries) will have water supply in such quantities as they are likely to require based on careful studies of demand determinants. Prices for water, in turn, should be set in such a way that each consumer pays for that cost directly attributable to serving him and for those common costs which can reasonably be allocated to serving him, including such factors as readiness to serve, peak demand factors, etc. In addition, equitable considerations, safety, and esthetic values (e.g., green lawns which benefit the beholder as well as the resident, clean streets, etc.) and perhaps other social goals might properly enter into price policy (e.g., provision of recreation, swimming pools, etc.). Highly relevant to rate policy is administrative feasibility as well as reasonable administrative costs. Efforts should also be made to capture to the fullest all economies of scaleengineering as well as management-and to pass these on to the consumers or to utilize them for system development. 137

NOTE 2 - MONOPOLY PRICING AND WATER SUPPLY IN URBAN COMMUNITIES By definition a monopoly exists where, for whatever reason, one producer or supplier alone serves a particular market. Under monopoly conditions selling prices are not determined by competition, but by the more or less independent action of the seller taking into account such factors as seem relevant to him, giving such weight as he chooses to product:ion costs and return on investment, As a result, in economic theory, monopoly prices tend to be higher than would be the case if competition existed, with the coincommitant result that sales will be lower in volume, depending on elasticity of demand. Income, from the point of view of the monopolist, will be optimal. Where monopoly is the result of legislative action (i.e,, a public utility), competition is precluded, and regulation is substituted to protect customers. Other legislative restr-ictio(ns may apply to rates of return (profit), reasonable prices, etco Monopolies, where competition is not barred, are theoretically limiuted in being t;oo arbbi-trary by the ever-present possibility that if prices are too high other entrepreneurs will enter the field, Other limitations are substitution of productso But various limits may also work to preserve the monopoly by restricting free entry into a field, such as patent advantages, high capital requirements, complex technology, need for large-scale operations, limited market for the product, etCo Supplying water is generally a public utility function as well as a natural monopoly in many communities, Price competition is thus not a part of the picture, and there is only a limited substitutability (eg,, technology for water). But relatively few legislative restraints have been placed on either public or private water supply agencieso Approximately one-third of the agencies handling urban water supply are privately owned, although they supply only about 20% of the total urban watero Two sets of behavior are significant in water pricing; the behavior of the supplying unit and the behavior of the coWrsumero In a fr:ee market, which in economic theory means many producers ar.d many purchasers and many alternatives (i.e, no monopoly or no regulation), these two sets of behavio'r interact, merging at the point where demand and supply come in3J-to balance and determine the price which will clear the market of the last unit availableo But in the case of a water supply utility (or other monopoly) there is minimal interaction between these two sets of behavior, unlless the mediatin:g influence of political action (often through a regulatory agency) occurso Where regulated the resulting prices are rationalized as being "in the public interest, a most difficult concept, Even where monopoly sales are not regulated the agency making price decisions may nevertheless strive to set prices in terms of its perception of the "public interest" for a variety of reasons; seeking to recover all costs is one such perception, seeking profits for other public works is anotherO 138

Recognizing that water pricing tends to be monopoly pricing, it might be assumed that pricing policy tends to restrict consumption, if one also assumes that water consumption respondsto price differences. This latter assumption is dubious because evidence indicates that the demand for water is quite inelastic. The first assumption also seems not to be borne out, because water prices in the view of many analysts are lower than they should be whether judged from a marginal value or recovery of costs basis. The apparent reason for this failure to exploit monopoly positions lies, perhaps, in the inadequacy of price setting data and accounting concepts. With a commodity like water most individual consumers take such a small part of the total produced that as individuals they have little or no bargaining power. Thus, the need is to resort to a "political" approach involving the organization of coalitions of consumers in order to persuade the price setting agency (which often is the water agency) as to where the'ublic interest" lies. There is some evidence in the DMWS situation that the Wayne County officials, in negotiating the agreement for the sale of the County system, were able to protect the interests of the jurisdictions served by Wayne County. The same seems true with respect to SEOCWA, which has a most favorable rate. In the case of SEOCWA, however, the benefits of its bargaining power have apparently not been passed on to the ultimate consumers but have been absorbed by the itintervening distributing administrative system in SEOCWA and the cities, 159

Selected Chapter References Roger Sherman, "The Design of Public Utility Institutions," Land Economics, Vol. XLVI, No. 1, pp. 51-58, (Feb., 1970). Jack Hirshleifer, James DeHaven, and Jerome W. Milliman, Water Supply: Economics, Technology, and Policy, the University of Chicago Press, Chicago, Illinois, 1960. James C, Bonbright, Principles of Public Utility Rates, Columbia University Press, New York, New York, 1961. Jerome W. Milliman, "Economic Considerations for the Design of Water Institutions," Public Administration Review, Vol. 25, pp. 284-289, Shue Tuck Wong, Perception of Choice and Factors Affecting Industrial Water Supply Decisions in Northeastern Illinois, University of Chicago, Department of Geography, Research Paper No. 117, 1969. Hamdy H, H, Afifi and V. Lewis Bassie, Water Pricing Theory and Practice in Illinois, University of Illinois, Bureau of Economic and Business Research, Urbana, Illinois, 1969 (Bulletin Series #93). Louis R, Howson, "Review of Rate-Making Theories," Journal of the American Water Works Association, 1966, pp. 849-855, National Association of Regulatory Utility Commissioners, Uniform System of Accounts for Class A and B Water Utilities, 1957, Washingto-n, D.C., 1958 (with changes as of June, 1960). Fo P. Linaweaver, Jr., John C. Geyer, and Jerome B. Wolff, A Study of Residential Water Use, Washingtor D.C., Federal Housing Administration (1967), UoS. Government Printing Office. 140

APPENDIX A TOTAL RELIABILITY- PEOPLE-SYSTEM-ACCEPTANCE Gerald J. Remus, General Manager Detroit Metrolpolitan Water Services This Appendix reproduces a paper presented by Mr. Gerald J. Remus on February 13, 1969, at the Indiana Section of the American Water Works Association, which met at Indianapolis, Indiana. This paper is included as reflecting the basic philosophy and outlook of Mr. Remus particularly with respect to the development of the regional system. Our reproducing it as an Appendix, of course, involves no endorsement of the ideas expressed, except as these conform to those expressed in the main part of this study. The Remus paper gives a ready clue to the policy orientation of its author.

The development of a reliable water system that takes care of 46% of Michigan's population, with a comparable sewerage system, may well cause you to ask the question: Were all the difficulties foreseen in the development thereof? No, they were not. My discussion here with you today about many of the factors that are involved is so that, hopefully, others may be helped. Have you ever reallythought through what this means? Obviously, the end resultant has to mean a system capable of providing a continuous, reliable, and efficient supply of high quality water to all who want it. As we were taught in management courses of all endeavors, three basic conditions had to be met, which to me were known as the "W. W. P. formula." What has to be done? (Supply water) Who is going to run it and be responsible? (Administration) Payment therefor? (Financing) There are many facets to each of these basic factors, and in analyzing them recognition must be given to changes in our society which have and are taking place in many ways. There are some obvious axioms that apply: 1. Water supply is being recognized more and more as a utility, and as in the power, gas, and communication utility businesses, one system for a metropolitan area is more reliable and more economical. 2. The protection of water (pollution control). A metropolitan area wide utility must develop almost simultaneously with water supply. Water supply and the protection thereof are so intricably interwoven that the efficiency of operation of either of these services cannot be evaluated separately-but rather as a composite of both, 35 The population shift toward metropolitan areas is still continuing, and patterns of development within the area are changing. 4. Improved forms of government have not kept pace with population shifts and a rapidly changing technology. In Detroit we deal with more than 253 autonomous units of government, most of which were organized before the turn of the century. 5o Generally, the supply of raw water is not on short supply in any area if that area is properly defined. In northeastern United States a desperation situation developed several years ago, to the point where the Congress created legislation for the Army Engineers to function on a crash program if necessary. (Quote) "(b) The Secretary of the Army, acting through the Chief of Engineers, shall construct, operate, and maintain those reservoirs, conveyance facilities, and purification facilities, which are recommended in the plan prepared in accordance with subsection (a) of this section, and which are specifically 142

authorized by law enacted after the date of enactment of this act." A searching evaluation by the men responsible for the operations of the various systems in the area have now concluded as a group that a shortage of raw water does not exist, The proper development of treatment plants, impoundments, and transmission mains will take care of all needs. 60 Manpower needed to develop, operate, and maintain a system cannot be hired in the open market. Therefore, the organization must be developed, to a large extent, from within. This means that training problems and organizational development are directly related to today's big national issue-the better utilization of Negro help. In Detroit, our organization is approximately 50%0 Negro, most in the lower class jobs, but also in top level jobs such as: full engineers, division heads, building superintendent, foremen, mechanics, and mechanical supervisors. Our organization behaved better, showed more loyalty and dedication during periods such as the riots, Hong Kong flu, heavy storms, etc., than the predominately white organizations, such as policemen, firemen, nurses, school teachers, and other similar groups. Fifteen years ago my concern was great on where our help was to come from to replace the old timers who were retiring. But not any more. Results speak louder than words. Today we have 1371 employees, whereas ten years ago we had 1393 in the water effort, and we are providing service to more than twice as many people and taking in 2 1/2 time more revenue. Higher wages and more reliable automatic equipment are the factors that dictated this trend. Ten years of rapid expansion of the Detroit Metropolitan Water System shows the following results: Water Revenue Dollar Distribution Debt Wages and Year Improvements Service Maintenance 1957 17 cents 31 cents 52 cents 1967 3506 cents 22.2 cents 42.2 cents 7. Civil Rights-a new dimension. Federal, state, and central city laws required in the construction industry, establish that the central city in an area operation is really the catalyst that starts and establishes integration. Apprenticeships for all races are now being forced in the building trades in the whole area, due to large central city construction contracts in suburban communities, 8. Orderly system expansion is a great tool to encourage development. For example, 8% added capacity per year is 100 million gallons per day for Detroit's system, and this can be, and is, constructed and financed in an orderly way. Just compare this with the difficulty you would have if this 100 million gallons had to be developed for small systems. A significant dividend for this sytematic development is the encouragement for industrial development. On January 22, 1969, I received a letter

from a corporation that planned to build a new foundry, employing 3,000 men. They had selected a suburb of Detroit that operated its own water system. The communication in part said: "Commitment by the City of Flat Rock to provide City of Detroit water is a basic understanding." Many examples of this type exist. The Federal Government and the Michigan Water Resources Commission have ruled that the Water Pollution Control Administration funds and State funds cannot be used for sewage system development except should the communities be served by Detroit in the metropolitan area. This generated from the successful water system operations. 9. A powerful tool for maintaining an operation substantially free of political involvement is "good service." Politicians have little motivation to interfere (and get little support if they do) if the public gets good service in an area where the water supply system is run as a true utility. A double impact exists in that good service today means you are building for eight or ten years from now; and most politicians are only looking to the next election. 10. Water system reliability today can only be accomplished by the interconnection of several treatment plants, all capable of functioning independently or simultaneously. Data on Detroit's existent plants is as follows: Year Rating Built Cost per Million Gallons Plant Cost Water Works Park Station Springwells Station Springwells Addition Northeast Station Southwest Station Lake Huron Station (First section under construction) 400 MGD 1875 (Cost data not available) 272 MGD 1931 $14,720,000 180 MGD 1959 $14,837,000 192 MGD 1955 $28,968,000 160 MGD 1964 $23,208,000 400 MGD 1971 $46,606,000 (Estimate) $54,100 $82,300 $151, 000 $145, 00 $116,500 The cost of transmission mains are not included in the above figures because they are paid for substantially as time goes on by the development in the areas where they are built, (i.e., included as a part of the wholesale rate to specific communities).

The interconnection of the plants provides reliability, from civil defense standpoint, especially when the distance between the two farthest removed stations is more than 60 miles. You will note that the costs per million gallons can be kept down to overcome inflationary factors by building where better water sources exist, and by developing a grid work of water transmission mains and by developing loads so that these mains can be paid for enroute. It is safe to say that we have never been wrong in sizing a water main because when construction was completed, the main went to work. The greatest single civil defense effort you can make with modern-day destructive forces is to build a large interconnected water main system with multiple plant supply. 11. Financing, The only avenue open for Detroit system expansion is by "revenue bonds." Detroit's system has no tax money support. All moneys collected are used for the water system. A 50 percent coverage over the regular debt service is built into the rate structure to protect the investor; and with "tight-ship" administration, it follows that the collateral carries an "Aa" rating-better than Detroit's G. 0. bonds. Practically every system improvement is made with one eye directed toward protecting this revenue base. Year Total Assets Total Bonded Indebtedness 1955 $236,484,000 $ 73,878,000 1969 $523,607,000 $150,477,000 By 1975 another $175,000,000 will be spent; and by the year 2000 at least $500,000,000 more will be needed to perpetuate the development. Wholesale rates are reasonable but one bad feature exists where the central city provides service to the suburb under contractural relationship. For example, a suburb 36 miles away gets all the water it needs to its city limits from the central city for $1.65 per 1,000 cu ft. The suburb then resells it for $5.62 per 1,000 cu ft, and the politicians of the community point to the central city as the cause of the high water rate. There are apparently legal ways to steal money in this type of mark-up. All of Detroit's rates for the suburbs are based on the "cost of service formula" set by the Supreme Court of Michigan. The wholesale rate to the suburb is Detroit's base rate plus distance, elevation, and storage. The water industry today, with all its complications, does a good job. Changing times requires a better one for tomorrow. Too many managers are entrapped in the political machinery; too much financing is embroiled with public welfare, policemen's wages, and urban renewal. We in Detroit are having our problems with this but so far we haven't been roped. 145

Legislation is generally prepared without considering the water technician, and the tendency is to relegate water system managers to the plumber status. Here our American Water Works Association has a great opportunity to gain every water works man the professional status he is entitled to, Will this be done? 12, Master Planner, Today a master land use study for metropolitan Detroit, costing $4,580,000, is just being completed; and projections are being made by many area planners. Their conclusions are, or will be, built around Detroit's water transmission main system, It has been apparent for some time that if they concluded otherwise, they will be wrong. One rule I would like to have formally adopted is that lio planner should be allowed to present any idea or plan unless he puts the cost figures with it. 13. Morale. Today, as in days past,'a dream in the heart, a gleam in the eye, and courage to proceed for the future" are the ingredients necessary for success, The recognition of this axiom becomes difficult in a metropolitan society where we have too much, and an antiquated government; and where the cross currents of selfishness, some apparent crookedness, politics for personal gain, and statesmanship, combine to create an umbrella of protection for those who do not want to progress, but can also provide a cloak of protection for those who do, Sad indeed will be the day when those who want progress are stymied because the confusion makes it impossible to proceed, but that day will not come as long as there are those who can utilize the existent confusion and imperfections as a springboard for improvement, Without fully understanding it at the time, I believe the development of our successful water program became possible, not only because we knew what the basic ingredients of pipes and plants and contracts were, but in addition, in a very impatient way, we had the perseverance to develop with and amongst the confusion that exists today in our not-yet-understood metropolitan society. Lest someone get the wrong idea, Detroit's government is cleaner than most, All officials live in a "goldfish bowl." I have never been asked officially to do anything wrong, although frequent pressure from ward-heelers occurs. In past years, in every area where there has been a water shortage, it was because someone did not have "a dream in his heart, a gleam in his eye, and the courage to proceed for the future." If one such man exists, he will get you tens and thousands to help, and you will be surprised where your help comes from. It has ever been thus. In conclusion, what am I really saying? I am saying that we of the water industry, with all our good effort, have not been accepted as well as we should have been, because our political leaders have worked too much of our job (which they should do if they believe it is not up to the standards they want). 146

Total reliability-People-System-Acceptance, can be accomplished for individual systems and for the industry if we develop the people to do the job properly, with the highest professional conduct; if we develop our systems with emphasis on all engineering aspects, rather than on supply alone; if we abandon provincialism; and if we are with, rather than react to, changing social and technical changes-then leadership will show and public acceptance will be wholehearted. The ever shifting character of our job, in a very complex society with great and rapid technical changes, amplifies the challenge before us. Are we men enough as a group to be fully responsible for the great heritage (water) we must protect, use, and reuse? Will we use the administrative tools available to us, most of which have been adopted in our programming, as has been reviewed herein; and more importantly, will we be able to develop the additional adminstrative tools for the future? If we will, then ours is the profession more than others that would enhance the chances of every person in this great country to have the better life. Are we men enough? My experience tells me we can be. Think it over. 147

APPENDIX B STANDARD AGREEMENT FORM BETWEEN DETROIT (DMWS) AND SUBURBAN COMMUNITIES FOR WATER SUPPLY Copied from A Handbook for Interlocal Agreements and Contracts, Advisory Commission on Intergovernmental Relations, Washington, D.C. 20575, March 1967, Report M-29, at page 85, U. S. Government Printing Office. 149

THIS AGREEMENT made this day of 196 by and between the CITY OF DETROIT, a municipal corporation organized under the laws of the State of Michigan, and its Board of Water Commissioners, (sometimes hereinafter referred to as the "Board"), party of the first part, and the CITY OF _, a municipal corporation organized under the laws of the State of Michigan, party of the second part. WHEREAS, the City of desires to finance, construct, operate and maintain its system of water mains, pumping stations, ground storage and auxiliary water works equipment and facilities, and all expansions thereof, required to supply the needs of its residents, and WHEREAS, the City of further desires to receive a supply of water from the water system of the City of Detroit; NOW THEREFORE IT IS AGREED AS FOLLOWS: 1. The City of Detroit agrees to sell and deliver water to the City of subject to conditions stated hereinafter. 2. The City of agrees to purchase water from the City of Detroit subject to conditions stated hereinafter. j. The City of Detroit, to the best of its ability, shall provide and the City of shall take water, at the designated points of connection of facilities with the Detroit water system, in sufficient quantities to meet all reasonable requirements of __ customers as hereinafter provided. The maximum rate at which the City of ____may take water from the Detroit water system is fixed as that rate which, if maintained constantly through a period of 24 hours, would provide the total quantity of water necessary to supply the maximum day requirements of all of the customers regularly supplied with Detroit water through facilities. The City of shall provide and utilize sufficient controlled storage facilities so that the City of shall be in a position to meet the demands of its customers without drawing upon the Detroit water system at any rate in excess of the above stated rate. Initially, the said maximum day requirements are hereby established as million gallons, and the maximum rate at which the City of _may take water from the Detroit water system is hereby established as the rate of million gallons per day. 150

4. The City of shall maintain suitable records of the numbers and sizes of service connections, the number of persons supplied, and the daily and hourly rates of consumption of Detroit water through facilities. These records shall be available to the Board at all reasonable times. Annually, on or about April first, if it shall appear that either the number of persons supplied by the City of __with Detroit water or the average per capita maximum day requirements of those persons, or both, are such as to change significantly the last determined maximum rate of draft of Detroit water by the City of, then the said maximum rate shall be redetermined on the basis of the latest available data. If after April first in any year the situation should be materially changed by reason of increased users or usage, or both, which could not have been foreseen or determined on April first, then such a redetermination shall be made at that time. 5 The distribution of Detroit water by the City of shall be limited to the area within the limits of the City of, provided that the City of may be permitted to supply water to such specific customers or areas beyond its limits as from time to time may be approved by the Board, on application by the City of 6. Water shall be delivered by the Board to the City of at the following locations: and at such other points as may, from time to time, be mutually agreed upon by the parties hereto. 7. All water furnished shall be measured by meters installed at the points of delivery. All meters shall be furnished and installed at the expense of the City of, under the supervision and inspection of the Board or its authorized agents. Said meters shall be of a size and make satisfactory to the Board, and subject to its inspection. The Board agrees to maintain said meters and to cause such repairs and/or adjustments as may from time to time be necessary, to be promptly made. Such repairs shall be made at no expense to the City of unless it can be shown that the necessity for such repairs was brought about by an improper act or neglect on the part of the City of The City of agrees to accept the Board's estimates of quantities of water supplied during all periods in which the meters fail to measure correctly all water supplied the City of provided there is reasonable basis for such estimates. 151

8. The City of agrees to pay for all water supplied by the Board at such rates as the Board may establish from time to time, it being mutually understood that such rates shall always be reasonable in relation to the costs incurred by the City of Detroit for the supply of water. It is mutually understood and agreed that the rates shall include an annual minimum charge which shall be computed by applying the current rate to onehalf of the estimated annual consumption of Detroit city water by the City of, which estimate is agreed to be as follows: Estimated Estimated Water Consumption Water Consumption Year In Million Cubic Feet Year In Million Cubic Feet 1960 1971 1961 1972 1962 1973 1963 1974 1964 1975 1965 1976 1966 1977 1967 1978 1968 1979 1969 1980 and thereafter 1970 The Board shall give 90 days notice of any change in the rates and such notice shall be in writing and shall be delivered in person or by mail to the City Clerk of the City of _. Bills for water service shall be rendered monthly and delivered to the City Clerk of the City of and shall be payable on or before the due date shown thereon which shall be not less than 15 days from such delivery. There shall be a further charge of five percent of the amount of the bill if not paid on or before the due date. All delinquent balances remaining unpaid for one year or more shall be subject to an additional charge of six percent per annum until paidO Water service to the City of _ may be discontinued if any bill is not paid within sixty days of due date. The City of hereby waives any and all claims for damages resulting from such discontinuance of service. 9. The City of _agrees to conform to all City of Detroit standards and specifications, from time to time in effect, governing the installation of water pipes, taps, service connections, fittings, meters and appurtenances, and to all rules and regulations of the City of Detroit and/ or Board pertaining to the control of or restriction to the use of water taken from the Detroit water system. 152

10. The City of agrees that no extensions or additions of water mains or pipes shall be made and no pumping, regulating, storage or other facilities shall be installed in the City of water system until clear and complete plans and specifications for such work shall have been submitted to and approved by the Board. 11. It is understood and agreed that the Board shall have the right to inspect all water pipes, taps, service connections, fittings, meters, and appurtenances, during installation, installed, or intended for use in the system, during the continuance of this contract, for the purpose of insuring a uniform standard of construction for all areas served by the Detroit Department of Water Supply, and to avoid any damage to the Detroit system as a whole, arising from inferior material or workmanship in the component parts; with the understanding, however, that such inspection shall not relieve the City of from full responsibility for the conformance of finished work with Board standards and with approved plans and specifications. For the benefit of the City of _ and the Board, the Board will continue to keep record maps of all systems supplied with water from the water system of the City of Detroit and for this purpose the City of shall furnish the Board with exact copies of original survey records showing the locations of all new water mains and appurtenances as actually constructed in the systems of the City of _ These records shall be based on accurate field measurements taken during the progress of construction before the work is backfilled or otherwise made inaccessible. These records shall be delivered to the Board as promptly as possible after each job contract or section has been completed but in no case shall the elapsed time therefor exceed thirty calendar days. 12. For the protection of the health of all consumers supplied with water from the water system of the City of Detroit, the City of agrees to guard carefully against all forms of contamination, and that if at any time contamination should occur, the area or areas affected shall immediately be shut off and isolated and remain so until such conditions shall have been abated and the water declared again safe and fit for human consumption by the properly constituted Governmental health agencies having jurisdiction of the areas affected. 135. The Board expressly reserves the right to discontinue temporarily the supply of water to any of the pipes laid or to be laid by the City of whenever it is necessary so to do to insure proper operation of the Detroit Metropolitan Area Water System. No claims for damages for such discontinuance shall be made by the City of against either the City of Detroit or the Board of Water Commissioners.

14. It is understood and agreed that the City of will not, under any circumstances, permit water from any other source or supply to be introduced into its water system, nor any part thereof, or to be mixed or mingled with water from the water system of the City of Detroit, without prior written approval of the Board. 15o The Board shall be permitted to use streets, highways, alleys, and/or easements in the City of for the purpose of constructing, maintaining, and operating such water system facilities as are necessary to adequately supply the City of and other areas. This consent is given in compliance with Article 8, Section 28, Michigan Constitution of 1908. The City of _agrees that in addition to the consent herein given that, at the request of the Board, it will execute such separate instruments granting rights-of-way in any of its streets, highways and alleys as may from time to time be reasonably required by said Board. In the event of such construction, the Board shall restore all existing structures and/or improvements lying in the rightof-way of construction, to as good a condition as before the construction took place; and shall save harmless the City of from any and all liability, claims, suits, actions or causes of action for damages for injuries or otherwise by reason of the construction work herein above provided for. Any such facilities constructed, maintained and operated under this section shall remain in perpetuity of the property of the City of Detroit and shall not be operated or maintained by any other than employees of the Board of its authorized representatives. 16. It is mutually understood and agreed that the City of mains may be connected to the mains of other suburban communities for flow in either direction, to provide an adequate water supply from the Detroit System to the City of and to other areas and units of government, and to provide for efficient operation of the entire water supply system. The Board agrees that no connection will be made that is not in accordance with accepted water system distribution practice. 17. No failure or delay in performance of the executed water service agreement by either party shall be deemed to be a breach thereof when such failure or delay is occasioned by or due to any Act of God, strikes, lockouts, wars, riots, epidemics, explosions, sabotage, breakage or accident to machinery or lines of pipe, the binding order of any court or governmental authority, or any other cause, whether of the kind herein enumerated or otherwise, not within the control of the party claiming suspension; provided that no cause or contingency shall relieve the City of of its obligation to make payment for water delivered by the Board. 154

18. The Board shall supply and sell water from the system of the City of Detroit to the City of, and the City of shall receive and purchase such water in accordance with the terms of this Agreement for an indefinite period of time but at least for a period of 35 years from date hereof. This Agreement may be terminated by either party after expiration of said 35-year period, upon one year's written notice served upon the other party by delivering the same to the Secretary of the Board or to the Clerk of the City of as the case may be, or at any time upon mutual consent of both parties. 19. This Agreement shall insure to the benefit of and be binding upon the respective parties hereto, their successors and assigns. 20. This Agreement shall take effect upon its adoption and execution by the respective parties herto, and its approval by the Common Council of the City of Detroit. IN WITNESS WHEREOF, the be executed by their respective year first above written. parties hereto have caused this Agreement to duly authorized officers as of the day and CITY OF DETROIT By its Board of Water Commissioners Witnesses: By President By Secretary Witnesses: CITY OF By Mayor By City Clerk 155

APPENDIX C LEGAL PROVISIONS AFFECTING WATER SUPPLY IN MICHIGAN* *This Appendix was prepared from a study by Paul Timmreck, a graduate student at the Institute of Public Policy Analysis, The University of Michigan, who served as a research assistant to the principal investigators. 157

Introduction This appendix was prepared for a two-fold purpose: first, to review the provisions of the Constitution of the State of Michigan and statutes promulgated in pursuance thereof as they relate to the provision of water supply, and second, to search out provisions of Michigan law which either mandate or grant general authority to the Detroit Metropolitan Water Services in its thrust to become the regional supplier of water in Southeastern Michigan. To serve both purposes, the review is organized according to categories of municipal jurisdiction. In addition, court cases which bear directly upon the function of water supply and its concommitants are discussed. The role and function of the State Department of Health and the question of water quality standards for potable water supplies is not, however, included in the scope of this review. We assume, as the main body of this report shows, that water will be provided to municipal residents in Michigan, at least in all but the most rural or least densely populated sections of the State. But the question of whether water supply services will be provided to areas outside the boundaries of supplying municipalities cannot so easily be assumed. In examining constitutional and statutory authority for the extraterritorial provision of services, Frank Sengstock has suggested three arguments on whether municipalities should furnish services outside their corporate limits: (1) the health of a metropolitan area is dependent upon the health of every constituent"germs do not stop at political boundaries"; (2) the furnishing of services such as water makes non-central city residents more receptive to annexation since they become more dependent upon the city; and (3) "The only practical way to obtain the orderly development of the fringe is through the judicious use of the facility to provide services in order that reasonably attractive and well developed communities may be brought into being for purposes of further annexa.tion."1 While these are arguments for extraterritorial services, as an opening wedge for areal expansion, they are not unrelated to the policy issues implicit in those legal provisions upon which the provision of water supply within and without municipalities is based. 1. Frank Sengstock, Extraterritorial Powers in the Metropolitan Area, (Ann Arbor: Michigan Legal Publications, 1962), p. 21. 158

Home Rule Cities and Villages Both constitutional and statutory provisions give cities and villages the right to supply water. The 1908 Constitution (Art. VIII, Sec. 23) declared that any city or village could acquire, own or operate either inside or outside of its corporate limits, public utilities which would supply water, light and heat power. In that same Article, cities and villages were also allowed to sell the above beyond their corporate limits as long as the amount of the sale did not exceed 25% of that which was supplied to their inhabitants. In 1944, the 1908 Constitution was amended and the 25% restriction on the sale of water beyond corporate limits was deleted; the restriction remained with respect to the other utilities. The amendment was approved by the voters, 860,219 to 568,090. L. G. Lenhardt, General Manager of Detroit Water Services, was quoted as saying: "Detroit is within 4%0 of the constitutional limitation, and suburban communities of other municipalities in the state have already reached the 25% limit.... Mainly, that has resulted from war industries and war housing projects locating close to but outside of urban centers."2 The 1963 Michigan Constitution does not contain any restrictions on the amount of water supplied outside municipal boundaries. According to the Citizens Research Council's comparative study of Michigan Constitutions, "The power granted to municipalities to sell and deliver water, heat, power and light without their corporate limits is designed to prevent the duplication of plants in contiguous localities and to allow the extension of the benefits of such improvements to territory not sufficiently populous to warrant the establishment of such activities as either a public or private enterprise."2a The first statutory provision giving cities and villages the right to supply water both in and outside of their corporate limits is Act 5, P. A. 1870 (M.S.A. 5.2511). This act authorized cities and villages to acquire or construct hydraulic works for supplying their inhabitants with water. The act did not provide for the sale and supply of water beyond the corporate limits of such municipalities. The Home Rule City Act, Act 279, P. A. 1909 (M.S.A. 5.2071-5.2118) and the Home Rule Village Act, Act 278, P. A. 1909 (M.S.A. 5.1511-5.1539) provided that cities and villages could obtain and sell water, but included a. 25% restriction on the amount sold beyond their corporate limits, similar to the provision in the 1908 Constitution. The wording in both acts is that "Each city (or village) in its charter may provide for.... The acts required that a 2. Detroit News, Nov. 1, 1944. 2a. Citizen's Research Council of Michigan, A Comparative Analysis of the Michigan Constitution (Report Number 208, 1961). p. VIII-35, Vol. II. 159

three-fifths majority vote of the electorate be obtained before a public utility was acquired; While the 25% restriction in the 1908 Constitution was deleted in 1944, the Home Rule Act and Village Acts were not similarly amended until 1955. Act 130, P. Ao 1945 (MoSoAo 5.2532), authorized cities, villages and townships to extend and improve their municipally owned water systems through the acquisition and operation of a joint source of water supply. Access to the Great Lakes and bays was specifically mentioned. There are a number of different water supply statutes which apply only to the City of Detroit, In 1853, the Board of Water Commissioners was created by an act of the state legislature (Act 90, Laws 1853)o In Board of Water Commissioners of City of Detroit Vo Village of Highland Park, 192 Mich. 607, the Detroit Water Board had sought an injunction to prevent the Village of Highland Park from interfering with the water distribution system in the village, on the grounds that Detroit owned that system. Detroit based its argument for ownership on an 1883 act which was the only authority by which Detroit built water mains and pipes in Highland Park. Detroit argued that a necessary consequence was that it would own the system. The court ruled in Highland Park's favoro The most important point of the court's decision was that the object of the contract between Detroit and Highland Park was to furnish a system to carry the water that Highland Park needed, without any definite agreement to supply water. Detroit objected to Highland Park's plan to use the distribution system which was paid for by Highland Park (but built by Detroit). In order to provide its own residents with water from its own intake in Lake St" Clair, Highland Park had decided in 1913 to build and manage its own water supply system when the Detroit Water Board said that it was unable to supply Highland Park with more water (greater pressure was needed for adequate fire protection facilities). From the court's opinion it seems that Highland Park had made an effort to cooperate with Detroit, hoping to work out an adequate solution to the problem. At the time the Highland Park distribution system was important to the Detroit Water Board since it had been using that system to furnish water to the Detroit residents on the north side of Highland Park, In Nelson Vo County of Wayne 289 Mich. 284 (1939), Nelson had sought a writ of mandamus to compel the Wayne County Board of Supervisors to serve his subdivision with water. Nelson contended that Wayne County was required to furnish him with water (regardless of the fact that his house was the first in a subdivision's lot outside the city limits), since Wayne County had been supplying a training home (also outside the city limits) with water. The point brought out in the opinion was that it is within the discretion of the municipal corporation as to whom it shall furnish water: "We find that it clearly appears from the record that the board of auditors were deeply concerned with the future of the training school water line and with the expense that would 16o

be incurred by the addition of more consumers to the line, and that in refusing to grant plaintiff the permit requested, in view of all the circumstances involved, [they] were not discriminating against him, but were acting in the exercise of their discretion." In Somerville v. Landel Metropolitan District, 340 Micho 483 (1954), the decision established the rule that any city which operates facilities without its corporate limits for the sale of water is limited by the Constitution to the extent that it must first obtain a franchise from the governmental authorities in whose territory the water system is located. There are no constitutional provisions which deal with regulating municipally-owned public utility rates, including water. The main statute concerned with rates charged by cities, townships, and villages is Act 34, P. Ao 1917. The act provides that "municipal corporations having authority by law to sell water outside their territorial limits...may contract for such sale with cities or villages having authority to provide a water supply system for their inhabitants, but the price charged shall not be less than nor more than double that paid by customers within their own territory," The statute also provides that the price charged could be more than double if the city being supplied was more than 10 miles beyond the territorial limits of the corporation, and that prices more than double "shall bear a reasonable relationship to the service rendered," There are four important court cases concerned with rates. In City of Detroit v. Board of Walter Commissioners, 108 Mich. 494 (1896), the Court ruled that the Detroit Water Board was under no obligation to furnish water free of cost to any institution, city-owned or otherwise. The case grew out of a request for a writ of mandamus by the City of Detroit to compel the Board of Water Commissioners to furnish the Detroit House of Correction with free water. In Preston v. Board of Water Commissioners of Detroit, 117 Micho 589 (1898), the Court ruled: first, that water rates paid by consumers were by no means taxes, meaning that it was unnecessary that they be uniform or based on property taxes; second, that a city was not obliged to furnish water at cost, but could properly derive a profit and could use that profit as payment for the cost of the plant; third, that if water rates to consumers are reasonable to begin with, the consumers cannot complain about inequitable rates on the grounds that the water commissioners had supplied water free or at cost to any city departments, or institutions of a charitable or educational nature. The Court thus left the Water Board with a great amount of discretion in determining water rates. The ruling in Detroit v. Highland Park, 326 Mich. 78 (1950), contains a number of important points which should be examined. The case originated when Detroit sought to restrain Highland Park from discharging untreated sewage into Detroit's sewage system. In response, Highland Park filed a bill against Detroit for the determination of the amount of money which Highland Park should pay for 161

sewage disposal. The crux of the case was that Highland Park disagreed with the manner in which Detroit determined the costs to be paid and hoped that the Court would ascertain a "proper charge." re But the Court refused to enter into the determination of what were "reasonable" rates, or how those rates are to be determined. The Court did decide that (1) a 5,97% rate of return on Detroit's investment was not unreasonable; (2) Detroit was within its rights to include as a cost a nonrecurring federal government grant used in building its sewage disposal system; (3) the mere fact of a differential between the rate charged to residents of the Detroit area and that charged to those residing in adjacent municipalities did not mean that the rate was unreasonable; (4) the burden of proof was on the defendant to show that the rate was unreasonable; (5) a depreciation rate of 2% was not unreasonable; and, finally, (6) determination of rates was a legislative matter with which the Court would not interfere unless the rate was "arbitrary, capricious, or unreasonable," The Court did not, however, discuss what constituted arbitrary, capricious, or unreasonable rates. In Township of Meridian v. City of Lansing, 342 Mich. 483 (1955), the Court refused to discuss what it termed ",,.elaborate cost and worth analyses.c or accounting theories." and said that the only question was whether the rates charged were reasonable in relation to costs. At the same time, the Court put the burden of proof on the plaintiff (the township) to show that the rates were unreasonable. With respect to methods of finance of water systems and authorities by incorporated cities and villages, the Detroit Board of Water Commissioners in 1853 "...were authorized, for the purposes of establishing a water plant, to borrow, upon the credit of the city, $250,000. The money was borrowed, and the city issued bonds for that amount...." Act 302, L. A. 1873, provided that "It shall be the duty of the common council, and said council is hereby empowered, to cause to be levied and assessed annually, upon the taxable property in said city, the sum of $75,000, the same to be included in each annual tax assessment levied on said city, and the same shall not require or be conditioned upon the vote of the freeman of said city." Act 5, P. A. 1870 provided for the borrowing of money by cities and incorporated villages to supply water (M.S.A. 5.2511) upon the conditions that (1) the total sum borrowed and raised by taxes during the first year should not exceed 10% of the assessed valuation of the municipality, and (2) that no more than 5% should be borrowed during any single year afterwards, with the rate of interest not to exceed 0l of the indebtedness, The Home Rule City Act authorizes that "each city in its charter may provide.. f or the installation and connection of sewers and waterworks on and to property within the city; for assessing the cost thereof to the several properties and making the same a lien thereon; and for the borrowing on money and 162

issuing of the collection of such special assessments." Such funds borrowed and bonds issued in anticipation of special assessments do not constitute general indebtedness. The most important statutory provision by which cities, villages, counties and townships may "...acquire, construct, extend and operate or repair..." public utilities is the Revenue Bond Act of 1933 (Act 94, P. A. 1933). Under this act the debt is payable from the income derived on the improvements made. The Revenue Bond Act further provides that the legislative body of the muncipality shall be responsible for passing ordinances which authorize the issuance of bonds under such an act. In addition, these bonds may be issued without the approval of the electorate-unless a petition requesting a referendum is signed by 10%o of the voters. Revenue bonds, moreover, may be issued without incurring charges against the indebtedness of the municipality. Under provisions of the Revenue Bond Act, a lien is placed on the revenues of the utility. According to one source, it is not necessary to execute a trust indenture to secure the bonds. Moreover, the bonds can be issued for a considerably longer period of time (up to 40 years) under the Revenue Bond Act.3 The Municipal Finance Commission was created by Act 202, P. A. 1943. The amended Revenue Bond Act of 1933 states that "the commission may request the applicant to furnish such information as it may deem desirable in order to pass upon the application. No bonds shall be issued hereunder until the borrower has first secured the approval of the Municipal Finance Commission to such issuance." The act further states, "in determining whether a proposed issue of bonds shall be approved, the Municipal Finance Commission shall take into consideration: (a) whether such bonds conform to the provisions of this act; (b) whether the probable revenues pledged to the payment of such bonds will be sufficient to pay the principal thereof and interest thereon when due; and (c) whether the amount of the proposed issue is sufficient or excessive for the purpose for which they are to be issued." Section 30 of the Revenue Bond Act also provides for the maintenance of "...proper books of record and account, separate entirely from other records and accounts of such borrowers, in which full and correct entries shall be made of all dealings or transactions of or in relation to the properties, business and affairs of the public improvement." The Commission does not, however, specify the details of the accounting systems used. This same section also maintains that forms furnished by the Municipal Finance Commission shall be filled out by the public corporations "...showing the cash income and disbursements of the public improvement during such operating year, and the assets and liabilities of the same at the close of such year. Such statements shall at all reasonable times during usual business hours be open to examination and inspection by any taxpayer.... Sec. 30 authorizes public corporations to submit instead an audit report of the annual audit, if that audit was performed by a C.P.A. 3. Ibid. 163

Act 79, P. A. 1957 (M.S.A. 5.5211-26) states that "any such governmental unit may borrow money and issue notes in anticipation of the collection of revenues of any such utility to an amount not exceeding 10/o of the total revenues of such public utility for the preceding fiscal year." The act also requires that before such bonds were issued, the municipality must make application to the public debt commission, which was created by Act 13, P. A. 1932. The striking difference between the above act and the Revenue Bond Act of 1933 is the 10o guide for the issuance of bonds. Villages Village water supply, finance and rates policies are similar to those pointed out in preceding pages for cities. Other statutes and provisions differentiate villages from cities. There are no constitutional provisions which apply strictly to villages and not to other municipalities. Act 3, P. A. 1895, the General Village Act, authorizes any village having a population of 200 or more to construct and operate a waterworks system and supply the inhabitants with water. With respect to finance, the General Village Act authorized villages to borrow, provided that the amount does not exceed 10% of the assessed valuation of the village. The act also stipulated that the rate of interest on bonds could not be greater than 6%, and that two-thirds of the voters had to approve the issuance of any bonds. The act left the setting of rates to the village council and put no restrictions on the amount charged for water. Similar to the Incorporated City Act, the General Village Act provided that, on order by the council, waterworks could be constructed or maintained beyond corporate limits. Permission to contract for supply was also granted, with a limitation of a maximum of 10 years on any such contract. Townships In 1939, townships were given the authority to construct and maintain waterworks for the purpose of supplying water, upon obtaining a three-fifths vote from the electorate. In addition, such improvements could be constructed and maintained both in platted areas and in townships outside cities and incorporated villages. Regarding supply, the township board was empowered to furnish water for both fire and domestic use, after having obtained a "...petition filed by 6o0 of the persons owning land within the proposed water supply district,,." with "..not more than 50% of the construction costs, exclusive of any federal funds contributed...paid from the contingent fund. The remainder of the costs must be paid from water rentals collected from individual owners." 164

The most recent legislation dealing with the township's right to supply water is the Township Water System Act of 1956, Act 6, P. A. 1956 (M.S.A. 5.2535). This act authorizes the establishment of a public corporation to furnish water to one or more townships, with the power to take water from the Great Lakes. When financing water supply systems, townships may contract with cities and villages and provide for the construction of a water distribution system by special assessment. Townships are also authorized to issue bonds to finance water systems under the provisions of the Revenue Bond Act of 1933. Counties The only constitutional provision relating to counties and water supply authorities is Sec. 28, Article VIII of the Michigan Constitution. This section gives to the state legislature the power to authorize joint control by counties, townships, cities, villages or districts of multi-purpose functioning authorities. The act which today is of primary importance for county water supply is Act 185, P. A. 1957. This act had the effect of authorizing the establishment by a county of a department and board of public works (M.S.A. 5.570). Other statutory provisions are: (1) a county may locate any part of its water supply system outside of its territorial limits; (2) a county may not furnish water to individual users in a municipality without the consent of that municipality; and (3) the establishment of a. county water supply system must be approved by a majority of the members of the board of supervisors of that county. To finance their systems, counties are empowered to (1) take advantage of the Revenue Bond Act of 1933; and (2) issue bonds in anticipation of the collection of amounts due under the contract or the payment of special assessments made by the board of public works or with money which had been loaned to the county under agreements with other municipalities. Cities, villages and townships have the power to contract for the purchase of water from counties. Fourth Class Cities Since adoption of the Home Rule City Act in 1909, no cities have been incorporated under the Fourth Class City Act of 1895, except for those which are county seat villages.4 Such villages are allowed to incorporate as fourth 4. Claude R. Tharp, Manual of City Government in Michigan (Bureau of Government, Institute of Public Administration at The University of Michigan, 1957), p. 2. 165

class cities by a special provision of that act. The Fourth Class City Act authorizes such cities to purchase, construct, maintain and extend a waterworks system (M.SA. 5o1884). In addition, such cities may also contract for water supply, with a time limitation on the contract of 10 years. The same act also allowed fourth class cities to borrow money to be used in connection with a waterworks system, the sum of the money not to exceed 54 of the assessed valuation of the city's real and personal property. A two-thirds vote of approval by the electorate was required before any such general obligation bonds could be issued. Determination of rates was left to the council. Metropolitan Authorities Article VIII, Sec. 27 permits the state legislature to establish multipurpose functioning authorities in metropolitan areas; Sec. 28 enables the legislature to authorize the joint control of such authorities by cities, villages, counties, townships or districts. Probably the foremost statutory provision for the establishment of authorities is the Metropolitan District Act (Act 312, P. A. 1929 (M.S.A. 5.2131)). The act first provides for the incorporation of a metropolitan district by any two or more cities, villages or townships, with the boundary of the district to encompass the territory within their respective limits. A simple majority vote of the people residing in each jurisdiction is needed for the incorporation. To finance a metropolitan district, the Act provided that money could be borrowed up to a limit of 2% of the assessed valuation of all real and personal property. In addition, a district was permitted to borrow money and issue bonds to be paid for through special assessments levied against all particular parcels for the improvement being undertaken. A provision for mortgage bonds stated that such bonds issued beyond the general limits of indebtedness ".,.shall be secured only upon the property and revenues of such public utility." The interest rate was limited to an amount not greater than 6% and the total amount of the bond was not permitted to be greater than 60o of the original cost of the utility. The second important act to be considered in this section concerns intercity joint water supply, Act 130, P. A. 1945 (M.S.A..25532). This act authorized cities to extend and improve their water systems through a joint source of water supply and to finance such operations through the use of revenue bonds. In essence, the act made it possible for each participating city to finance all or part of the cost of its share of the improvement through provisions of the Revenue Bond Act of 1933. The statute also permits cities which join for purposes of water supply to sell water beyond their corporate limits. 166

A 1952 law provided for the incorporation of municipal authorities to acquire, own and operate water supply systems (Act 196, Po A. 1952, M.S.A. 525533). The act provided that any two or more cities, villages or townships (or any combination of those municipalities), in order to establish a water supply system could incorporate an authority. The incorporation was to take place with the adoption of articles by the legislative body of each municipality. The municipal authorities were further granted the power to finance such a system under the Revenue Bond Act of 1933.5 Act 82, Po A, 1955 (M.S.A. 5.2534) enables a city which either adjoins or is included in a metropolitan district organized under Act 312, P. A. 1929, to purchase that water supply or sewage system which is owned by the district. Act 233, P. Ac 1955 (MoS.A. 5o2769(51)-(64)) reiterated the earlier provision that any two or more municipalities may incorporate an authority for the purpose of acquiring, maintaining, or extending a sewage disposal or water supply system when the articles of incorporation are adopted by the respective legislative bodies of the municipalities, The most far-reaching act since 1929 seems to be the Charter Water Authorities Act, Act 4, P. A. 1957 (M.S.A, 502533(31)). In providing for the incorporation of municipal authorities the act states, "The cities, villages, and townships shall continue to own, operate and maintain their own water distribution systems. It is the intent of this act to provide an equitable and reasonable method and means of financing and acquiring a central water supply and transmission system to supply potable water in sufficient quantities to local governmental units for distribution and sale to their own customers and users. In order to incorporate such a system, two or more cities, villages, or townships must have a combined current State Equalized Valuation of not less than $200,000,000 and must receive approval from a simple majority vote of the electors in the respective municipal jurisdictions. The act carries provisions for a board of commissioners comprised of representatives from the respective legislative bodies. For the establishment of rates, the board of commissioners must approve a schedule of rates by a two-thirds majority before the issuance of any bonds, In addition to permitting financing under the provisions of the Revenue Bond Act of 1933, the Charter Water Authorities Act also allows the issuance of bonds for which the total principal must not exceed 5U of the State Equalized Valuation of all governmental units which comprise the authority. Furthermore, such bonds may be issued only after a two-thirds vote of the commissioners, general obligation bonds must be of a serial type with annual maturities, 5o Ibid., pp. 170-1735 167

Records and Accounts In all cases, cities, villages, townships and counties, and authorities are required by statute to keep records and accounts of legislative sessions and financial transactions. All such records must be open to the public for examination, While the Revenue Bond Act of 1933 seems to contain the most important provision for financial records, the following statutes also require the maintenance of financial records: Cities-Act 279, P. A. 1909 (MoSoAo 5~2073) Villages-Act 278, P. Ao 1909 (MoSAo 5.1511) Townships-Act 359, P. A, 1947 (MoSoAo 5o46 (30)) Counties-Act 156, P. A. 1851 (MoSoAo 5.325 (5)) Districts-Act 312, Po A. 1929 (MoS.A, 5o2133) Powers of Condemnation The power of condemnation is necessary, especially when one municipality is extending its water supply system into the corporate boundaries of another municipality. The Home Rule City Act provides that any city, in its charter, may provide "for the acquisition by purchase, gift, condemnation, lease or otherwise of private property, either within or without the corporate limits of the county in which it is located, for any public use or purpose within the scope of its powers, whether herein specifically menritioned or not," (MoSoA. 5.2078). Act 149, Po Ao 1911, also deals with condermnation proceedings. This act is referred to in other statutes when the power of condemnation is mentioned, An important provision of Act 149 is that ".o.before any proceedings are taken under this act initiating the taking of any' property or property rights in any city or village for the changing, altering, openi g or widening of any street or highway, the consent of the village or city council shall first be obtainedo?! Metropolitan authorities are also granted powers of condemnration in their respective acts. Conclusion In considering the constitutional and statutory provisions pertaining to water supply by municipalities in Michigan, this review lends support to the conclusion that, in a strict sense, no legal provisions explain or project the future role of Detroit Vs Water Board in supplying water to the southeast Michigan area, 168

APPENDIX D A CASE HISTORY OF DETROIT-FLINT CONTRACT NEGOTIATIONS* *This Appendix is an extensively modified version of a paper presented by the principal investigators at the Fourth Annual Water Resources Conference, November 18-22, 1968, in New York City. Cf. the Proceedings of the Conference, pp. 515-525. 169

Detroit-Flint Negotiations: A Case History Of all extensions of Detroit service, the negotiations leading to the Flint Contract were the most difficult and complex. The negotiations, which extended the supply of Detroit water to its farthest point and largest outcity consumer (population 200,000), were carried on in numerous meetings over a period of sixteen months, from January 1963, to April 1964, before the agreement was signed in June 1964. Formal negotiations, authorized by the respective local legislative bodies, did not begin, however, until January 1964. If there was anything these negotiations bore in common with the extension of DNWS service into other municipal areas, it was a search for areas of agreement upon which a contract could be successfully concluded. The purchase of water from Detroit to meet expanding Flint municipal needs had been considered as a potential source of supply for years. Like many other southeastern Michigan communities, Flint was heavily dependent upon surface water supply. The Flint River, however, is not much more than a large stream and could not be depended upon to meet the needs of rapid industrial, commercial, and residential expansion. Indeed, as the 1960's approached Flint was nearing the point where it would draw more raw water for use than the river could supply; in the early 1960's its withdrawals actually exceeded the flow and it had to turn to a highly polluted supplemental source for use. Faced with the necessity of securing additional sources of water even before 1956, Flint had considered the purchase of its needs from Detroit. In 1956, in a formal feasibility study conducted by the engineering firm of Metcalf and Eddy, the Detroit alternative was rejected on the basis that talks with Detroit water officials gave firm indication that Detroit would not expand its service area much beyond its then-current boundaries. Again in 1959 Metcalf and Eddy reached the same conclusion in an up-dated report. Mainly upon the basis of this conclusion, Flint was determined to develop its own additional source to provide water to its users. At about the same time, negotiations for the purchase of the existing Wayne County treatment facilities were concluded and the Detroit Water Department began its conscious effort to effectuate a single water service system in southeastern Michigan. With the purchase of the Wayne County system it became necessary for Detroit to extend the boundaries of its service area to load the combined facilities to make them economically feasible. The then-new Detroit plan to develop an additional intake on Lake Huron was concerned with future activity, partially to ensure current supplies but especially to meet the predicted demands of the projected future service area. The firm commitment of the Detroit Water Board to develop the Lake Huron intake created an additional economic imperative to increase significantly its service area and customer loading. 170

In 1962 the City of Flint was faced by crisis when the State Department of Health condemned its intake on the Flint River. While the City Commission considered primarily the development of a new intake some 60 miles eastward on Lake Huron, new interest was generated for the Detroit contract alternative by private industrial interests. General Motors is the largest employer in Flint; its Buick Division is one of the largest Flint-GM employers. The managers of Buick, expressing grave concern about current and future industrial and suburban water needs and their potential costs under an expanded Flint system, since Flint had recently raised its water rates by 5O0o-made his own study of the potential of Detroit to provide for total Flint and Flint suburban needs. After his return from three days of intensive discussion with representatives of DMWS, he made a forceful presentation to the Flint City Commission for the purchase of its total water needs from the City of Detroit. The renewed focus on Detroit water was generated then on the initiative of private interests through, but not by, local government institutions. And these private interests were much too important to be ignored. There were, however, both governmental and private interests in Flint which resisted any alternative except the development of a Flint-owned facility. Part of this resistance was based in an innate parochial localism ("Flint is a big city; we can take care of ourselves!") not uncommon in an area fiercely protective of local institutions and autonomy. But part of the resistance was generated from a fear that, without representation on the Detroit Water Board, Flint would have no control or influence over rates. 1 Nor was everyone convinced that the population and usage projections upon which the necessity for Detroit water was premised were necessarily correct; indeed, several key individuals, including both the superintendent and chief engineer of the Flint Water Department, believed they were overexpressed. There were other influentials who did favor, at the very least, exploratory talks with the DMWS, including several members of the City Commission and the city manager of Flint. Informal negotiations were begun, therefore, in January 1963. The pro-DNWS faction was reinforced by the appointment of a new city manager in March 1963. A former assistant to the outgoing manager, the new appointee was strongly committed to the concept of a single water agency for southeastern Michigan on the basis that it could supply the most and best water at the least cost. While not averse to the construction of a Flint-owned Huron intake, he believed that the economies involved (an estimated total $54,000,000 investment in plant capacity, etc., versus an estimated $9,000,000 for distribution facilities under a DMWS contract) necessitated the practicality of a Detroit contract, notwithstanding the fact that Flint was financially capable (an Aa bond rating) to carry the project through. In the long run, he felt, it would even be economical for Flint to write off its $13,000,000 water plant investment, a step taken when the Detroit contract was signed. 1. There had been statements that DMWS might be able to "arrange" membership on the Water Board for Flint in the event that the contract was concluded successfully. Positive action has been taken recently by DMWS to carry through on its "commitment"; but no Flint representative had been appointed by June 1970. 171

In mid-1963 another independent study of the most feasible arrangements for the provision of Flint's water supply was conducted for Flint philanthropist C. S. Mott. Carried out by the engineering head of several out-of-state water properties owned by Mott, the study concluded that it was in the best interests of Flint, financially and politically, to develop its own intake on Lake Huron unless satisfactory arrangements could be made to purchase a guaranteed supply from DMWS. The latter provision became important because it established the basis for continuing persistent contacts between pro-DMWS Flint officals and DMWS representatives a short while later when informal negotiations were halted. The legal authority for DMWS to extend its service area to Flint also came into question just before formal negotiations were begun. One member of the Detroit Water Board (the DMWS policy body) questioned both the legality and wisdom of the proposed Flint extension without partial Board representation (he wanted personally to represent the Board), during negotiations but was overridden by the full Board. With no explicit state legislation permitting an extension of service to Flint (a city charter provision allows out-city water sales) several members of the Common Council raised similar questions. But the general manager of DMWS pointed out that (a) Council had approved, in 1956, a proposed expansion to provide service outside Detroit, (b) a 1958 Charter referendum by city residents that established suburban representation on the water board could be and was interpreted as a referendum to extend services, (c) Common Council had approved the bond issues necessary for the Lake Huron intake, a vital part of the approved expansion, and (d) contracts had already been let with municipalities not specifically metnioned in the Water Development Program of 1959.2 It is interesting to note that neither the Council nor the Board, both of which gave approval, ever questioned the cost of the proposed Flint extension. During the course of the Detroit-Flint negotiations both parties prepared brief reports as the basis of discussion for all "sticky" areas. Given the acknowledged premises that (a) the Flint representatives felt that Detroit water offered the most attractive economic and service alternative, and that (b) the Detroit representatives felt compelled to extend services to Flint to reduce Detroit's total share of the proposed Huron intake (to reduce the per capita cost to users already on its system), both sides continually sought areas of agreement. Agreement on minor and major issues was made easier to reach because 2. It was the general consensus of those involved in the preparation of the first "Year 2000 Report," in 1959, that Flint would probably develop its own system; Flint, therefore, was not specifically mentioned in the report. The 1956 Metcalf and Eddy report for Flint was, most probably, the basis for the conclusion. The Metcalf and Eddy report had based its conclusions, of course, on the former DMWS policy of nonexpansion. Had this cycle of reinforcing negative circularity not occurred Flint would most probably been included in the 1959 plan. The inclusion of Flint in expansion plans necessitated changes in the design of the transmission system for the 1966'"ear 2000 Report. 172

of the focus of the participants: the concern of DMWS negotiators was on elements of costs such as distance, elevation, and debt services; Flint representatives were interested mainly in reasonable total costs, that is whether they could "accept" proposed charges per thousand cubic feet of water purchased, as well as in the protection of Flint's autonomy and interests within Genesee County. Despite the apparent successes of the negotiators in reaching agreement on nearly all issues under consideration, the informal negotiations were halted in late 1963 when the Flint City Commission, by a narrow majority, voted to develop final design plans for a Flint-owned water supply intake on Lake Huron. The vote by the Commission, for whatever its reasons, underscored the political nature of the utility issue. While there was a significant force which promoted the regionalization of water supply for reasons of economic and engineering efficiency, the Commission voted to favor the protection of local interests. The cancellation of negotiations did not result in the cancellation of all Flint-DMWS contacts, however. Meetings continued to be held, motivated by the proviso of the Mott-sponsored report that the purchase of Detroit water be considered as a major alternative. In both official and unofficial meetings with the Flint City Commission, the pro-DMWS forces continued to press their case. Even in retrospect, it appears that the political decision for an autonomous Flint system would have set the future pattern for water supply in the Genesee County area had not one major event occurred, fortuitous in its timing for the pro-Detroit faction. Just before major contracts were to be let for the construction of a Flint facility, a Genesee County grand jury returned fraud indictments against several individuals involved in the purchase of land upon which the intake would have been constructed and in the purchase of rights-ofway. In January 1964, formal negotiations were instituted and all subjects under discussion for the contract were mutually approved. Under the terms of the thirty-year contract, in addition to agreement on rates which contained a provision for renegotiation at the end of a five-year period, Flint guaranteed the purchase of a quantity of water which was actually less than one-half that which it was currently supplying from its own water plant, but which provided sufficient revenues for DMWS to make the extension of its service economically feasible. The contractual agreement also specified that Flint would be the only distributor of DMWS water in the Genesee County area and that Flint would make a determined effort to effectuate water sales to the 173

townships and municipalities in the Flint area.3 With a major question of who should bear the responsibility for the construction of a major portion of the horizontal leg from the DMWS system to a connector with the Flint system, agreement was finally reached that DMWS construct that portion to the Genesee County border (with shared costs reflected in water charges to Flint) and that Flint would bear the costs of construction of the short leg from the county line to its distribution facility. This had the effect of providing Detroit water while protecting local interests in Flint's home county. But a secondary effect was to prevent further fragmentation of the distribution function in this segment of the regional supply system.4 One final impediment to the extension of the regional system into Flint was raised before the contract was formally approved. Some years previously the residents of Flint had voted not to fluoridate their water. Because Detroit water was fluoridated by Detroit Common Council resolution, the question was raised of the legality of supplying fluoridated water to a community on record against fluoridation-or meeting the Flint nonfluoride requirement through violation of a Detroit ordinance. The path to final signature was resolved when the general manager of DMWS secured a resolution from the Detroit council allowing him to stop the fluoridation of Detroit water until such time that the Lake Huron intake was constructed; then Flint could be supplied with unfluoridated water and Detroit could again begin the fluoridation of supply for all other customers on the Detroit system. Shortly after the contract was signed, but before the delivery of Detroit water two years hence, the question of fluoridation became moot. Factions in Flint which previously had resisted fluoridation successfully joined with profluoride forces in securing a positive referendum vote. The actions of DMWS in this instance, however, illustrate the lengths to which DMWS was willing to go to put together an economically feasible comprehensive water supply system with unitary production and transmission functions. A fragmented distribution system was the price it was willing to pay. 3. Flint has negotiated approximately ten sub-contracts and is in the process of discussion on several others. One potential water authority, composed of townships near Flint, was successfully precluded from direct negotiations with DMWS by the contract provision. One other authority formed to negotiate with Flint disbanded when several of its township and village members joined a county-sponsored distribution system under the control of the County Drain Commission. The Drain Commissioner was designated as "water agent" to negotiate contracts for villages and townships for water through the Flint system. 4. Giving Flint exclusive distribution rights is not, we feel, indicative of any move toward the use of a. formal or informal authority device to reduce potential fragmentation. It is, more probably, a political concession necessary to ensure the contract. Any real advantages that may derive from the use of the contract to prevent further fragmentation need to be investigated. 174

Bibliography Detroit Department of Water Supply, Detroit's Water Development Program for the Metropolitan Area (offset), July 16, 1959. Detroit Department of Water Supply, Detroit's Water Development Program for Southeastern Michigan, 1966-2000 (offset), July 5, 1966. Detroit Department of Water Supply, The 115th Operating Report, for Fiscal Year Ended June 30, 1967 (offset), April 10, 1968. Detroit Metropolitan Water Services, In Review (a pamphlet report "for the officials of the Southeastern Michigan Communities served by the Detroit Metropolitan Water Services water supply and water pollution control systems") released in 1968. Remus, G. Department of Water Supply: Proposed System Expansion Program (mimeo), 1956. Mowitz, Robert J. and Deil S. Wright, "Water for Southeastern Wayne County" in Mowitz and Wright, Profile of a Metropolis, Wayne State University Press, Detroit, 1962. Wengert, Norman and George M. Walker, Jr., "Institutional Constraints on the Development of a Regional Water Supply System: The Case of Detroit" in Proceedings of the Fourth American Water Resources Conference, November 18-22, 1968, New York City, N. Y. 175

APPENDIX E HIGHLAND PARK, AN INDEPENDENT ISLAND IN THE REGIONAL SYSTEM Joseph Barakat This Appendix was prepared by Mr. Barakat in connection with a seminar in Intergov-ernmental Relations directed by Professor Norman Wengert at Wayne State University several years ago. It was so well done, and it seemed relevant to this study since it deals with one of the cities that since about 1913 has been independent of Detroit, although surrounded by the larger city. The original seminar report has been edited and shortened for inclusion in this report. 177

Introduction Highland Park is completely surrounded by the City of Detroit, except for a small portion which borders on Hamtramck. The area of the city is 3.1 square miles, most of which has been built up for many years. Approximately 25% of the total area is in industrial use, devoted primarily to the manufacture of automobiles, motor trucks, tractors, and automobile parts and accessories. The terrain of the city is level. There are 50 miles of streets, all of which are paved and in relatively good condition. Railroad lines extend east and west through the city just north of the principal business district and along the eastern limits of the city. The records of the UoS. Weather Bureau indicate that high winds are moderately frequent and that tornadoes have occurred in this region. Long periods of severely cold weather are common; however, snowfall causes only a moderate interruption of traffic. Extended periods of hot, dry weather are rare. The Water Board Highland Park was incorporated as a village in 1889. At that time, the water supply was obtained from individual private wells on farms located within the village, This system sufficed until 1895 when an agreement was entered into with the Water Board of the City of Detroit. Under the terms of the agreement, Detroit laid water mains aggregating 26,440 ft and furnished Highland Park with water. In 1912-1913 a study was made by H. A. Schon, Consulting Engineer, to determine the feasibility of an independent water supply for Highland Park, in response to Henry Ford's desire to build a factory in Highland Park. On the basis of this study it was decided that water would be pumped to the village from Lake St. Clair several miles away, The necessary intake crib was built 2,500 feet from shore at the foot of Moross Road (Seven Mile Road) in Grosse Pointe Farms. The water flowed by gravity from the 12-foot steel crib, submerged in about 18 feet of water, through a 36-inch main to a suction well at the Lake Pumping Station 300 feet in from shore. The pumping station (originally operated by a private company and taken over by the City of Highland Park in 1924) then sent the water through a 30-inch main over a distance of 11.5 miles and in elevation about 70 feet to the Davison Pumping Station, located at Davison and Dequindre. Here it was stored in a 3 million gallon reservoir and pumped to the city. The Davison 178

Pumping Station was owned and operated by the Peninsular Electric Light Co. (later the Detroit Edison Co.). A new reservoir was built at the station in 1919-1920 with a capacity of 45 million gallons, the largest of its kind in the world. Later the smaller reservoir was roofed over and converted into a coagulation basin, To furnish better and more palatable water, a filtration plant was also constructed when the Davison Pumping Station was enlarged and remodeled. The Filtration Plant, with a 3.39 million gallon clear water basin for finished water storage, was constructed in 1920. The filter plant, one of the first in Michigan, was put into operation in 1921. Chlorine had been administered at the Grosse Pointe Farms Pumping Station, but later the water was chlorinated at the plant. In treating the water before filtration, filter alum (aluminum sulfate) was added for the purpose of clarification. The water then went from the coagulation basin to the filter plant where it was filtered through 12 one million gallon rapid sand filters, The chlorine treatment was the treatment for final disinfectiono A testing laboratory was installed to control the treatment of the water and also to check on the general operation of the plant. In 1933 a dividing wall was built in the large reservoir, separating it into two equal sections, either of which could be cut out of the system for cleaning. The pumping station at Grosse Pointe Farms was purchased from the Detroit Edison Co. in 1924 and has since been owned and operated by the city. The increasing demand for water necessitated a further enlargement of the Filtration Plant in 1936, enlarging its capacity by one-third to a rate size of 16 million gallons per day. From no treatment in the beginning, the Highland Park plant has progressed through the following stages: plain subsidence, partial disinfection, coagulation, sedimentation, filtration, taste and odor removal by adsorption, complete disinfection and free chlorination. The present method of treatment ranks among the most modern in the nation. The distribution system consists of about 56 miles of cast iron mains, ranging from 6 inches to 24 inches of which about 25% are 12 inches or larger. All pumps are operated by electric motors. There are six pumps at the Grosse Pointe Farms Pumping Station and nine at the Davison Avenue Station. A uniform pressure of from 48 to 50 pounds is maintained throughout the city. It was assumed that the water system would have the capacity to meet expected demands. However, in the years immediately following World War II consumption increased at about 35% each year and by 19553 peak demands were met with great difficulty. The basic weakness of the system was the inability of the raw water line to deliver the needed capacity. The old mixing chamber and settling basin were also inadequate, Early in 1954 the Water Department submitted a proposal for expansion to the City Council which was approved. The proposal included: 179

1. That a booster station be located midway in the 50-inch line, which would increase the raw water supply by about 40. 2. That a building to house two 11 MGD high rate clarifier units be constructed and equipped. The booster station was completed in 1956. It is an automatic station, operated by a telemeter unit located at the treatment plant. In summary, the Water Department of the City of Highland Park ranks among the most modern in the nation. The laboratory runs some 500 bacteriological, physical, and chemical tests daily to assure the consumer of clear, safe, and palatable water. The Department of Health of the State of Michigan rigidly enforces the laws governing water purification. A monthly report is submitted by the city to the state based on the results of the daily tests made, The laboratory is constantly working to devise other methods of improving water purification. As a result, the city has consistently exceeded purification standards of the U.S. Public Health Service. The Water Department operates 24 hours a day every day of the year. There are 34 employees, including operators at both pumping stations, the filter plant, meter department (servicing some 8100 meters in the city), and construction and maintenance men. In spite of the labor and material costs, which have more than doubled since the department came into existence, the water rates to Highland Parkers are the lowest in the state, Pure, palatable water is delivered anywhere at any time within the city for a little over 3 cents a ton. Should the Highland Park water system prove inadequate in an emergency, there are six connections with the Detroit distribution system. Highland Park may, upon notification, open these connections and obtain water from Detroit, but it may not open the connections merely to supplement its own normal supply. In the past, it has never been necessary to open more than 2 of these connections and then only on a few occasions. Emergency Water Supply From Detroit The emergency water supply system of the City of Highland Park, as obtained from the City of Detroit, carries a service charge of $23,000 per year, payable in twelve monthly installments. If payment is received by the City of Detroit within 15 days after the receipt of the bill, a 10o discount is allowed. If paid within one month of the due date, the gross bill is payable. If paid over one month after the receipt of the gross bill, the gross bill plus once per cent penalty of the gross bill will be charged for each month or fraction thereof for the duration of the penalty period. 180

Highland Park further has the responsiblity of servicing all meters and connections between the water systems. Furthermore, "The Board of Water Commissioners of the City of Detroit expressly reserves the right in case of accident, emergency, or for causes arising in the construction or repair of mains, or for any other unforeseen reason making it impossible to supply water to Highland Park, the sufficiency of which the Board of Water Commissioners shall be the sole judges, to refuse, discontinue or limit for the time being the supply of water and in such failure to suppy water, no claim for damage for such failure, discontinuance, or limitation of supply shall be made against the Board of Water Commissioners, or against the City of Detroit by Highland Park." Available Revenues and Necessary Repairs A survey of the waterworks of the City of Highland Park, conducted in 1956-57 by the firm of Garrity and Mosher, Consulting Engineers, revealed several problem areas in the water system. The surplus in funds existing in the department at that time, some $645,000, had already been allocated for repairs on existing facilities. The works of the City of Highland Park are relatively old and were in need of extensive repairs at that time and no funds were available for expansion of the system, For example, it was discovered that the Grosse Pointe Farms Pumping Station would need extensive repairs, including basement wall repairs, pipe headers, and a complete new roof structure. If the repairs were made as suggested, the plant would be capable of safely producing 21 million gallons of water per day and the distribution system should have been able to satisfactorily meet a maximum hour rate in excess of 26 million gallons per day throughout the service area, Although it was discovered that pressure throughout most of the system was maintained at about 48 pounds per square inch, in some areas, especially in the extreme northwest and the extreme southwest portions of the city, pressure was as low as 20 psi. There are other weak areas in the system, especially in the area bounded by Pilgrim, Hamilton, the Detroit Terminal Railroad, and the westerly city limits, Here, since zoning is for medium heavy industry, the supporting distribution system needs bolstering in order to supply sufficient amounts of water at a reasonable pressure. In addition, the raw water reservoir, completed over 40 years ago, is uncovered, of reinforced concrete, and is calculated to hold some 39 million gallons at full level. By visual inspection only, the reservoir appears to be in relatively good condition, considering its age and the amount of exposure to the elements it has received. But there is evidence of a serious weakness in the concrete at and adjacent to the expansion joints. This damage is caused by the alternate freezing and thawing of the concrete at locations where leakage from the reservoir is higho The inspection of the consulting engineers 181

indicated that there were some 60 locations, on the perimeter walls, where repairs should be made as quickly as possible. The expenditure involved would not be less than $125,000. In order to complete the repairs as well as maintain a safe contingent fund, it was suggested that the water rates be increased so that adequate service, proper maintenance, and improvement of the system could continue. At the time of the survey, the rate per 1000 cu ft in the City of Highland Park was $0.647. The Water Department of the city increased the rate to $0.883, whereas the Consulting Engineers had proposed a rate of $0.786. 182

APPENDIX F OBSTACLES TO THE DEVELOPMENT OF A METROPOLITAN WATER POLLUTION CONTROL AGENCY: THE CASE OF DETROIT* *By George M. Walker, Jr., Research Associate, School of Natural Resources and Assistant Professor, School of Public Health; and Darryl Hessel, Department of Resource Planning and Conservation, School of Natural Resources, The University of Michigan. A modified version of this paper was presented at the 1969 Annual Conference of the American Society for Public Administration, Miami, Florida, May 19-22, 1969. 183

Introduction Most current proposals for the control and abatement of environmental pollution recommend regional solutions for these kinds of problems that usually extend beyond the boundaries of single local jurisdictions. Frequently these proposals imply that the solutions can be implemented through the development of cost-free institutional structures. But no administrative structures which affect multiple jurisdictions are ever free from political, social or economic costs. Nor do these structures, like Topsy, just grow; invariably their development is conditioned, if not dictated by existing local and political and social institutions. And frequently the development of structural forms is accompanied by varying degrees of intercommunity conflict. This paper examines several critical factors in the growth of one regional wastewater disposal agency in one metropolitan area, We examine several crucial issues of metropolitan service area growth and identify major forces and factors which have conditioned the development of the metropolitan agency which proposes to deal with the problems of wastewater disposal in southeastern Michigan. In 1957 the Detroit Board of Water Commissioners announced its intention to become the regional water pollution control agency for the Detroit Metropolitan area. In accepting the recommendation of its General Manager [15], the Board formally adopted a long-range development plan that would extend its wastewater (and water supply) services beyond the thirty-four communities it then served. The inference was clear that the Board was embarked on a program which would realize economies of scale for the region as a whole. But a number of significant constraints were to shape, influence, and limit the pattern of metropolitan development, and most of these constraints were institutional in character. In preparing this paper we have assumed, not unreasonably, the technological and professional capability of the Detroit Water Service to handle the technical problems of wastewater disposal. We will not, therefore, deal with the technology of treatment. Our purpose is to examine some major forces and factors which have constrained or enhanced the proposed expansion of a semiautonomous center city government agency into a metropolitan service agency. As part of the examination we generally assess the utility of expanding a center city agency as the institutional base upon which to build and manage a metropolitan wastewater disposal system. Through a case study of suburban Warren, a community in adjoining Macomb County, we also present an analysis of the not atypical issues involved in expanding a metropolitan service area into communities already served by local wastewater treatment plants. Finally we raise several questions we feel are critical in seeking solutions to the institutional problems demonstrated through the case study. 184

Development of the Metropolitan Service Region The Detroit metropolitan region has been variously defined. The Standard Metropolitan Statistical Area as defined by the Census Bureau includes three counties [22]. The recently created Southeast Michigan Council of Governments (SEMCOG) focuses on a six-county region; its antecedents, the Detroit Metropolitan Area Regional Planning Commission and the Supervisors Inter-County Committee, focused on a four-county and six-countyregion, respectively [8]. In its 1966 "Year 2000 Report" the Department of Water Supply of the Detroit Water Services defined a nine-county region [1]; its companion division, the Department of Sewage Treatment, defined a six-county region in 1966 [4]. For health, economic development, and other planning, other areal definitions have been proposed. The Detroit Department of Water Services (DMWS) has provided regional water supply services in the metro region, in a loose sense, since before the turn of the century, but pollution control (sewage disposal) has been offered in a major portion of the urbanized area only since the construction of primary treatment facilities in Detroit in 1940.1 In this initial period treatment was provided for Detroit and eleven nearby municipalities, By the time of the Detroit agency's announced intention in 1957 to become the regional water pollution control agency, it served Detroit and thiry-four additional municipal units. The development of the system to 1957 can hardly be called regional, despite the number and geographic spread of jurisdictions it served. Accounting practice in sewage utilities recognizes a distinction between the functions of collection, transmission, and treatment; DMWS uses these categories in the assignment of jurisdictional responsibilities. By 1957, collection had not been regionalized; it was performed by the municipalities which contracted with Detroit for treatment capacity. Transmission was not regional in character; it was provided by various county drain commissions and communities which collaborated in the construction of sanitary sewer interceptors. Even within the City of Detroit collection and transmission were the responsibilities of the Department of Public Works, Only treatment, provided under contracts for those on the system, might have been considered a regional function-and then in a limited sense. DMWS served the city, northcentral Wayne County (in which Detroit is located), and municipalities in Macomb and Oakland Counties to the north. The Wayne County Road Commission, a powerful political and bureaucratic agency which provides a wide variety of services within the county, operated the county-owned collection and treatment system which services much of southern Wayne County. 1. Until 1940, pollution control in Detroit and its suburbs consisted mainly of diverting wastewater to the Detroit River System through a series of interceptor sewers and drains. In 1940 the federally-financed (PWA) primary treatment facility was put into operation, 185

In addition, other in- and out-county municipalities provided their own sewage treatment services. In regional wastewater treatment, therefore, DWS had only limited success, as one system among several. With minor exceptions, limited areawide economies of scale were realized only in treatment. It is most probable that the slow expansion of the DWS service area in the period prior to 1957 was intended primarily to sell, through negotiated contracts, the excess capacity of its treatment plan in order to reduce per capita treatment costs. Under then-current policies of the Water Board, only limited expansion of either the Water Supply or Sewage Treatment divisions was proposed. At this point, for reasons that are not entirely clear, the Detroit Water Board shifted its position and began to reformulate its role in terms of becoming the single agency for the supply of water and for sewage treatment in the metropolitan region [14, 15]. Of considerable importance to this emphatic change in policy was the retirement of the board's long time general manager and the appointment, from within, of Mr. Gerald Remus to the position.5 But it seems reasonable to assumed that other factors also influenced this change in role perception, especially since it was not marked by open conflict within the Department of Water Services or the Board of Water Commissioners. It should be noted that the department's initial regionalizing efforts were directed primarily at water supply; proposed expansion of the sewage treatment service area, with its significantly smaller revenue base, was much more modest.4 It is clear that the initiative and responsibility for becoming the regional wastewater treatment agency lay with the board through its approval of its new general manager's policies. Its legal authority for expansion was sufficient but the board had no mandate for this shift except its own perception of community needs and opportunities. Its drive to regional status was internal; no outside forces had any significant effect upon its decision. DWS was unable to effectuate its initial expansion plans in wastewater treatment, however, because Wayne County would not agree to sell its Road 2. Mowitz and Wright well document the case of this policy and its aftermath in water supply [11]. 3. Mr. Remus' selection was based at least partly on the fact that he was the only candidate of all those considered who had long-range plans for the Department at the time of interview. 4. Detroit is reported to be the only municipality in Michigan required, under state law, to restrict the expenditure of water and sewage revenues solely to the purposes of the respective utilities. Revenues from neither utility can be expended for, nor transferred to, the other. Because the Department employees, from general manager down, are covered by civil service and because of the restriction on the expenditure of water and sewer revenues, the Department has remained generally insulated from the politics, frequently volatile, of Detroit. 186

Commission-operated facilities in the southern part of the county.5 Without the increased revenue base (and consequent reduction in per capita construction and operating costs) this addition would have provided, the proposed expansion of its sewage treatment service area as operating policy was necessarily restricted. But the department was able to expand its service area gradually because of its considerable ability to negotiate service contracts with some of the municipalities it hoped to serve. Thus the department moved ahead so that by 1966 it had negotiated agreements, individual and collective, to provide sewage treatment to a total of fifty-three suburban communities. Part of the resistance by out-city areas to a center city government department expansion had been eliminated when, in 1960, membership of the Board of Water Commissioners was increased from four to seven, enabling suburban communities to have a voice, through three suburban representatives, in the determination of policy. To reflect its burgeoning metropolitan status the board adopted a new name in 1967: Detroit Metropolitan Water Services (DMWS]. Presaging its new name, in 1966 the department released a major revision of its 1957 expansion plans, a Pollution Control Program for the Detroit Regional Watershed of which wastewater treatment (now entitled wastewater renovation) was but one major part [4]. The Thrust to Metropolitan Status The metamorphosis of the Detroit Department of Water Services (DWS) to the metropolitan status of the Detroit Metropolitan Water Services (DMWS) reflects the power of the regional idea as a structural form for areawide problem solution, supported by some rather considerable bargaining advantages for DMWS.7 One of the most significant bargaining advantages has been the very limited capacity of the smaller rivers and streams in southeast Michigan to assimilate the effluent from sixty-some municipal treatment plants in the metropolitan 5. The department took a. giant step toward regional water supply in 1959 by the simple expedient of purchasing the Road Commission's water supply system, providing a sufficiently expanded revenue base that additional expansion could be planned and accomplished [24]. DWS was also aided by the hydrologic situation in the area: outside the Great Lakes system there is little surface or ground water of sufficient quality and quantity readily available for use by most municipalities; DWS provided a readily available supply. 6. Basically, DMWS proposes to establish two additional advanced treatment plans so that it will serve three subregions in the metro area. 7. While these have been significant factors in the growth of the Sewage Treatment Division they have been of greater importance to the larger, wealthier, and more extensive Division of Water Supplyo 187

area and provide, at the same time, water uses deriving from increasing demands for recreational and aesthetic amenities. Nor do the relatively impermeable colloidal clays of the region permit the extensive use of septic tanks in built-up areas. Therefore, the State Department of Health has imposed widespread bans on sewer line and/or treatment plant extensions and development, forcing many metropolitan communities to seek alternative ways to handle municipal wastewater. More recently, the enforcement of new, higher water quality standards for surface waters by the Michigan Water Resources Commission (WRC) has forced other communities to one of two alternatives: (a) provide tertiary treatment, with its concommitant high costs, or (b) join with a larger system, such asDMWS, which is also under orders to provide more extensive treatment of its influents [5], a copy of the Detroit-WRC wastewater renovation stipulation is included therein). The advantage for the communities involved is that the costs of joining with DMWS are usually significantly lower than those associated with independent municipal action. Meanwhile, several additional forces also converged to provide an additional impetus to regionalization. First among these is the two-volume National Sanitation Foundation report [12, 13] on sewage disposal and drainage problems prepared for the Southeastern Michigan Six-County Supervisors Inter-County Committee. In its report, NSF concluded that a single agency-the Detroit Water Services-was best equipped technically and administratively to handle the treatment of all wastewater in the six-county southeastern Michigan metropolitan area.9 This comprehensive report provided the major base for DMWS's 1966 sixcounty metropolitan Pollution Control Program [4]. The 1966 DMWS report, in turn, in slightly modified form, was accepted by the (four-county) Detroit Metropolitan Area Regional Planning Commission as its wastewater plan. When the Southeast Michigan Council of Governments (SEMCOG) was established a short time later, the Supervisors' Inter-County Committee and the Metro Area Regional Planning Commission became its deliberative and planning bodies respectively. SEMCOG in turn has also approved the 1966 DMWS program, slightly modified in form, as the formal wastewater renovation plan for its six-county metro area. In view of recent amendments to the Federal Water Pollution Control Act [25] that have placed an economic premium on regional wastewater treatment plans, SEMCOG program approval becomes especially significant. Under the act a regional water quality control and pollution abatement agency can receive up to 80/o of the total cost of treatment works and interceptor sewers in combined federal-state funds, Among other financial provisions, the act provides for up to 50%0 federal participation if the state provides 25% matching funds and the 8. The Commission, through the use of stipulations signed by the municipalities and industries involved, has undertaken an extensive campaign to upgrade the quality of the state's surface waters. 9. Some self-admittedly less-than-neutral observers have commented that the report was less than objective in its preparation. They allege that it cemented conclusions already drawn in favor of the Detroit alternative, 188

state has established enforceable water quality standards for the receiving waters; federal participation will be increased by an additional 5% (10% of its base grant) if the project has been certified by a qualified state, metropolitan, or regional planning agency within whose area the assistance is to be used. SEMCOG is a qualified planning agency under the provisions of the Michigan Planning Act, P. A. No. 281 of 1945, as amended. Under Act 245 of 1929, as amended, the Michigan Water Resources Commission is responsible for the abatement of pollution in the state's waterways. In the mid-1960's, many communities, including Detroit, entered into stipulations with WRC whereby they agreed voluntarily to upgrade the quality of their wastewater effluents. Shortly thereafter, the commission held a series of hearings through which water uses, to which stringent water quality standards could be applied, were established for most of the state's streams and rivers.10 Therefore, one of the conditions of the Federal Water Pollution Control Act needed to qualify for 80% funding-the establishment of water quality standards-has been met. Secondly, in November, 1968, the voters of the state approved a $235 million bond referendum which will provide the state's matching share for funds appropriated under the FWPC Act. Third, and of importance for regionalization under the DMWS program, under Act 75 of 1968, the Michigan Water Resources Commission can grant state funds for treatment projects only if they are in conformity with the state's plan and have been reviewed by local regional planning agencies for compliance with local regional plans.ll The Water Resources Commission favors a regional approach to treatment. No agency other than DMWS has submitted a regional plan for southeast Michigan. It seems clear, therefore, that the DMWS program will be approved by SEMCOG for the mteropolitan area when modified appropriately. Finally, WRC approval, necessary to qualify for FWPCA funds for treatment projects, will almost certainly be given to the DMWS plan. Since DEWS will most probably receive the federal and state funds for which it seems to qualify, even those communities which would prefer to take independent action in treatment may be unable to do so. Despite a strong prevailing "home rule" philosophy in a state where governments are intensely protective of local autonomy, financial necessity may dictate that potential holdouts enter into collaborative agreements with DMWS. We must point out here that the DMWS program is directed in the main to the treatment of sanitary sewage. Although it will treat storm sewer wastewater as part of the total capacity for which an individual community may contract, neither its present nor proposed treatment facilities are sufficiently large to handle both sanitary sewage and storm water when large runoffs occur. The DMWS program requires that individual municipalities or storm drain districts make local provision for the diversion of storm runoff-or, as a few 10. Uses and standards for all streams and rivers will have been completed in the very near future for the entire state. 11. The commission has final control since it can approve, reject, or require modification of local or regional plans. 189

have done, provide storage capacity to hold it until it can be treated. Local units must also construct and maintain their own collection sewers and equip them with control gates that will ensure they will not exceed their contracted capacity for treatment [4]. While total treatment of all wastewater may become a reality in the future, no local unit or combination of local units today possesses the necessary technical capacity and financial base to accomplish total treatment for the metropolitan region. Indeed, even with the large federal and state grants that will be necessary to carry through current and future plans DMWS will not be financially able to do its proposed metropolitan job alone. It is also dependent upon collaborative agreements with other submetropolitan units. For example, in its current expansion to the north of the city it will build a major interceptor system, the Oakland-Macomb Interceptor, to serve the southern half of Macomb County. The Clinton-Oakland Interceptor System, which will connect with the Oakland-Macomb system, will be constructed by the Oakland County Department of Public Works. DMWS, despite its excellent financial rating, is unable to meet the costs of the vitally necessary expansion alone.12 In structuring a regional system for the metro area, therefore, only treatment will be regionalized. Fragmented collection and transmission systems, tied together through collaborative and contractual agreements, is the cost that DMWS must bear in its drive to become the regional pollution abatement agency. The DMWS drive to become the regional control agency is not yet completed. The treatment system serving southern Wayne County-county-owned but operated by the County Road Commission —has given no indication that it is willing to react favorably to the formal and informal offers of DMWS to purchase its system. Currently under orders to increase its level of treatment, it, too, may find it advantageous to sell its equity to DIWS. There have also been municipal "houdouts," primary among them being the City of Warren in adjoining Macomb County, and Ann Arbor and Ypsilanti in Washtenaw County. We will conclude this paper with a study of what can only be termed the latest Detroit-Warren conflict. The Warren Quest for Independence: A Case History The facts of the conflict between Warren and the Detroit Metropolitan Water Services can be summarized in very brief form. The City of Warren, a rapidly growing, industrial suburb of Detroit, presently owns and maintains its own secondary sewage treatment plant. Constructed initially in the late 1950's, 12. An increase in treatment rates which might enable DMWS to finance the construction of both interceptors would be of such magnitude as to make it economically unacceptable to users already on the system and politically unacceptable to its contracting municipal units. 190

and expanded in the early 1960's, the Warren facility can hardly be considered old or seriously outdated. Warren, in fact, still has outstanding about $8,000,000 of bonded indebtedness on the plant.13 Effluent from the Warren plant discharges into Red Run, a storm drain, which in turn discharges into the Clinton River, a tributary to Lake St. Clair. The City of Warren lies in the heart of an area north of Detroit in which DMWS has chosen to construct the first segment of its proposed expansion, the Oakland-Macomb Interceptor. Since the suburb covers thirty-six square miles of land, except for perhaps two square miles in its center occupied by the City of Centerline, contains several large industrial developments, and is expected to discharge 33.5 million gallons per day (MGD) of wastewater by 1970 [71, Warren's connection to the metropolitan system is of considerable importance to the Detroit plans. The success of the Macomb-Oakland Interceptor development is doubly important since it is the first attempt by DMWS to build a sewer line outside Detroit city limits. In response to a. sewer extension ban imposed on ten Macomb County communities in May, 1966 (including Warren), the county negotiated a DMWS contract for wastewater disposal in the following year. But under the provisions of "home rule" in Michigan, Warren was not bound by the county contract. The city signed a separate stipulation with the State Water Resources Commission in August, 1967, which provided that the community could choose whether to connect to the DMWS system or improve its own wastewater plant so that its effluent would conform to Michigan Water Quality Standards [20]. Warren elected to pursue an independent course. A number of distinct issues are involved in the conflict between Warren and DMWS. Let us examine the most important of these at this point. THE ECONOMIC ISSUE A study carried out for Warren by a consulting engineering firm has developed cost data comparing the proposed Warren tertiary wastewater treatment plant and the DMWS connection [7]. While the details of the report must be kept confidential at the request of Warren officials, it does not seem unreasonable to examine one output from it. DMWS has quoted a. range of possible service rates to Warren which vary from $1.45/1000 cu ft to $1.60/1000 cu ft. According to Warren calculations [6] an average customer (5,500 cf/quarter) would pay from $2.61 to $1.95 less per quarter for wastewater disposal with the Warren plant than under a DMWS agreement-assuming that the federal and state governments pay 75* of plant construction costs. If the financial aid were reduced to 50t0, these savings would be reduced to $1.86 to $1.20, depending 13. Estimated from a memorandum developed by Warren officials [6]. 191

upon the DMWS rate. If no financial aid if forthcoming, the cost difference would be at most $0.66, and it might disappear altogether. Assuming Warren's calculations are accurate, the validity of the cost arguments is dependent only upon Warren's ability to attract financial aid. It seems very unlikely, however, that Warren would receive state and federal funds for its proposed plant expansion even though in mid-1968 the Michigan Water Resources Commission gave Warren's application priority over all others submitted in the state, including the DMWS proposal.1 There are several reasons for our doubt that Warren will receive state and/or federal aid. First, a recent Michigan law places new emphasis on longrange and regional planning [18]. Under this law both the DMWS and Warren grant applications were held to be technically deficient by the Water Resources Commission. The legislation also provides that before revised applications can be submitted, they must be sent for comment to the regional planning agency, in this case, the Southeastern Michigan Council of Governments. While SEMCOG did not explicitly disapprove Warren's revised plan, its letter of review implied that federal and state money might better be spent on the DMWS system [17]. This was probably expected since the Planning Division of SEMCOG, formerly the Detroit Metropolitan Area Regional Planning Commission, had previously adopted a modified form of DMWS plan as its official regional plan for four member counties, including Macomb County, in September, 1967.15 And, as stated above, it is privately admitted by SEMCOG planners that the eventual six-county plan of the council will likely be based upon the new DMWS plan. A second reason for doubting financial aid to Warren's proposed plant is contained in a letter from Commissioner Moore of the Federal Water Pollution Control Administration to U.S. Representative James O'Hara, a Warren resident [10]. In his communication, Commissioner Moore stated clearly that the FWPCA would never certify the Warren project for a grant even if the WRC did. The Warren case was intended to set a precedent for the regionalizing philosophy of FWPCA. Still another reason for doubt is that DMWS is now constructing an interceptor into Macomb County, directly through Warren, which is designed to include Warren's wastewater. In 1966 a sum of $5,200,000 of federal money was allocated for this construction [5]. Even if no additional state or federal aid is granted for this interceptor, support of the Warren plant would be double spending. DMWS anticipates, however, that 80% of the cost of improving its wastewater treatment plant, which is planned to treat Warren's waste, will be paid through state and federal grants. 14. Suggested by William Bradford, Michigan Water Resources Commission, during interview. 15. Verified by Fred R. Cheek, Deputy Director of Planning Division, SEMCOG, during interview. 192

If Warren receives no federal or state aid for its proposed plant, the estimated added quarterly expense to an average Warren customer through joining DMWS would be at most $0.66. A member of the staff of the Water Resources Commission has suggested that should Warren decide to join the DMWS system some of the initial expenses of making the connection might be covered by state and/or federal aid, The DMWS connection might, therefore, prove less expensive to the customer than the Warren plant. When one examines the economic issue from the standpoint of regional as opposed to local impact, two DMWS arguments appear relevant. First, the interceptor currently being built in Macomb County represents a large investment of DMWS resources, If Warren should not connect to the system the return on this investment would be considerably smaller than anticipated. The direct result would likely be a delay in the construction of other DMWS interceptors that are necessary for the economic and demographic development of norther Macomb CountyO1 Second, calculations presented to the Michigan legislature by DMWS indicate that each million dollars spent on additional construction in the DMWS system would remove more five-day biochemical oxygen demand (BOD) and more solids than the same money invested in the Warren system. The comparative ratios of investment efficiency in the two systems are quoted as 1.72:1 for BOD removal and 3.05:1 for solids [3]. Both of these arguments, if valid, suggest strongly that possible savings to Warren residents coming from the construction improvements of their own local wastewater treatment plant would result in significant costs to other communities in southeastern Michigan. THE WATER CONSERVATION ISSUE All surface waters in southeastern Michigan drain ultimately into Lake Erie, As suggested by the FWPCA Lake Erie Report [21], the only apparent way to stop, and hopefully reverse the rapid deterioration and aging in that lake is to reduce inputs of nutrients, especially phosphorous, to the lowest possible levels. Warren officials point out that their proposed tertiary treatment facility would remove more phosphorous from Warren wastewater than would Detroit's proposed secondary facility, They further emphasize that the effluent which their plant would discharge into Red Run drain and the Clinton River could be important during periods of low natural runoff. Finally, they note that the Warren facility could serve as a large-scale demonstration of tertiary treatment technique. The points made by Warren on this water conservation issue are certainly valid. But there are significant counter arguments. First, there is very 16. Interview with Thomas McPhail, Director of Information-Educational Services, DMWSS 193

little evidence that the rapid sand filter technique of tertiary treatment proposed by Warren would actually perform to the level anticipated. Experience with the method for nutrient removal at greater than pilot scale is very limited. In Warren the technique has been tested only in a 7,200-gallon per day pilot plant. It has delivered a very high quality effluent at the pilot scale, but the 3355-million gallon per day rate expected for the full scale plant is an extrapolation of more than 4,600-fold, On the basis of the best information available to us, it is our interpretation that the Michigan Department of Health is sufficiently doubtful of the proposed plant's performance that, if Warren actually applies for a permit to construct the facility, the department may refuse to grant it on the basis of insufficient evidence of feasibility. A second argument countering Warren's conservation claims is that Red Run drain already is too small to remove the runoff of heavy rains, Flooding conditions occur almost invariably in the "Twelve-Town" area above Warren on the drain during heavy rains,17 A recent meeting of the Clinton River Drainage Board, an inter-county board of drain commissioners, concluded that the drain should be enlarged.18 While Warren's effluent may be helpful in the Clinton River, it is apparently not helpful in Red Rune DMWS also points out that the water discharged by Warren's wastewater plant is imported from the Detroit River and thus should not be considered a part of the Clinton's normal runoff,19 A final counter argument is the assertion that whenever tertiary treatment becomes feasible on a large scale it will be incorporated into the DMWS wastewater treatment plant. This is practically guaranteed since "...the Detroit River is the single most important source of nutrients and other harmful materials causing the eutrophication (aging) of Lake Erie" [21, p, 39], The DMWS-WRC stipulation recognizes the need for tertiary treatment to achieve the greatest possible removal of nutrients. It specifically calls for the removal, among other things, of a minimum of 800 of incoming total phosphates [19]. FLOODING DURING STORMS Detroit's disposal contracts with the suburbs are for domestic and industrial wastewater only, not for storm water. To protect its own facilities from storm water illegally discharged into Macomb-Oakland Interceptor, DMWS plans to build a control gate in the pipe where it crosses into the city limit of 17. The "Twelve-Town" relief drains discharge into the upper end of Red Run. 18. As stated by William J. Haney, Assistant Drain Commissioner, Macomb County, during interview. 19. Warren has contracted for its water supply from Detroit since 1940. 194

Detroit.20 Since Warren would be connected to the lowest section of the interceptor, an accumulation of water behind the gate could result in sewer backup in the community. This is a valid concern, however, only if the gate at the Detroit line was the only one on the interceptor. Since DMWS includes in each wastewater contract the requirement for each contracting suburban community to provide and maintain a control gate in its trunk lines above the interceptor, there should be little if any flooding problem in Warren. THE ETHNIC ISSUE A fourth, unarticulated but potentially important reason for Warren's resistance to the DMWS system may be the alleged fear on the part of Warren residents of Detroit with its large and growing Negro population. This fear, if it indeed exists, is probably most prominent among the blue-collar White workers who may view the situation as threatening. If anti-Blackviews are widely held in Warren, as there is some evidence to believe, public officials may feel compelled to resist any involvement with Detroit in order to maintain their political offices-whether or not they, themselves, share the prejudice~ Each of the issues presented above has presented some possible support for Warren's plan to build and operate an independent tertiary facility, But none of these issues, alone or collectively, seems sufficient to justify the effort Warren has put into the struggle to remain independent. One is led, then, to look for other reasons. A careful examination of events of the last three decades in Warren, Detroit, and southeast Michigan generally, reveals the presence of three coincident trends. One is regionalization, exemplified by DMWS's efforts to reach out into the suburbs with water supply and wastewater disposal services. A second is the nationwide trend toward greater concern for and action on problems of water pollution, Third is the rapid transformation of the population of Warren from the rural community of independent individuals which contracted for Detroit water in 1940 to the politically potent city of today. The interaction of these trends offers some interesting and possibly useful suggestions regarding the problems of regionalizing wastewater systems in metropolitan areas in general. The trends toward regionalized services and the abatement of water pollution need little explanation. The impact of Warren's transformation to city status and its quest for independence is less obviously understandable. One event, we believe, is of particular importance in ito Mowitz and Wright have published an account of a bitter conflict between the City of Detroit and Wayne County over the location of an airport for the metropolitan area [11, "Detroit's 20. As reported by Thomas McPhail, Director, Information-Education Services, DMWSo 195

Metropolitan Airport"]. The conflict began in the mid-1940's and did not end until the late 1950's. Wayne County sought to improve an existing county facility southwest of the city; Detroit preferred to develop a new airport to the northeast. This conflict led to two separate encounters between Detroit and Warren, one in 1945, the other lasting from 1952 to 1957. In the first encounter Detroit succeeded in obtaining a decision from the Michigan Supreme Court allowing the city to condemn a plot of land in Warren Township for an airport. Though the plot was eventually adjudged too small to meet the projected needs of the post-war period, the fight apparently convinced Warren residents that they would have to stand together to oppose any similar territorial encroachments Detroit might make. In 1952 Detroit attempted to condemn a larger piece of land in Warren for the airport. This time the battle was more intense; it lasted for a full five years. Before Detroit finally gave up its plans for the Warren Township site, the issue had led to two court suits. It also led to an act of the State Legislature, initiated and engineered by Warren, to protect the township from extraterritorial encroachment. In addition to charges that the proposed airport would be a nuisance and a hazard, Warren citizens had also made specific references to "Detroit's overbearing attitude toward Warren Township and its residents" [11, p. 339]. Shortly after the airport incident Warren became a city, thus gaining home rule status and a more secure position from which to deal with Detroit in future conflicts. Given these trends, one might reasonably suggest that Warren's initial decision in 1956 to build a wastewater treatment plant, almost entirely with its own funds, was motivated by recognition that water pollution was shortly to become a critical matter in southeast Michigan and that Detroit would likely be encouraged to develop a regional disposal system for the entire metropolitan area. Warren's attitude in the wastewater contest may well be an outgrowth of the airport conflict. In support of this theory it is interesting to note that Macomb County, largely controlled by Warren, has refused to take an active role in the Southeastern Michigan Council of Governments which is committed to a metropolitan-regional philosophy. The county has steadfastly refused to pay dues to the council though it is carried on the roster as a member.21 If the theory is valid that Warren's resistance to DMWS is not so much a matter of economic, water conservation, or other ostensible issues but is the expression of distrust and dislike for the big city nurtured through earlier conflicts, the question is raised of whether this attitude is unique to Warren. Our response is that the attitude is probably not peculiar to that community. In any metropolitan area, extraterritorial operations of the center city may be grounds for conflict with the suburbs. This is particularly true in such 21 As reported by Fred R. Cheek, Deputy Director of Planning Division, SEMCOG. 196

matters as highways, transit lines, and pipe lines which require condemnation of suburban land. Even the purchase and development of suburban land by center city-based private firms or individuals may occasion serious intercommunity friction. Several questions concerning institutional forms for managing metropolitan wastewater disposal systems arise under this theory of conflict between suburban and center cities. Should, for example, metropolitan disposal systems be based in center city agencies, or would the advantages of intercommunity cooperation and scale economies be gained more readily through special district or other alternative arrangement? Should state and federal agencies press exclusively for single system arrangements, or would multiple systems be more appropriate in some metropolitan areas?22 Finally, if the center city-based, single system is unsatisfactory for regionalizing purposes how can such a system be transformed once it has begun to develop? Or if it is considered appropriate, what kinds of actions can be taken to strengthen it given the series of constraints under which it currently exists? Questions such as these are at the heart of the problem of metropolitan environmental management. While our research has suggested possible problem-solution in one metropolitan area, it also indicates that the answers to such questions can be expected to vary widely from one metropolitan area to another. 22, Additional scale economies for sewage treatment plants tend to become progressively smaller as facilities grow larger [16], 197

References 1. Detroit Department of Water Supply. Detroit's Water Development Program for Southeast Michigan: 1966-2000 (offset), July 5, 1966. 2. Detroit Metropolitan Water Services. Water Pollution Control Program: Progress Report (mimeo), June 4, 1968. 3. Detroit Metropolitan Water Services. Statement sent to the Joint Subcommittees of the Michigan House and Senate Standing Committees on Conservation and Recreation, February, 19, 1969. 4. Detroit Water Services. Pollution Control Program for the Detroit Regional Watershed (offset), September 8, 1966. 5. Giampetroni, Bernard D. Planning Director's "Memorandum to the Chairman, Board of Supervisors, Macomb County," dated December 10, 1968. 6. "Major Statistical Data Pertaining to the City of Warren Tertiary Treatment Plant Construction and Operation Versus City of Warren Joining Detroit Metropolitan Sewer System" a memorandum developed by Warren officials. 7. McNamee, Porter, and Seeley, Consulting Engineers, Ann Arbor, Michigan. Data developed for Warren officials, 1968. 8. Metropolitan Fund. Government Organization for Metropolitan Southeastern Michigan, 2 volumes. Detroit, Michigan, 1965. 9. Metropolitan Water Service. Data Sheets (offset), passim. 10. Moore, Joe G., Jr., Commissioner, Federal Water Pollution Control Administration. Letter to the Honorable James G, O'Hara, House of Representatives, dated February 12, 1969. 11, Mowitz, Robert J. and Deil S. Wright. Profile of a Metropolis. Wayne State University Press, Detroit, 1962. 12, National Sanitation Foundation. A Report on Sewage Disposal Problems, Prepared for the Supervisors' Inter-County Committee, (offset), December 1964. 13. National Sanitation Foundation. Report on Metropolitan Study: Sewage and Drainage Problems: Administrative Affairs (offset), December 10, 1964. 14. Remus, Gerald R. Sewage Disposal System Enlargement and Improvement Program, July, 1957 (mimeo), amended August, 19635 198

15 -- Detroit Sewage Disposal System: Enlargement and Improvement Program, July, 1957 (mimeo), April, 1964. 16. Smith, Robert, "Cost of Conventional and Advanced Treatment of Wastewater," in Water Pollution Control Federation Journal, September, 1968, 17. Southeastern Michigan Council of Governments, Letter to Federal Water Pollution Control Administration, c/o Michigan Water Resources Commission, regarding the City of Warren application for grants to aid in the construction of additions to wastewater treatment plant, dated May 29, 1968. 18. State of Michigan, Act No, 75, Public Acts of 1968, dated June 4, 1968. 19. State of Michigan. Stipulation between the Water Resources Commission and the City of Detroit to restrict the content of sewage and industrial wastes discharged to the waters of the state by Detroit, Michigan. Signed May 19, 1966. 20. State of Michigan, Stipulation between the Water Resources Commission and the City of Warren to restrict the content of sewage and industrial wastes discharged to the waters of the state by Warren, Michigan. Signed August 24, 1966. 21. U.S. Department of the Interior, Federal Water Pollution Control Administration. Lake Erie Report-A Plan for Water Pollution Control (offset), August, 1968, 22. U.S. Executive Office of the President, Bureau of the Budget. Standard Metropolitan Statistical Areas. Washington, DoCo, USGPO, 1967. 23. United States Public Law 84-660 as amended by PL 87-88, PL 89-254, and PL 89-753. 24. Wengert, Norman, and George M. Walker, Jr. "Institutional Constraints on the Development of a Regional Water Supply System: The Case of Detroit," A paper prepared for presentation at the Fourth. American Water Resources Association Conference, New York City, November 18-22, 1968, 199

APPENDIX G REGIONALIZATION VERSUS INDEPENDENCE: PRINCIPLES AND PRACTICE* *This Appendix is based on a position paper on regionalization by Dean Reger and a case study of Ann Arbor-Ypsilanti prepared by Eunice Burns, graduate research assistant to the principal investigators. Mrs. Burns was a councilwoman in Ann Arbor at the time several key events described herein took place. 201

Introduction "Regionalization" is a flexible term both in meaning and in practice. It implies and is used here to define an area-wide approach, as opposed to a local approach,toward the solution of water supply problems. It has spatial and political implications; it can include a geographical area related to water source and topography; or, it can be used to mean the inclusion of two or more units of government and so be defined by political boundaries. Because a water supply region is not always easily defined and often changes in size, regionalization is a. matter of degree, or a process. What regionalization becomes for an area, then, is dependent upon the forces working for and against regionalization. Regionalization in the United States has occurred and is occurring in an incremental fashion, usually by function rather than by basic structural changes or the creation of new regional forms of government. Recent trends have been in the direction of regionalization, but the changes have been slow as a variety of forces impinge on or impede the process. Generally, the fragmentation of government at the local level, particularly in metropolitan areas, has been a major hindrance to the efforts of most planners, central city administrators, and state and federal bureaucrats to bring about the regionalization of public services such as water supply or waste management or sewage disposal. State laws have permitted the rapid and almost indiscriminate proliferation of new units of government (e.g., suburbs, cities, and special districts, in particular). Because the provision of public service has historically been the responsibility of local government, fragmentation of local jurisdictions makes attempts at coordination very difficult. The multiplicity of autonomous units of government at the local level effectively prevents and even discourages most efforts at regionalization. In some areas, however, cooperation among several units of government on a kind of sub-regional basis has occurred. Intergovernmental cooperation can confuse the policy-making situation, but as an ad hoc cure for regional problems, it is much less painful for the units of government involved than an integrated regional agency might be. The ability of a "subregional" organization to achieve some economies of scale and to provide adequate service has often deterred regionalization on a wider scale. For example, once a major investment has been made by a community, such as Pontiac or Ann Arbor in the Detroit metropolitan area, that community is under considerable pressure to maintain and expand its own water and sewage systems and will wage a strong fight to retain its autonomy in the provision of public services. There is often little incentive to change, and transitional problems and costs may be substantial. 202

In many cases, in addition, a suburban municipality may choose to support separate water services, even though the long-term cost may be greater, rather than be dependent upon a metropolitan agency or central city over which it may have little or no control. Where the cost is too great, two or more small communities may find it convenient to band together in order, on a stop-gap basis, to secure the necessary funds for the improvement and development of water supply and sewage treatment facilities. Such decisions often fail to consider more general questions of optimal service areas, and minimize longer-time issues. Somewhat paradoxically, the federal government has been providing financial assistance to "subregional" development, even though it also provides planning assistance for larger metropolitan areas. In part, federal support for agencies or units of government working at cross purposes within a region is a manifestation of the difficulty of defining optimal regional boundaries. Which is the best area for water supply? For waste water management? A municipality? A county? A river basin? A metropolitan regional planning area? The lack of concreteness and ambiguity over boundary definitions of the region provides an opportunity for a wide range of special interests to attempt to influence those decisions in their favor. Two factors which a state might consider in devising water "use" regions include technical criteria and local initiative criteria. 1 Technical criteria would include: (1) areas of human settlement; (2) degree of economic development; and (3) areas in which ecological systems interact in significant ways. Not unimportant in devising water "use" regions is the extent of local initiative as manifested in local and regional water organizations, for if local organizations exist for managing water and land resources, it seems reasonable that they should be considered in establishing use regions since they represent a direct response of communities to identified needs. An imaginative blend of both local initiative and technical criteria would seem to hold considerable merit in developing use regions. Regionalization defined as the area-wide coordinated planning and development of public service functions under a central, regional authority is often rejected by most units of government in a metropolitan area, for a variety of reasons. For example, communities that have developed water supply systems view as inequitable any set-up which obligates them to help with the development of water supply systems in other municipalities in the region. They foresee additional costs to their residents with few proportional tangible benefits. If the benefits of participating in a regional authority are not perceived as real, support may not develop. Regionalization is often based on economies of scale, but if such economies of scale are not equally shared by all communities, support may be less than enthusiastic. The distance of a community from 1. Technology Planning Center, Strategy for Michigan Water Resources Management: A Systems Approach, pp. 42-45. 205

the central supplier, the level of development of water systems within each community, the pattern of residential and other development within each community are among the factors which could affect the appraisal of economies of scale by each community. Another factor contributing to rejection of the concept of a regional agency is apparent where a central city is operating a "profitable" contract system with smaller cities in the metropolitan area, and is reluctant to give up its profits. Often a primary deterrent to full regionalization is the availability of viable alternatives, such as the contract system, a county-wide system, or subregional development. Communities have been willing to develop these less radical arrangements for partial regionalization, and may be able to work together toward a solution of mutual problems as long as each maintains its own autonomy. But when autonomy is threatened, a variety of community interests may also consider themselves as threatened, and very effective resistance to regionalization develops. The American tradition of local autonomy in the provision of public services is often reinforced by a fear of central city domination. Pressures for Regionalization In recent years pressure for regionalization has been initiated by federal agencies under a variety of legislative, agency and presidential policies. Initially, such pressures were resisted. But recent use of economic incentives for regional planning in certain grant programs have lessened the degree of resistance. Until 1956, federal aid to cities was limited to interest-free loans from the U. S. Housing and Home Finance Agency for community planning, including sewage-disposal systems. In June,1956, Congress amended the Water Pollution Control Act to allow appropriations of 50 million dollars annually for federal grants-in-aid to municipalities over a period of ten years, primarily for sewage treatment system improvements. Authorizations were upped to 80 million dollars in 1962, 90 million in 1963, 100 million for a period of four years in 1964. A new bill passed in October, 1966, authorized grants of 450 million dollars in 1968, 700 million in 1969, one billion in 1970, and 1.25 billion in 1971. The emphasis on regional approaches has been relatively recent, although the pressure has been lessened because appropriations have not equalled authorizations. The Water Pollution Control Act, as amended in 1965, offers funds for states to plan state-wide anti-pollution programs. The Land and Water Conservation Fund Act of 1965 encourages states to take a key role in developing a balanced 204

outdoor recreation program. The Water Resources Planning Act of 1965 offers grants to assist states to develop comprehensive water and related land-resources plans. The Water Resources Research Act of 1964 enables each state to set up water research facilities. The role played by each state will undoubtedly affect the degree of regionalization within that state. The Water Quality Act of 1965 and the Clean Waters Restoration Act of 1966, amending the 1956 Federal Water Pollution Control Act: (1) transferred water pollution control from HEW to the Department of the Interior, establishing a new Federal Water Pollution Control Administration; (2) removed the dollar ceilings on sewage treatment construction grants; (3) provided for increased federal participation if states enacted grant programs and adopted water quality standards; and (4) authorized an additional 10% (up to 55% of financial aid for any grant conforming with metropolitan or regional master development plans)(emphasis added). Financial aid for water and sewer system construction is also available through several other federal programs. The Appalachian Regional Development Act, administered by the Department of Commerce, included authorization for water development projects. The Public Works and Economic Development Act, also administered by the Department of Commerce, provides grants for all types of public works in economically depressed areas. These grants may cover up to 80o of the cost of a project. The Housing and Urban Development Act, administered by HUD, authorizes up to 200 million dollars to pay one-half the cost of water supply and sewage disposal projects. Section 701 of the Act provides funds for regional planning. The Consolidated Farmers Home Administration Act, administered by the Department of Agriculture, provides for a 50 million dollar annual fund from which matching grants to public or quasi-public organizations may be made to provide residents of open country and rural villages (up to 5,500 population) with domestic water and waste disposal systemso At the state level, the Water Resources Commission in Michigan consistently supports and advocates-and at times insists upon-the development of regional plans and regional management of water supply. The State Health Department in Michigan also has influenced the trend toward regional water management by insistirg that (in the Huron River basin, for example) individual communities may not expand sewage treatment facilities along the river unless the expansion follows plans agreed upon by other communities along the river. Thus, the realization of the interdependent nature of water supply is being forced upon local governments by a state agency, with federal backing, where communities are reluctant or unable to recognize the situation for themselves and take corrective action. State law in Michigan supports intergoverTnental cooperation and regionalization. In May, 1964, Michigan Public Act 253 was signed into law, enabling local units of government to cooperate in water use planni-ng and managemcent. Under this law the Huron River Watershed Council was organized, in JunTe, 1965, with powers to study, prepare reports, and make policy recommendations on water 205

use within the watershed. It may also request the aid of other government agencies in technical matters, and finally, it may raise funds by assessing members so as to employ an executive secretary and staff. As cooperation grows, communities may take advantage of another section of the same law, which provides for the formation of River Management Districts. Such a district has the power to acquire and maintain water storage reservoirs, dams, or other river control structures in the interest of maintaining sufficient river flow. In June 1965, Michigan Public Act 76 was signed into law, which authorized counties, townships, villages, cities and any other governmental unit or entity to construct or build water supply systems and waste disposal systems by agreements or contracts with governmental units, entities or agencies of another state; or to enter into contracts or agreements with such governmental units or entities of another state for the use of such facilities. Present state and federal laws provide inducements for some degree of regionalization of water use planning and management. Economic incentives and continuing persuasion will probably provide an impetus for continued growth of intergovernmental approaches to regional water problems. Those communities which continue to balk at the implications of these policies simply risk losing the opportunity for solving area-wide water supply problems. Agency interpretation of the present laws leaves little doubt that state and federal agencies will continue to stress regional water management in areas where local units of government may be unwilling or unable to do so. Another significant pressure toward the regionalization of water supply has been the increasing number of reports on the subject. Emanating from the federal, state and local levels, and often having federal and state monies behind them,these publications have influenced recent legislation and policy at all three levels. Important have been the reports put out by the Advisory Commission on Intergovernmental Relations,2 which stated: The Commission believes that responsibility for the planning and provision of public water and sewage service should remain in the metropolitan area, provided local governments can achieve satisfactory and effective service areas based on watersheds or drainage basins, and where appropriate relate such service to state, regional and federal planning. The Commission also expressed the belief that water supply and sewage system plans should be incorporated into overall regional plans because "local governments are increasingly unable to handle water and sewer problems unilaterally. 2. Intergovernmental Responsibilities for Water Supply and Sewage Disposal in Metropolitan Areas, 1962, p. 21. 206

More comprehensive endeavors in metropolitan areas are required." In a somewhat stronger tone, the Commission report explains the alternatives to local inaction.3 The genius of the American federal system is that it can provide alternatives to inaction or panic. Three seem appropriate in the case of inadequate investment: inducement, compulsion, and improved service area organization. The reluctance of local governments to provide water and sewer facilities is greatly reduced when someone else foots part of the bill. Only during the 1930's when the federal public works programs were in effect did water facilities and sewerage construction keep pace with demand. More recently, the handful of state assistance programs for sewage treatment works, the federal grant program established in the Water Pollution Control Act of 1956, and the public facility loans program of the Housing and Home Finance Agency have provided a definite inducement to local investment. More effective and rigorous state, interstate agency, and federal enforcement against pollution which endangers public health or welfare with court action against the local governments where necessary, is another element in spurring greater local investments in sewage treatment works. Finally, more inclusive metropolitan arrangements, because they offer economies of scale, provide more permanent solutions, spread construction costs over a broader base, and protect the community from having its efforts undermined by the inaction of a neighbor, may induce more adequate investments in water and sewer utilities in some metropolitan areas. Federal agencies have also published statements of policy urging the expansion of regionalization. For example, HUD, in its Third Annual Report in 1967, explained that: HUD makes grants of up to 50o to assist public agencies in the construction of adequate water and sewer facilities. One of the objectives of this program is to promote orderly development and intercommunity cooperation by making these grants available for projects consistent with area-wide comprehensive planning and designed so that an adequate capacity will be available to serve the reasonably foreseeable growth needs of the area. (p. 67) The implications are that projects not consistent with area-wide planning will get little or no assistance from HUD. Other federal agencies which have published statements in favor of regionalization of water supply include the Federal Water Pollution Control Administration and the Public Health Service. In Michigan, reports published by the Corps of Engineers, the National Sanitation Foundation, the Michigan Water Resources Commission, various consulting firms, and the Detroit Metropolitan Water Services have stressed the advantages of regional planning and regional development of water supply and sewage 3. Ibid., p. 101. 207

treatment in southeastern Michigan. County planning agencies have also published reports urging intergovernmental cooperation and coordination within the county. Most of the reports agree that economies of scale, greater efficiency, and the ability to hire professional experts and technicians to manage and operate the water system are among the advantages from some degree of regionalization. Added to these several pressures from the state and federal levels are certain pressures at the local level. A primary force is economic necessity. It thus often becomes mutually advantageous for neighboring or contiguous municipalities to join forces and build a single system. Urban growth occurs primarily in suburban areas in metropolitan centers. The increased demands for water are not only a function of larger numbers of people, but also of an increase in the number of different uses for water. Elaborate lawn sprinkling systems, garbage disposals, and private swimming pools have added many gallons to domestic water uses of the past. The choice in most cases is either to provide water service or to stop growing, and most suburban communities are trying to encourage and promote rather than prevent growth. Thus, there are a number of forces working toward the regionalization of water supply: federal and state laws and policy, economic necessity, and mutual dependence on a major source of water supply. As in other government policy choices, often the most important influencing factor is financial. Communities join together in the hope of reducing cost burdens for expansion of water service facilities. Communities seek the approval of regional planning agencies in order to qualify for federal and state funds for system improvement. Economic incentive has become an important tool in the promotion of regionalization. The regionalization of water supply in the future will remain a matter of degree; the extent of regionalization will be determined by spatial, technical, and political considerations. The concept of a single regional agency is presently perceived as too radical a departure from the status quo, so intergovernmental relations will continue to provide the mechanism for regionalization for some time to come. The resulting mixture of intergovernmental agreements will include some consolidation, some urbanized counties, some regional planning, some contractual arrangements, some special districts, and some functional coordination through federal and state aid programs. Our pluralistic system will not be altered in any dramatic fashion by regionalization such as has been described herein. In the words of Daniel Grant, for the metropolitan areas "the...prediction is, in short, the'intergovernmental megalopolity' with a myriad of vertical and horizontal relationships designed to get various urban jobs done as best they can under the circumstances." Not many "dramatic metro government innovations" will occur. 4. Public Administration Review, May/June, 1969, p. 323. 208

Ann Arbor and Ypsilanti: Independent Stature In the late 1950's and early 1960's, both Ann Arbor and Ypsilanti were faced with the need to provide an adequate water supply for future development. Ypsilanti had been getting its supply entirely from wells and Ann Arbor was using both wells and the Huron River. Both cities needed more raw water supply as well as expanded treatment facilities. At about this same time, Detroit had begun its program of regionalization, including both cities in its long range service plans. The decisions concerning future water supply made by both Ann Arbor and Ypsilanti were based on a complex set of factors-studies, circumstances, negotiations, politics, and attitudes. The decision of each city might have been much simpler if Detroit water had not become available. Obtaining a supply from Detroit meant that there would be no need to expand the respective treatment plants. At the same time, the quality of the river water became a concern because of sanitary sewage pollution, and there was discussion of putting the effluent from the sewage plants into conduits and transporting it to the Wayne County (Road Commission-owned) plant for treatment. The technical issue was: if water added to the river from sewage plants had been diverted, what would be the effect on the need for additional raw water supply into the area? As indicated, the 1959 DMWS report entitled "Detroit Water Development Program for the Metropolitan Area" outlined a plan for developing facilities for Detroit and parts of Oakland, Macomb, Monroe, St. Clair, Wayne, and Washtenaw Counties. It made population projections, projections of where and when service would be extended, capital costs, amount of water capable of being supplied, basic reasons why a central metropolitan system would be best, rate structure, policies and rule of procedure, and it discussed the Lake Huron intake. Although none of the maps included with the original report show extensions into Washtenaw County, the summary "...outlines a plan for the orderly development of water facilities for the City of Detroit and those portions of the counties of Oakland, Macomb, Monroe, St. Clair, Washtenaw, and Wayne which may be expected to receive their future water supplies from a common system..."; and the appendix of the report contains figures on estimated populations and water demands by communities, including Ann Arbor, Ypsilanti, and seven of the easternmost townships of Washtenaw County. The figure given for the county seems fairly close to Washtenaw County Planning Commission estimates but the figures for the cities are much lower. For example, the projection given for Ann Arbor for the year 2000 is just over 103,000 and a maximum day demand for water of 31.9 MGD is projected by the DMWS. The population now in Ann Arbor is estimated to be over 105,000 and the maximum day demand has reached 25 MGD. However, the population projections for the townships are on the high side. The implication is that areas will not be annexed and that the townships will develop if sewer and water services are provided. 209

At approximately the same time that Detroit was reexamining its policy on extending water service, eastern Washtenaw County was developing at a rapid rate. While there were adequate water supplies to be tapped, there was a need for expansion of water and sewage treatment facilities. Ypsilanti floated a bond issue in 1955 to expand its sewage plant. However, before construction could begin, the Michigan Health Department decided to review its policy with respect to the Huron River watershed. Many uses, including water supply, discharge of sewage effluent, and recreation are made of the river, especially downriver from Ann Arbor. The Health Department felt that an ever-increasing use for these purposes, plus industrial and agricultural demands would create severe health problems. Therefore, the Department wanted priorities set on uses of the water along the river. The Washtenaw County Planning Commission at this point asked the State Water Resources Commission to study the Huron watershed, and make recommendations as to water use and pollution problems. The resulting report, "Water Resource Conditions and Uses in the Huron River Basin," was published in 1957. The report speaks of the conflicts in the use of the river; evaluates the flow characteristics; recommends that low flows be augmented by storage reservoirs; and recommends that an agency is needed for continuous evaluation of uses of the river. The state-enabling legislation for an agency such as that suggested in the report was passed in 1957-Public Act 200. In April of 1958, four counties, twenty townships, four cities, and four villages joined together to form the Huron River Watershed Intergovernmental Committee, of which Ann Arbor and Ypsilanti were leaders. One of the first studies supported by the Watershed Committee was done by Mr. George Kunkle on ground water sources and their relation to river quality and quantity. He concluded that barring severe drought or demand conditions, there was enough water available for the short run-ten to fifteen years. In 1960 the Soil Conservation Service, United States Department of Agriculture, did a study on irrigation needs of the area. The study showed an increasing demand for irrigation-a use which does not return much water to the river and would thus lower the flow and, concomitantly, add to the "pollution effect" in the river. Another study was done by Professor Jack Borchardt of The University of Michigan. Ypsilanti had hired Professor Borchardt to study the chemical and biological characteristics of the river, after the Water Resources Commission report in 1957, since they recognized a need for more sewage treatment capacity in the Ypsilanti plant. The city contended that the secondary treatment it was contemplating would raise the quality of Huron River water. The area studied was limited to the Ann Arbor-Ypsilanti portion as far downstream as Belleville. 210

These early studies paved the way for the Huron River Watershed Intergovernmental Committee (HRWIC) long-range study on the quality of the water and the effects of adding more sewage effluent to the river. A two-year study, done by Black and Veatch, engineering consultants, emphasized waste water disposal. But the report also discussed the many water uses of the river; uses which were often in conflict. Overall data on the basin were given-its population; industrial development; recreational use; agricultural use; water resources, etc. Water, the report stated, was still of such quality that it could be treated for water supply, but the long-range outlook was less favorable if waste water continued to be discharged into the river. The effluent did not seriously affect BOD, dissolved oxygen, or coliform counts, but stated that little was known about the assimilative capacity where fungi or viruses are present. The report went on to say that health and aesthetic values had not been considered. Low-flow augmentation was recommended as benefitting both supply and quality. It was estimated that by 1980, with no regulation of minimum stream flow, the river might contain up to 64% treated waste water which might be aesthetically objectionable. Even with augmented stream flow, one third of the river might be treated effluent by 1980. One recommendation was to divert waste water from the lower Huron. Other recommendations in the report were that additional water supply should be obtained from both ground sources and from the river, although below Ypsilanti the ground water supply was not good. It mentioned that new industries requiring large amounts of water should seek independent sources outside the basin. It was predicted that, by 1980, there would be a reduced base flow of 40 cfs (cubic feet per second)-less than the levels of 1910. Ground water potential estimated in the Ann Arbor-Ypsilanti area was given. as 25 million gallons daily (MGD). One cautionary note was sounded: the fact that shallow wells may be recharged from river water could lower estimated potential supply from both sources. The last recommendation was that a new administrative organization was needed as a way to control and manage the uses of the Huron River. In 1963, the United States Public Health Service, using existing data, studied the Huron River to assess water supply needs, surface water quality control needs, and to estimate the need for and the value of water storage for regulation of river flow up to the year 2010. Several conclusions were made in its report: 1. Ground and surface water supply sources, as could be regulated by existing impoundments, would be adequate for the Anna Arbor-Ypsilanti area until 1985. 211

2. Future sources could be developed from additional ground water within the Huron River basin and by the provision of additional water storage facilities or from sources outside the basin, such as Detroit. 3. There was a need for storage for flow regulation purposes to maintain water quality below Ann Arbor. Four alternatives for handling of water and sewer needs were given and the estimated amount of storage for each alternative to maintain streamflow by 2010 was also given: A. Supply and discharge both within basin-20,000 acre-feet of storage. B. Supply from within basin; interceptor for waste-9,000 acre-feet of storage. C. Import water from outside basin; discharge waste into river-12,000 acre-feet of storage. D. Import water; interceptor for waste —6,000 acre-feet of storage. 4. By 1985, there would be a need for engineering and economic studies to determine if water quality should be maintained by additional storage for regulated streamflow or by diversion of waste water from the river. This study must include water supply because diversion would deplete stream-flow. HRWIC, early in its existence, established a Technical Advisory SubCommittee of experts in conservation, health, engineering, administration, recreation, and other fields. This committee took the various reports and studies that had been made of the Huron River and prepared a water use policy for the Huron River watershed. Some of the major recommendations were: 1. Continued use of the lower Huron for waste disposal until river sampling shows water quality deterioration; adequate treatment of all waste waters; and public control over developments and uses in the upper Huron basin. 2. Immediate investigation of alternative means of increasing water supplies for Ann Arbor and downriver communities; including ground water, sources outside basin, and the use of the Huron River above Ann Arbor as a common source through joint development; and consideration of the lower Huron as a water supply source only, after due consideration of alternative sources and further studies. 35. Recognition that low-flow augmentation is necessary and a joint responsibility of all communities in the basin. 4. Recognition that a new agency representing the communities in the Huron River basin is needed with adequate authority to carry forward water management programs. 212

The majority of communities in the HRWIC approved the water use policies. Members of the technical committee then developed enabling legislation to bring the new agency into existence. The enabling act (Public Act 2553) was passed by the state legislature in 1964, but only after assuring drain commissioners, private companies, and utilities that it would not impinge on their rights and powers. The passage also involved negotiations with Detroit. The eastern part of the Huron basin is adjacent to the potential water supply area of the Detroit system, and it was feared that, if the Huron River agency decided to start a water supply system of its own, some of the smaller communities on the western edge of Detroit might leave the Detroit system and join the Huron. This impasse was finally solved by exempting counties with a population of over one and one-half million from provisions of the act. The present Huron River Watershed Council was then formed. The HRWC has continuously searched for better solutions to the problems of conflicting water uses. In 1968, the Council adopted Water Use and Resource Management Goals for the watershed. The goal for community water supply is to "carry out periodic evaluation of community water supply requirements and develop alternative plans for meeting these needs through the use of ground water, sources outside the basin, or more intensive use of the Huron River as a common source through joint development." This leaves the way open for the development of more wells, or of a supply from Detroit, or of a Huron watershed joint system with present supplies supplemented from either inside or outside the basin. This has been a rather lengthy background to the decisions of Ann Arbor and Ypsilanti but all of these studies and meetings were going on at the time that the decisions on water supply and sewage disposal were being made and certainly had a bearing on the final results. ANN ARBOR'S DECISION On May 2, 1960, Wayne Abbott, Superintendent of Utilities in Ann Arbor, wrote to Ayres, Lewis, Norris, and May, consulting engineers, asking them to make a preliminary engineering study in anticipation of a watexr -iieatment facility expansion. The charge to the engineers included location, size, and operation requirements; raw water sources (suggestions given were Huron River, additional storage, and economic advantages and disadvantages of alternatives), and chemical handling and storage facilities. The report was to be prepared so that it could be used as a guide for both present and future development. There was no specific charge to investigate outside sources but, in July, 1961, the engineering firm, with the authorization of Mr. Abbott, wrote to Mr. Gerald Remus, General Manager of the Detroit Department of Water Supply, regarding a supplemental supply of water to Ann Arbor. 213

It was stated in the letter that Ypsilanti City and Ypsilanti Township might also be interested. This letter contained suggestions that subsequently proved to be the basis for talks with Detroit officials. A concluding paragraph pointed out that the consideration of Detroit service at that time was a departure from "the established trend of thought" and therefore it was necessary to show the practicality and economy of a proposal in order for it to be fully considered. On August 11, 1961, Mr. Maynard of Ayres, Lewis, Norris, and May, wrote to Mr. Michael, Assistant Chief Engineer of the Detroit Department of Water Supply, enclosing information on the present and the estimated future water supply requirements of Ann Arbor, Ypsilanti, and Ypsilanti Township. The annual average, the maximum day, and the amount from cach source (existing and Detroit systems) for 1960, 1970, and 1980 were given. The total 1980 needs from Ann Arbor and Ypsilanti totalled 18o 85 MGD on the average, with a maximum day demand of 38 MGD. The amount suggested from the Detroit system ranged from 5-16 MGD in 1970 to 7.5-24 MGD in 1980. In October, 1961, a letter from cM. Michael gave figures for a supplemental water supply to Ann Arbor, Ypsilanti, and Ypsilanti Township. For the two cities he proposed an initial maximum day demand of 4 MGD and a 1970 demand of 8 MGD (ratio of 3 to 1, Ann Arbor to Ypsilanti) delivered to the intersection of Prospect and Geddes Roads. A specified minimum annual usage was required and the rate suggested was to be $1.59/1000 cu ft. The mains to be constructed at that time would have been adequate only to 1970 and parallel mains would have had to be constructed thereafter. The report to the Ann Arbor City Council was made by the engineering consultants in May of 1962. Three alternative recommendations were given: (1) expansion of existing facilities; (2) construction of a new plant at Barton Pond; and (3) supply from Detroit. The new plant was eliminated as an alternative because of cost. Ayres, et al., recommended that the city give serious consideration to procuring a supplemental water supply from Detroit. If negotiation with Detroit should prove unfavorable, they stated, then the city should expand its present system. Several reasons were given by the engineering firm for its recommerndation: both Ann Arbor and the Huron River basin population were expanding rapidly; projections from various studies showed that there is a limit to continually expanding the uses of the Huron River water for multipurposes; Detroit could provide Ann Arbor with an independent water source with virtually unlimited supply with no necessity to expand the existing treatment plant; if an interceptor sewer were used -in the fututre, the present flow of the river would be augmented at least by the amount of Detroit water used in place of Huron River water. The report stated that the least expensive method would be through connection to the Detroit system. In its cost figures, the total estimated annual operation, maintenance, and capital costs ran about $100,000 more per year for expansion of Ann Arbor's plant in 1963-64; about equal amounts in 1970-71; and about $20,000 more in 1980-81. In all years the capital costs of expanding Ann Arbor's system were higher and the operating costs lower than in bringing in a supply from Detroit. The time it would take to get an additional water supply to Ann Arbor residents would almost certainly be less through connection to the Detroit system than it would through plant expansion. The argument was also put forth that the need for expanded plant facilities until 1980 really exists only at the time of peak 214

summer demands and that the use of a supplemental supply from Detroit would make it easier to tailor the city's plant to fit more average daily demands. The disposal of the sludges developed through the softening process for river and well waters was pointed out as an ever-present problem which would be lessened through the use of Detroit water which is already treated, and besides which, does not need softening. After the original presentation, the city council instructed the city administrator to negotiate with Detroit for water supply. Records of these negotiations are very meager but the final results were that Detroit proposed to build a pumping station at the county line and Geddes Road, and a line to Prospect and Geddes Roads, at which point Ann Arbor (and possibly Ypsilanti although no rates were quoted for them) would pick up the transmission system. Ann Arbor would bring the water to a storage reservoir located at the most feasible site near Hogback and Clark Roads. The wholesale rate quoted was $1.59/1000 cu ft. A possible alternative was for Detroit to bring the water to the Clark Road reservoir, with a rate quoted of $1.75/1000 cu ft. (The former rate was quoted in a signed letter; the latter rate was on a data sheet attached to a map of the extension of service.) At first Detroit wanted Ann Arbor to buy its entire supply and abandon its plant. This would not have given the city a change to amortize the costs of its plant. Bonds had been issued at the time of the 1949 expansion and again in 1958 and had sixteen to eighteen years to go, respectively. Final negotiations for supply to Ann Arbor were for 1-1/2 MGD to 5 MGD maximum, with the possibility of a parallel line being built later for delivery of 3 MGD to 6 MGD maximum. On October 29, 1962, the final review of the report was made. But Guy Larcom, City Administrator, and Wayne Abbott, Superintendent of Utilities, recommended that Ann Arbor expand its own plant rather than use a supplemental supply from Detroit. Mr. Abbott, in a memo to Council, stated that the advantages of a Detroit supply would be that water would be available sooner than if Ann Arbor expanded its plant; that it would remove any concern on the part of the Utilities Department for upriver impoundment; that it would give a third source of supply; and that it appeared to be less expensive. But he then reviewed the costs, showed added maintenance costs for Detroit water, eliminated development of a new well field, and concluded that expansion of the Ann Arbor plant was more favorable than a Detroit source from a cost standpoint. In a recent interview, Mr. Abbott stated that, while the capital costs of getting a supply from Detroit would have been less, the long-term costs for operation and maintenance would have been greater. He also stated that the wholesale rate quoted by Detroit at that time equalled what Ann Arbor customers were already being charged; in effect, the rates would have been doubled for that part of the water supply coming from Detroit. Also, there was no local control over those rates in the future. 215

Another reason given by Mr. Abbott for favoring expansion rather than supplemental supply was that he felt the city would have a more reliable, higher quality supply from its own expanded plant. The plant would be, in effect, two plants with two intakes, two series of pumps, two lines to the plant, etc. The amount of water being offered to Ann Arbor was another controversial point. The offer was for 1-1/2 MGD up to a maximum 3 MGD with a parallel line later to supply a total of 3 MGD up to 6 MGD maximum. The capacity of Ann Arbor's system in 1962 was 17 MGD.5 In 1969-70, Ann Arbor's maximum daily demand reached 25 MGD and is increasing by 1/2 to 1 MGD per year. So, as Mr. Abbott pointed out, an adequate amount was not being contracted for. Mr. Larcom, the city adminstrator, also made a report to Council. He listed several points: (1) the need for more water supply; (2) the alternatives before the city; and (3) the advantages and disadvantages of the alternatives. One of his concerns was the fact that expansion of Ann Arbor's plant would put added demand on the Huron River. There had been low-flow periods when the flow was less than even the 1962 maximum demand, which would mean that Ann Arbor would take more from the river than its rate of flow. Existing ponds on the River then would become potential reservoirs to be drawn down to augment the flow. Mr. Larcom felt that the fact that the city was about to acquire the ponds from Detroit Edison meant that the city could regulate satisfactorily the water flow in the river. Although initial costs were greater to expand than to go to Detroit, Mr. Larcom stated that the operating cost advantage by 1970 would be on the side of local expansion, and therefore the cost differential either way was not a major factor in the decision. Long-range reliability in a Detroit supply was mentioned as a positive factor but the fact that the city would be subject to Detroit's rate structure was mentioned on the negative side. Mr. Larcom stated, "This is one of those decisions involving a balancing of factors where either course should be operable and satisfactory." His final conclusion was that, in view of the fact that the city was acquiring the ponds and could regulate their use, the best course for the next twenty years was to expand the local plant.6 5. The plant's capacity has been expanded to deliver a maximum of 40 MGD. Mr. Abbott's judgment is that Ann Arbor can safely take up to 40 MGD from the river and 7 MGD from the wells. The city also has a commitment to the State Health Department to pass 50 cfs or about 553 MGD past the sewage plant outfall. 6. One might question whether a twenty-year time perspective is sufficient in such a basic matter as water supply, especially in the face of rapid expansion. Historically, Ann Arbor has used the extension of municipal services as a weapon for annexation. Mr. Larcom, a recognized expert city administrator, has long been an advocate of "no annexation, no services." His decision, then, may also have been conditioned by such localizing, centralizing philosophy. 216

Several additional factors may have had an influence on the decision of some council members: (1) a threat by Mayor Cecil Creal to veto any action if the council voted to go to Detroit for added supply; (2) a letter from the City-County Health Officer, Dr. Otto Engelke, pointing out the lack of fluoridation in Detroit water;7 (3) the efforts of the Huron River Watershed Intergovernmental Committee to get upriver impoundments; and (4) the impending agreement to purchase the Detroit Edison ponds. Ann Arbor was negotiating at this time and was proposing to pay for the four ponds out of water and sewer funds because the main use of the river was for water supply and sewage effluent disposal. Had the city begun to get water from Detroit there may very well have been questions about the use of water funds to purchase the ponds. No other source of money was apparent at that time. In this same period of time, Van Buren Township had brought suit against Ann Arbor, Ypsilanti, and Ypsilanti Township, the basis of which was that the sewage effluent from the three treatment plants was detrimental to the downriver community health and welfare. The suit was dropped in 1963 when the three jurisdictions agreed to abide by State Health Department and Water Resources Board decisions. Ann Arbor's City Council made its decision on October 29, 1962. Two members voted for the Detroit supply but the majority favored expansion of the city's plant. Certainly one influence on the final vote was the feeling that Ann Arbor would be at the mercy of its huge neighbor to the east, and that the city was perfectly capable of taking care of itself. Also, the fact that rates would go up appreciably if Detroit water was used was less acceptable politically than voting to issue revenue bonds to pay the capital costs of plant expansion. Generally, the feeling seemed to be that, although the city would probably have to go to Detroit for added supply in twenty years, at least it would stay autonomous as long as possible. In the sewage plant suit against the city, there was a great deal of pressure from Wayne County, from the downriver communities, and from the state to join the Wayne County interceptor system.8 However, there was no political or governmental pressure to join the Detroit water system. The State Health Department unoffically would have liked Ann Arbor to contract for Detroit water, and put some minor design-type roadblocks in the way of plant expansion. Information was given to the city from outside sources-but the finial decision was made without outside pressure. 7. Mr. Abbott said the water could easily have been fluoridated at the proposed Clark Road storage facility. (Detroit water is presently fluoridated.) 8. There are two major interceptor systems in the area, the Wayne County Road Conmission-owned system, and DMWS. DMWS is the larger of the two and serves a greater area and population. 217

YPSILANTI' S DECISION Ypsilanti was making similar water supply decisions at this same time. In February, 1960, an agreement was made with McNamee, Porter, and Seeley, consulting engineers, to study water requirements for the area west of the city and to appraise the water supply and filtration system to determine what additions and improvements would be needed to meet 1980 demands, or demands created by a population of 30,000. The engineers made their report on August 5, I960. At that time the city obtained its entire water supply from wells. The report listed three methods of augmenting the city's water supply: (1) additional wells; (2) waterfromthe Huron River; or (3) water from Detroit. The engineers recommended additional wells as being most economical for the city but stated that river water should also be considered if adequate well water supply was not available. A supply from Detroit was dismissed with a few sentences saying that, at that time, Detroit's water development program did not show a transmission main coming near Ypsilanti for many years, and "no provisions are planned at present for Detroit to serve Ypsilanti." Mr. John Max, superintendent of utilities in Ypsilanti, said that he, along with Ann Arbor and Ypsilanti Township officials, did meet with Detroit officials to explore additional supply. There seems to be a large gap between the time the Ypsilanti and Ann Arbor City Councils received their respective reports, and there is no record of any action taken by the Ypsilanti Council. This is perhaps due to several factors. First, Aim Arbor was making a study and was considering Detroit as an additional source. The proximity of Detroit-Ann Arbor mains might have made it possible for Ypsilanti to tap in as an alternative source. A second reason may have been. that Ann Arbor was negotiating for the four Detroit Edison ponds a-nd, because of the uncertainty of ownership, Ypsilanti may have waited to decide about river water. At any rate, when Ann Arbor made its decision to expand its own plant, Ypsilanti continued negotiations and the process of deciding which alternative to choose. There seems to have been less interest on the part of Detroit after the Ann Arbor vote because Ypsilanti officials wrote several letters without receiving any answers. A private citizen in Ann Arbor wrote to Mr. Remus, General Manager of the Detroit Department of Water Supply, in June of 1963 and asked for his comments on the advisability of obtaining water from Detroit. Mr. Remus' answer in part was, "at the time (when Detroit offered water to Ann Arbor) we had money in hand to do the construction. That money has now been reassigned to other area construction but there is no reason) why our engineers cannot sit down together and renegotiate a proposal that will be advantageous to everyone. " The implication is that money for construction for Ypsilanti had also been reassigned. 218

Ypsilanti officials wrote for rates and supply in January, 1963, and again in July, at which time they also wrote to the State Department of Health asking permission for a temporary additional river supply. On August 5, 1963, a meeting was held with Detroit. There was a request for 1 MGD immediately and 2 MGD by 1970. The minimum rate quoted was $1. 59/1000 cu ft with a minimum annual charge. On August 8, 1963, the consulting firm of Ayres, Norris, Lewis, and May was authorized to initiate negotiations for supplemental supply for Ypsilanti and Ypsilanti Township. The anticipated requirements for the city were an average daily demand of 0.5 MGD and a maximum daily demand of 2 MGD. A letter summarizing the meeting came in September from Mr. Michael of the Detroit Department of Water Supply. No further word was received until a letter was sent to Mr. Remus on October 17, 1963, asking where the report was. A phone call probably followed although there is no record of it. On October 21, Ypsilanti began talks with the State Department of Health to get permission to draw an additional supply from Geddes Pond. Ypsilanti officials felt that Detroit had not given them the full information that had been requested. Some of the points of contention between the parties were that Detroit wanted Ypsilanti to take all of its water by 1980 but Ypsilanti officials did not feel that Detroit could supply an adequate amount. The rates were also controversial. The wholesale rate quoted was $1.59/1000 cu ft. This was to go up to $1.72 when DIWSs Lake Huron intake was completed. Ypsilanti found that, based on 6 MGD at the lower rate, it would be paying about $112,000 more per year to get a Detroit supply than if it issued bonds to increase its own plant capacity. This figure would have been $205,000/yr if the amount of water received was 8 MGD. Ypsilanti offered to build the transmission main hoping to increase its bargaining power in this way. However, the rate quoted by DMWS was still the same. When Ypsilanti asked to have the $1.59 rate guaranteed for at least five years if it built the main, Detroit would not agree. Ypsilanti voted to expand its own plant and successfully negotiated with Ann Arbor for an additional intake into Geddes Pond in the Huron River. Mr. Max, in a recent interview, said that some public officials and some citizens were, and still are, afraid of losing control if they allow Detroit to get a foot in the door. An interesting sidelight concerns the period when the Northfield Township site was in contention as the cite for the construction of a federally financed atomic accelerator. The plant would have obtained water from Detroit; federal officials had discussed a 30 MGD figure with DMWS. If the accelerator had been located there and the water main extended, Ann Arbor and Ypsilanti may well have had new decisions to make about water supply. 219

A new round seems to be shaping up anyway. There are great pressures for both cities to join either the Wayne County or DMWS interceptor systems for waste water treatment-pressures from both the federal and state government. As mentioned above, if water is taken from the river, used, and then diverted from the basin, a new source of water supply will most probably need to be found.9 In November of 1969, the Washtenaw County Board of Commissioners approved a $128,000 study and inventory of the water resources of Washtenaw County. This will be a three-year study to find out what the water resources needs are for the county. It will attempt to gather data on all ground and surface water. Streams will be gauged for levels and run-off, and wells will be sampled for levels and chemical make-up. The Board of Commissioners has also just financed a feasibility study on a water storage system for four units of government-Ann Arbor, Ypsilanti, Pittsfield Township, and Ypsilanti Township. Although no officials have taken a position yet, the study is to look into the practical and financial feasibility of linking the water systems of these four units with Detroit's system. One comment that no one can make about water resources in this area is that they have never been studied.10 One conclusion emerges from the studies: namely, that there seems to be sufficient water in the Huron River for Ann Arbor and Ypsilanti's purposes for a long period of time-especially when supplemented with well water, if water supply is the single purpose of water use. However, both cities are committed to the multiple goals of the Huron River Watershed Council, and Ann Arbor is committed to passing 50 cfs past the sewage plant outfall. Hence, multiple uses of the river are conflicting more and more. The latest conflict is the recent ruling by the State Water Resources Board designating that the use standards for downriver Ford and BellevilleLakes should be high enough to allow bod contact. The two cities may be forced to join the Wayne County or DMWS interceptors if the quality of their and other effluents (notably from Ypsilanti Township) cannot be upgraded economically. Such action then will have negative implications for water supply. Therefore, the conclusion seems evident that it is a question of "how soon," not "shall we," before Ann Arbor and Ypsilanti must turn to DMWS for their water supply. Factors other than water supply will probably take autonomous, local supply decisions out of the hands of local officials in the sense that other forces and factors will control the decisions they make. Given a complex series of interrelated phenomena, such decisions will inevitably "just happen," not "be made." 9. Conversely, purchasing water supplies from an out-basin source and discharging treated effluent to the River would increase its flow downriver. 10. In addition to studies made for local, state, and federal governmental units, various biologic, ecologic, and hydrologic studies have been made by Eastern Michigan University in Ypsilanti, and especially by units of The University of Michigan in Ann Arbor, along the major portion of the Huron River. 220

Bibliography Advisory Commission of Intergovernmental Relations, Intergovernmental Responsibilities for Water Supply and Sewage Disposal in Metropolitan Areas, Washington, D.C., October, 1962. Advisory Commission on Intergovernmental Relations, Metropolitan Social and Economic Disparities: Implications for Intergovernmental Relations in Central Cities and Suburbs, Washington, D.C., January, 1965. Advisory Commission on Intergovernmental Relations, Performance of Urban Functions: Local and Areawide, Washington, D.C., September, 1963. Ayers, Lewis, Norris and May; McNamee, Porter and Seeley Consulting Engineers, Water Supply and Sanitary Sewerage Systems for Washtenaw County, Michigan, Ann Arbor, for Washtenaw County Metropolitan Planning Commission, March, 1966. Craine, Lyle E., Intergovernmental Relations in Water Development and Management, Ann Arbor, Department of Conservation, The University of Michigan, 1959. Cleary, Edward J., The ORSANCO Story: Water Quality Management in the Ohio Valley under an Interstate Compact, Baltimore, Johns Hopkins Press, 1967 Cox, James L., Metropolitan Water Supply: The Denver Experience, Boulder, Colorado, Bureau of Governmental Research and Service, University of Colorado, 1967. Department of Housing and Urban Development, Third Annual Report, Washington, D.C., 1967. Detroit Metropolitan Area Regional Planning Commission, Regional Recreational Lands Plan, August, 1966. Detroit Metropolitan Area Regional Planning Commission, Water Service Priorities for the Detroit Region, January, 1960. Federal Water Pc.lution Control Administration, Water Pollution Problems of the Great Lakes Area, Chicago, September, 1966 (Revised, October, 1967). Fleming, Rodney R., Interview with the Executive Secretary of the American Water Works Association, Eric Johnson, in the American City, May, 1969. FWPCA, A New Era for American's Waters, U.S. Dept. of Interior, Washington, D.C., 1967. 221

FWPCA, The Cost of Clean Water: Economic Impact on Affected Units of Government, Washington, D.C., 1968. Hart, Charles M., "Regionalism and Realism in Land-Use Planning," University of Pennsylvania Law Review, 105:515-537 (February, 1957). Hirshleifer, Jack and Jerome W. Milliman, Urban Water Supply-A Second Look, Santa Monica, California, the RAND Corporation, March, 1967. Huron River Watershed Council, "Huron River Watershed Council," a descriptive brochure with no date and no paging. Huron River Watershed Council, Water Use and Resource Management Goals for the Huron River Watershed, May, 1968. Huron River Watershed Intergovernmental Council, Technical Advisory Subcommittee, The Huron River: A Water Use Policy and Development Program, October, 1960. Jones, Victor, "The Organization of a Metropolitan Region," University of Pennsylvania Law Review, 105:538-552, Feburary, 1957. Kneese, Allen V., Approaches to Regional Water Quality Management, Washington, D.C., Resources for the Future, Inc., Reprint No. 64, June, 1967. Larcom, Guy C., "The Huron River Watershed Program," a speech delivered at the 41st Annual Conference of the Michigan Water Pollution Control Association, June, 1966. League of Women Voters, Comprehensive River Basin Planning: Structure and Strategy, Washington, D.C., November, 1967. League of Women Voters Education Fund, The Big Water Fight, Brattleboro, Vermont, 1966. Macomb County Planning Commission, Public Water Supply and Distribution Systems Serving the Governmental Units of Macomb County, April, 1962. Michigan Water Resources Commission, "Clean Water and Quality Recreation for Michigan," a brochure urging citizen support for the water-recreation bond issue, 1968. Michigan Water Resources Commission, Implications of Land and Water Use Developments in Michigan for Future Public Water Resource Policy, no date. Michigan Water Resources Commission, Report on Water Resource Conditions and Uses in the Flint River Basin, Lansing, 1956. 222

Michigan Water Resources Commission, Report on Water Resources Conditions and Uses in the Huron River, 1957. Michigan Water Resources Commission, The Water Resources of Southeastern Michigan, An Overview of Region Water Uses, February, 1968. Michigan Water Resources Commission, Water Resource Conditions and Uses in the River Raisin Basin, Lansing, 1965. Michigan Water Resources Commission, Water Resources Uses, Present and Prospective for Lake Huron, and Water Quality Standards and Plan of Implementation, June 1967. Michigan Water Resources Commission, Water Resource Uses, Present and Prospective, for St. Clair River, Lake St. Clair, Detroit River, Lake Erie, and Maumee River Basin, and Water Quality Standards and Plan of Implementation, Revised, June, 1967. Milner, James B., "The Metropolitan Toronto Plan," UPLR, 105:570-587 (February, 1957). Mulholland, Joseph, The Objectives of Government Water Resource Policy, St. Louis, Missouri, Institute for Urban and Regional Studies, Washington University, August, 1967. National Sanitation Foundation, Southeastern Michigan Sewerage and Drainage Study Population Projections, March 5, 1964. Pugh, Jonathan and Ball, William H., "A Look at Our Water," Talmanac, as reprinted by the FWPCA, Chicago, January, 1966. Remus, Gerald J., "Metropolitan Water Problems," Michigan Mnicipal Review, April, 1961, p. 95-96. School of Public Health, University of Michigan, Proceedings of the National Symposium on Quality Standards for Natural Waters, Ann Arbor, July, 1966. Shestack, Jerome J., "The Public Authority," UPLR, 105:553-569 (Feburary, 1957). Suggitt, Frank W., The Planning Process as it Relates to the Water Resources of Michigan, Lansing, Michigan Water Resources Commission, August, 1966. Technology Planning Center, Strategy for Michigan Water Resources Management: A Systems Approach, Ann Arbor, for the Michigan Joint Legislative Committee on Water Resources Planning, December, 1966. U.S. Army Engineer District, Southeastern Michigan Water Resources Study: Information Bulletin, Detroit, Corps of Engineers, November, 1966. 223

U.S. Army Engineer District, Southeastern Michigan Water Resources Study, "Water Resources Needs and Problems in Southeastern Michigan; an Opinion Survey Conducted among County Supervisors," by Darryl Hessel, University of Michigan, December, 1967. United States Public Health Service, Division of Environmental Engineering and Food Protection, Recommended State Legislation and Regulations, Washington, D.C., July, 1965. Walker, Mabel, "Fiscal Aspects of Metropolitan Regional Development," University of Pennsylvania Law Review, 105:489-503 (February, 1957). 224

APPENDIX H THE SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY* *Based on a study by Charles A. Morrison, a graduate student at the Institute of Public Policy Analysis, The University of Michigan, a research assistant to the principal investigators. 225

Introduction The development of special districts is usually generated by demands for specific services or functions in geographic areas where the service might otherwise not be provided. In Michigan, the Southeastern Oakland County Water Authority (SEOCWA) is such a special district. It was established for the sole purpose of providing water to the citizens and industries of the area on the Northwest boundary of the City of Detroit where the demand for water began to exceed significantly available municipal sources of supply. As post-World War II surburban development increased rapidly north of Detroit in Oakland County, developers, administrators, and political leaders in the various communities began to face up to the problem of water supply which, in many instances, was almost critical. As was also the case in many communities in Western Wayne County, uncertainties about the capability, capacity, and desire of the Detroit Water Board to serve municipalities outside its then-current system intensified the need to search for long-term solutions to develop water sources. A major source of water for Southeastern Oakland County communities, particularly those abutting Detroit city limits, was Detroit. But Detroit had no policy of extending transmission lines beyond its city limits and was not interested in doing so. As a result, communities receiving or seeking a supply of water from Detroit had to work out their own arrangements for delivering water from Detroit city limits to their own residents. One early improvised arrangement for serving several communities not immediately adjacent to Detroit had been established in 1927 by the "North Woodward Avenue Association," primarily at the instigation of the City of Royal Oak.1 Other communities, acting individually, worked out their own contractual agreements with Detroit. While these arrangements never served to guarantee a source of supply that was considered satisfactory, it was the impending crisis of the post-war years that led to engineering studies, in 1948, which studied the feasibility of a Lake Huron supply for Southeastern Oakland County, or the development of supply intakes on much nearer Lake St. Clair or the Detroit River. The urgent and immediate need for water, coupled with the high cost of developing facilities for a Lake Huron supply, made it virtually imperative that immediate needs could be satisfied only through a Detroit source. Even 1. The association consisted of the cities of Huntington Woods, Pleasant Ridge, and Royal Oak. While other communities had been invited to join, none did. The association built transmission mains to Eight Mile Road, the northern boundary of both Detroit and Wayne County, where they were tapped in to Detroit's transmission mains. 226

the alternative of building an intake in the Detroit River or on Lake St. Clair and developing an independent transmission system was rejected as too costly since much of the construction would have to be through already heavily populated and developed areas in Macomb County to the east. In looking to Detroit, two alternatives seemed available; either individual Oakland County communities might have worked out their own contracts and relationships as they had in the past, or they could have banded together to create a bargaining block. In either case, because of Detroit's antiexpansionist policies and because of the engineering conditions which prevailed at the time, both alternatives required construction of pumping facilities and storage reservoirs and tanks. After prolonged discussion, several of the communities began to search for a, joint solution to the problem of inadequate supply. In seeking a common solution, seven governments joined' together to secure passage by the state legisof a statute which would permit them to establish a water authority to build a pumping and transmission system and to negotiate a service contract with Detroit. 2 At its inception, the new water authority included Royal Oak, Birmingham, Berkley, Huntington Woods, Pleasant Ridge, Clawson, and Southfield Township. By the time it began operations SEOCWA had added the City of Southfield, Beverly Hills, and Lathrup Village. The latter three communities were incorporated from areas originally included in Southfield Township (which is today a nominal member and does not purchase water through the SEOCWA system). Two additional villages, Franklin and Bingham Farms (also a part of Southfield Township) have received approval to become members of the authority at such time they develop their own distribution systems.3 The establishment of SEOCWA depended, of course, upon the collective cooperative action of its member communities. But the development of the authority was not unprecedented in that section of Oakland County. Indeed, there were two strong precedents for most of the municipalities involved. First was the North Woodward Avenue Association, established in 1927, which had built transmission mains from Detroit's boundary to its member cities, as indicated above. A second factor contributing to the formation of the water authority was the Southeastern Oakland County Incinerator District. Begun in 1952, the incinerator authority provided the model for a system of administration for 2. Act No. 196, Michigan Public Acts of 1952 (The Water Authority Act), was specifically intended for the Oakland County Communities and was passed at their behest. 5. To join, a municipality must receive an affirmative vote of consent from the city councils of each constituent member at the time of application. 227

the water authority, since the water authority followed the same organizational lines and utilized the same staff and administrative procedures of the incinerator authority. This use of a common administration at top levels, with a sharing of costs between the two service functions, has probably resulted in some economies. By utilizing the same organizational structure and administrative staff of the incinerator authority, the new Southeastern Oakland County Water Authority was begun. Under the terms of an agreement of November 17, 1954, it purchased all water facilities owned by the three municipalities in the earlier North Woodward Avenue Association and incorporated them into its system.4 A corporate body with virtually complete corporate powers,5 SEOCWA is empowered to increase its rates at any time in order to meet its obligations. It may also contract with nonmember communities to supply water at a rate higher than those to constitutent jurisdictions. Its contracts are limited to a fifty year maximum time period. Central to all of its contracts is its major purpose: the provision of facilities for water storage, pumping, and transmission to meet maximum demands of its member municipalities who then distribute the water to area consumers. Under the enabling legislation, the regional authority was granted authority to draw up its own Articles of Incorporation. Article V provides that "the Authority shall continue in existence until dissolved by act of the parties or by law; provided that it shall not be dissolved if such dissolution would operate as an impairment to any of its contracts." Although there is some basis for concluding that there is no longer economic justification nor engineering necessity (under new DMWS expansion policies) for SEOCWA to continue, the Article serves to prevent sudden dissolution of the Authority. SEOCWA is governed by a Board of Trustees composed of one representative and one alternate chosen by the governing bodies of each constituent municipality. Members serve for one year without compensation but are reimbursed for expenses incurred. Each trustee has a vote proportionate to the amount of gallonage used by the city he represents. 4. The agreement with Detroit provides that SEOCWA will continue to supply the Detroit Zoo and Detroit's Rackham Golf Course, both previously served through the Huntington Woods delivery system. 5. Under Section 8 of Act 196 of 1952, the authority does not have the taxing powers as is common to such special districts in, for example, Pennsylvania, but must meet operating expenses out of revenues and contractual agreements reached with member municipalities. In the case of capital improvements, however, the authority can issue self-liquidating revenue bonds in accordance with the Revenue Bond Act, No. 94, Michigan Public Acts of 1933. 6. One vote for each 250 million gallons of water delivered during the preceding fiscal year, with each representative having at least one full vote. There are currently thirty-seven votes allocated to the ten jurisdictions holding membership. 228

The trustees are required to hold bimonthly meetings. Special sessions can be called by the Chairman of the Board or by any three members. The Board's officers-chairman, vice-chairman, and secretary-are selected from among the membership at the beginning of each fiscal year. No business can be transacted at any meeting in the absence of a quorum, defined as fifty per cent of the total voting power of the Board of Trustees. While the charter specifically designates the chairman as the presiding officer of the board, it also specifically denies to him any executive or administrative powers or functions. Under the provisions of the charter, the Board of Trustees appoints the engineer-manager who is the chief administrator of the authority. In addition, the board also appoints a finance director who is the chief accounting officer, a treasurer whose duties are fiduciary and custodial, and an assistant secretary. The latter three administrative positions can be filled by selection from the Board of Trustees although such has not been the case. As the water authority has grown, so has its bureaucratic apparatus, as indicated in Table H-l. The administrative staff includes the engineer-manager, the finance director, treasurer, accountant clerk, bookkeeper, and three clerical workers. There is also an engineering staff consisting of three engineers and a draftsman. Finally, there is an operating staff, headed by a superintendent, consisting of three divisions: electrical and mechanical, construction and maintenance, and operations. With the administrative staff (which devotes half of its time to the incinerator authority) the organization has the equivalent of thirty-three full-time employees. STRUCTURE OF SEOCWA The Southeastern Oakland County Water Authority has assets of more than $10.1 million. These include eight (booster) pumping stations, one metering station, four elevated tanks (total capacity 4.5 million gallons), six reservoirs (total capacity 25 million gallons), an elaborate transmission main system, plus miscellaneous office and transportation equipment. Additional system development for the near future includes another pumping and storage station to serve its two new village constituents when they are ready for service. Future plans include continuous monitoring and repair of present facilities and the addition of new pumping and storage apparatus as they are needed. Upon the completion of the DMWS Lake Huron intake, new SEOCWA facilities will be built to accommodate this new source of supply, providing, in effect, a backup system from the north. SEOCWA currently serves a population of about 240,000, more than 10 of the suburban population served by DMWS. In its projections for the future, SEOCWA expects to serve communities with a population of 350,000, and an anticipated maximum daily rate of 125,000,000 gallons compared with its current maximum day rate of approximately 79,000,000 gallons. 229

TABLE H-1 SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY MANPOWER REQUIREMENTS, 1968-1969 I Engineer-Manager (1/2) I Superintendent (1) Finance ~ Treas ur er Direc tor (1/2) (1/2) 1 - Civil Engineer 1 - Jr. Civil Engineer 1 - Draftsman (3) 1 - Account Clerk 2 - Secretary 1/2 - Bookkeeper 1 - Clerk-Recept. (4-1/2) Electrical & Mechanical Foreman (1) Chief Operator (1) Construction & Maintenance Foreman (1) 1 - Maintenance Man 2 - Mechanic (3) 4 - Senior Operators 2 - Relief Operators 3 - Maintenance Oper. 1 - Technician (10) 1 - Landscape Foreman 1 - Light Equip. Oper. 2 - Utility Man 1 - Laborer 3 - Temp. Laborer - 4 mo (6) Total - 33 Source: SEOCWA proposed budget, 1968-1969. 230

Finance SEOCWA has no direct taxing power,7 but the enabling law provides that the legislative body of each constituent municipality is authorized to raise by tax or pay from its general fund any money required by the contract for sale of water by SEOCWA to its constituent municipal members. All member communities, however, raise the funds needed to pay contractual obligations through user revenue charges, not through general fund taxes. The rates charged to constituent municipalities by SEOCWA have three identifiable elements. The first is the base rate charged by the City of Detroit, presently $.94 per 1000 cu ft of water. This is the "maximum day" wholesale price of water at the city limits. For this price Detroit supplies the water to meet the projected peak daily load over a one year's time span; with its storage capacity SEOCWA is able to meet peak hourly demands of its member cities. From the Detroit city limit SEOCWA takes over the pumping and transmission functions to members. The second element in its rate is administrative and operating expenses. This is SEOCWA's base, defined as the wholesale price plus operating expenses. Added to this base rate, each community pays a "demand" charge which is designed to equalize costs among the various-sized users. The demand charge is a "ready-to-serve" charge and provides a maximum day "assurance" to the authority. This ready-to-serve charge pays half the costs of SEOCWA's capital improvements, and is assessed at a rate of "...$3,018.18 per million gallons of allocated capacity of seventy million gallons..,"8 The seventy-nine million gallon capacity is divided among the authority's users (by Article XIV) according to an established allocated capacity (see Table H-2). The demand charge averages out to $.16 per 1000 cu ft of allocated capacity and is designed to extend for a period of twenty-five years after a member community's growth has stabilized. Then it will cease for that community. The demand charge paid by each member city guarantees to it the amount of system capacity for which it contracts and the formula assures that a growing community will assume a larger share of the authority's capital expenses than a city no longer growing. Thus, the City of Southfield will have to pay a higher ready-to-serve charge, based on the rapid increase of its population, 7. The power to tax is specifically denied by Section 8 of the enabling legislation under which the authority was formed, Act. No. 196 of the Public Acts of Michigan, 1952. 8. Article XIV of the Articles of Incorporation. 231

TABLE H-2 SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY ALLOCATED CAPACITY AND ESTIMATED MAXIMUM DAY A.... -^ -a n -4-Estimated Allocated Capacity MGD Maximum Municipality - 1966/67 1967/68 1968/69 Day MGD Berkley 5.53 5.553 5.5 5.60 Beverly Hills 5.50 5.50 5.50 9.00 Birminghan 8.49 8.49 8.49 12.00 Clawson 4.40 4.40 4.40 5.50 Huntington Woods 3.22 3.22 3.22 4.00 Lathrup Village 2.76 2.81 2.87 3.80 Pleasant Ridge 1.96 1.96 1.96 2.00 Royal Oak 21.42 21.42 21.42 27.50 Southfield - City 20.00 22.00 24.00 52.00 Detroit (Zoo & Rackham) 2.0.0 9 20 2.0 2.00 Sub Total 75.37 77.42 79.48 123.40 Bingham Farms -O- -0- -0- 2.20 Franklin -O- -0- -0- 4.40 Total MGD 75.37 77.42 79.48 130.00 Source: SEOCWA proposed budget, 1968/1969. while Pleasant Ridge, whose population has stabilized, will current charge.9 continue to pay its 9. The ready-to-serve charge results in rates higher for members of SEOCWA than each would be charged if each purchased its water directly from Detroit. But the manager of the authority and some of its members dismiss the higher charge as the price that the communities must pay to develop some equity in the system. According to their argument any given municipality could project having to pay DMWS some portion of the rate due to capital expenditures forever. But in SEOCWA, they say, after a finite period of years the system will be completely paid off and the capital improvements section of the rates will be deleted. This argument ignores the fact, however, that capital improvements by DMWS are spread throughout the DMWS system in the DMWS base rate; equity in the DMWS system, under its accounting procedures, accrues to the City of Detroit, not to the communities it serves. 232

Tne read{-to-serve charge covers approximately half the costs of capital improvements. The other half of the capital improvements budget is supplied through revenue bonds. Voter approval is not required for revenue bond issues under the provisions of the Revenue Bond Act, but a referendum may be required by petition. No referendum was required when SEOCWA issued its revenue bonds in January of 1955 (at an average interest rate of 2.8% for its Series 1, 1-A, and Series 2 Bonds). SEOCWA contracts with constituent municipalities pledge the full faith and credit of the constituent municipalities to back up the bonds. The ultimate cost of water to the consumer includes, of course, the cost of distribution within each municipality. Although SEOCWA costs to the distributors are nearly equal, with one exception, retail rates set by the communities show considerable variation (see Table H-3). The reasons for variation are explained in the main body of the report, supra. TABLE H-3 RATES PER 1000 CUBIC FEET IN SEOCWA COMMUNITIES Note: Based on the DMWS base rate of $0.94 per 1000 cubic feet. Rates reported are average rates. SEOCWA Community Mark-Up Mark-Up in % Over Municipality Wholesale Retail in $ Over Rate Price SEOCWA SEOCWA DMWS Base Berkley $1.65 $3.58 1.05 117 281 Beverly Hills 1.67 3.12 1.45 87 232 Birmingham 1.64 2.54 0.90 55 170 Clawson 1.66 2.21 0.55 55 105 Huntington Woods 1.68 3.45 1.77 105 267 Lathrup Village 1.86 5.17 1.51 70 237 Pleasant Ridge 1.69 2.80 1.11 66 197 Royal Oak 1.64 5.10 1.46 89 229 Southfield - City 1.66 3.00 1.34 81 219 NB: Southfield Township, a member of the authority since its inception, does not make purchases from the authority. Several of the communities above were incorporated from areas formerly within the Township. Nor are the rules for water delivered to the Detroit Zoological Gardens or Rackham Golf Course reported here; both purchase large amounts of water. 10. The authority finds this method of operation extremely desirable — though not absolutely necessary-since having approximately 500 of yearly capital expenses "on hand" makes its bond issues attractive to potential buyers and strengthens its financial position.

Although percentages may change slightly from year to year, SEOCWA's revenues are derived essentially as follows: 88% from the sale of water, 11% from the ready-to-serve charge, and 1% from miscellaneous sources such as rentals and investments. Expenses can likewise be distributed to 51% for the purchase of water from DMWS, 14O for operations and maintenance, 16% for replacement and improvements, and 19% for debt payment charges.ll Under its Articles of Incorporation the finance director is charged with the responsibility for the accounting and fiscal functions of the organization. SEOCWA uses an accrual system of accounting. Judged by its accounts, SEOCWA would appear to follow conservative financial management policies and to present a sound, stable financial picture. SEOCWA seeks to keep operating costs between twenty and twenty-two cents per 1000 cu ft of water and has been generally successful in its aim. The authority has also established a 2% water loss on meters. By these two standards, the water authority considers itself to have remained well within the range of efficient operation. More important to the communities involved, during its entire period of operation the authority has been able to maintain an adequate quantity of water at a pressure which assures proper distribution of water to each member municipality. Decision-Making in SEOCWA Policy making authority is vested in the Board of Trustees composed of one representative, and one alternate, from each municipality; voting strength is proportionate to the gallonage used in each municipality with each representative having at least one full vote. But the Board of Trustees takes little initiative on policy matters, most often ratifying or vetoing recommendations of the administrative staff. The board may accept, modify, or reject such recommendations but this is seldom done, policy making being on a consensual basis. In addition to his specifically assigned role as chief administrator of the authority, the engineer-manager is charged with responsibility for planning as well as for keeping the board informed on all operations of SEOCWA. Through preparing the agenda of the board, the manager has control over the kinds of proposals the board will consider.12 In effect, therefore, the engineer11. Derived from the SEOCWA budget for 1968-69. Budgets for earlier years indicate relatively minor changes in the distribution reported here. 12. A study of the minutes of the meetings of the board reveals that most of the proposals considered by the board are prefixed by "The manager reported..." 254

manager is the policy initiator for the authority. This is not an unusual circumstance, and in the case of SEOCWA there are two reasons why the manager fills this role. First, he is best acquainted with the affairs of the authority and most qualified to initiate key policy decisions. Second, the keystone to the relations that exist between the manager and the board is the aura of trust and goodwill which has been earned and nurtured by the manager; thus, the board is willing to accept his judgments. It should also be noted that most of the policy recommendations made to the board by the manager involve engineering decisions and the engineer-manager is a qualified engineer on the basis of both education and experience.13 Day-to-day operating decisions are made, as indicated above, by a professional staff of qualified employees. Relations Among Members SEOCWA member units have relinquished part of their individual water supply responsibilities to the regional authority; but each maintains control over the distribution function in its own jurisdiction. Since each representative on the Board of Trustees has voting strength commensurate to the amount of water purchased from the authority, two cities, Southfield and Royal Oak, control twenty-two of the thirty-seven votes on the boards These two municipalities could dominate SEOCWA, if they worked in concert. But in practice they have not exercised the potential domination for at least two reasons: first, in the opening years of operation all members voted on a, more equal basis (there were thirteen votes divided among seven members) and the decisions taken then in terms of long-range policy did not favor particular communities; second, relations between the trustees have always been amicable, most questions being decided by unanimous votes. But perhaps a more compelling reason for the two largest SEOCWA members not to dominate the smaller members is the limited scope of the decisions that authority makes. SEOCWA's two major functions are to store water and deliver it to member communities which retain local control over the distribution function. There has been no intra-organization coordination in such areas as central purchasing of equipment and supplies for member city water departments. Although an unsuccessful attempt was made to buy gasoline centrally to take advantage of the savings large purchases would offer, individual units jealously protect their individuality and autonomy and so long as SEOCWA decisions do not impinge on local autonomy, the large communities have no real advantage in controlling the authority by virtue of their voting strength. 13. He also had several years of municipal water supply engineering experience through a former position as a city manager before joining the authority. His city manager experience stands him in good stead, no doubt, in his dealings with the boardo

The Southeastern Oakland County Water Authority remains a relatively autonomous system within a larger system. It has no formal ties with Oakland County; its only tie with DMWS is its contract (included at the end of this case study). Indeed it is quite remarkable that there is so little official or unofficial contact with DMWS, especially considering that SEOCWA is the largest single customer of DMWS. The DMWS Board has members from the counties it serves, and the Oakland County representative is a resident of a SEOCWA city. But he is viewed by SEOCWA as a "politician" with little sensitivity and knowledge of the technical problems of water supply. Furthermore, he has had little contact with SEOCWA; nor, apparently, does SEOCWA seek out contacts with him. SEOCWA in the Future In the investigation of the development of water supply policies in the Detroit region the question has been raised several times about the reason for SEOCWA's continued existence. The answer can be found only in an historical context: SEOCWA was brought into existence in the early 1950's because of the Detroit Water Services' policy of nonexpansion. At that time there seemed to be no other feasible answer to the problem of inadequate water supply. Key administrators both in SEOCWA and Detroit admit that if the time for decision was now, most of the member cities would probably purchase their water from Detroit on an individual basis. But such a change is not likely. The decisions of today, given the costs already borne, are in large part dictated by decisions made in the past. SEOCWA could vote itself out of existencebut this would be a costly decision for some of its members, given their considerable equity in the system. In addition, long-term debt obligations preclude any simplified schemes for dissolution.14. A similar question about the City of Flint could also be raised. Why should Flint become the exclusive distribution agent for Detroit water in the Genesee County area? Here the historicity is found in the Detroit-Flint negotiations. DMWS needed Flint consumption out of the economic necessity of the development of the Lake Huron intake. Flint wanted to reduce any encroachment or impingement on its autonomy. The Detroit-Flint contract specifies, therefore, that Flint will be the exclusive distributor in its home county for the sale of Detroit water. A handful of communities are currently under contract; several more are in the process of negotiation. But there is underway a county-approved attempt to develop a water authority for smaller jurisdictions which would deal directly with Detroit. The terms of the master agreement with Flint would seem, however, to preclude the development of an authority which would bypass the city. 236

It is most probable that the system within a system will ccntinueo SEOCWA has successfully provided its member communities with a water supply to meet their peak daily demands, and has done so in a manner which has more than satisfied the basic requirements of its members. General engineering standards have been met consistently and surpassed often. The only rate increases since its organization in 1956 have come as responses to increases in the DMWS base rates SEOCWA's costs have remained stable, and in one sense have declined in relation to the general inflation of the economy. As individual communities stabilize in growth, the ready-to-serve charge portion of their rates will be dropped (twenty-five years after population equilibrium) so member communities can actually look forward to lower real dollar costs in the not-too-distant future. The current engineer-manager, Mr. A. J. Kronbach, sums up the operation of the authority by pointing out three major advantages of the authority to its members. 15 First, through the ready-to-serve charge, member communities build an investment in the system which could not be obtained if the communities had purchased water directly from Detroit. This equity will continue to build until all capital obligations are paid off when members can look forward to a significant reduction in rateso Second, the storage facilities of the authority provide a'"buffer against emergencies." If for any reason the water supply from Detroit is interrupted SEOCWA is able to maintain full water pressure for a twenty-four hour period. Finally, SEOCWA provides for and protects local self-government-a symbolic manifestation of the traditional suburban-city rivalry. The authority furnishes a "political buffer" against central interests controlled by the City of Detroit. Whether or not suburban communities must be "protected" from a large functional department of a large city is really not at issue hereo What does matter is that some citizens and representatives of some member cities perceive this as an issue, and believe that SEOCWA strengthens them in negotiations with DMWS. But since DMWS produces and transmits water to municipalities for distribution (i.e., acts as wholesaler only) by them, under direct contracts the distribution function would remain of necessity in local hands i.n much the same fashion as it does under contracts with SEOCWA. Yet it is firmly believed by many local leaders that local control is increased by membership in SEOCWA, At the very least, the small engineering staff of SEOCWA does provide "professional" protection for local interests against the "expansionist-minded" engineering staff of DMWS. At most, it may function as a political buffer if and when the need ariseso Founded out of historical necessity and bounded by nearly fifteen years of cumulative decisions, under current water supply institutional arrangements in the Detroit metro area,, SEOCWA will most probably continue its existence into the far future. It can be conjectured with reasonable accuracy that if and 15. From one of several extended personal interviews with Mro Kronbach. 237

only if a larger special district is formed to handle all the water supply functions-production, transmission, and distribution-in the area currently serviced by DMWS will SEOCWA cease to exist. 238

WATER SERVICE AGREEMENT CITY OF DETROIT - SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY THIS AGREEMENT made this 22nd day of March 1960, by and between the CITY OF DETROIT, a municipal corporation organized under the laws of the State of Michigan, by its BOARD OF WATER COMMISSIONERS, sometimes hereinafter referred to as the "DETROIT BOARD," party of the first part; and the SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY, a Michigan public corporation hereinafter sometimes referred to as the "AUTHORITY," party of the second part, WHEREAS, the municipalities of: City of Berkley City of Huntington Woods Village of Beverly Hills City of Lathrup Village Village of Bingham Farms City of Pleasant Ridge City of Birmingham City of Royal Oak City of Clawson City of Southfield Village of Franklin Township of Southfield are constitutent members of the AUTHORITY, or are included within the area of a constituent member, and WHEREAS, the AUTHORITY desires to finance, construct, operate and maintain additions to the present water supply system of the AUTHORITY to supply the needs of its constituent members, and WHEREAS, the DETROIT BOARD did, under date of November 17, 1954, enter into a contract with the AUTHORITY to sell and deliver to said AUTHORITY a supply of water from the Detroit system, and WHEREAS, water service has been rendered ever since said date by the DETROIT BOARD to the AUTHORITY under the terms and conditions of said contract, and WHEREAS, the AUTHORITY further desires to continue to receive a supply of water from the water system of the CITY OF DETROIT; NOW THEREFORE IT IS AGREED AS FOLLOWS: 1. That upon execution and final approval of this agreement, said prior contract is hereby terminated. 239

2. The CITY OF DETROIT agrees to sell and deliver water, and the AUTHORITY agrees to purchase water from the CITY OF DETROIT subject to conditions stated hereinafter. 3. The CITY OF DETROIT, to the best of its ability, shall provide and the AUTHORITY shall take water, at the designated points of connection of the AUTHORITY'S facilities with the Detroit water system in sufficient quantities to meet all reasonable requirements of the AUTHORITY'S customers as hereinafter provided. The maximum rate at which the AUTHORITY may take water from the Detroit water system is fixed as that rate which, if maintained constantly through a period of 24 hours, would provide the total quantity of water necessary to supply the maximum day requirements of all of the customers regularly supplied with Detroit water through the AUTHORITY'S facilities. The AUTHORITY shall provide and utilize sufficent controlled storage facilities so that the AUTHORITY shall be in a position to meet the demands of its customers without drawing upon the Detroit water system at any rate in excess of the above stated rate. Initially, the said maximum day requirements are hereby established as 50 million gallons, and the maximum rate at which the AUTHORITY may take water from the Detroit water system is hereby established as the rate of 50 million gallons per day. 4. The AUTHORITY shall maintain suitable records of the numbers and sizes of service connections, the number of persons supplied, and the daily and hourly rates of consumption of Detroit water through the AUTHORITY'S facilities. These records shall be available to the DETROIT BOARD at all reasonable times. Annually, on or about April first, if it shall appear that either the number of persons supplied by the AUTHORITY with Detroit water or the average per capita maximum day requirements of those persons, or both, are such as to change significantly the last determined maximum rate of draft of Detroit water by the AUTHORITY, then the said maximum rate shall be redetermined on the basis of the latest available data. If after April first in any year the situation should be materially changed by reason of increased users or usage, or both, which could not have been foreseen or determined on April first, then such a redetermination shall be made at that time. 5. The distribution of Detroit water by the AUTHORITY shall be limited to the area within the limits of the AUTHORITY, provided that the AUTHORITY and/ or its constitutent members may be permitted to supply water to such specific customers or areas beyond its limits as from time to time may be approved by the DETROIT BOARD, on application by the AUTHORITY. 6. Water shall be delivered by the DETROIT BOARD to the AUTHORITY at the following locations: Livernois and Eight Mile Road Greenfield and Eight Mile Road 24250 West Eight Mile Road 240

and at such other points as may, from time to time, be mutually agreed upon by the parties hereto. It is mutually agreed that all present metering connections, with the execption of those listed above, will be discontinued prior to July 1, 1961. 7. All water furnished shall be measured by meters installed at the points of delivery. All meters shall be furnished and installed at the expense of the AUTHORITY, under the supervision and inspection of the DETROIT BOARD or its authorized agents. Said meters shall be of a size and make satisfactory to the DETROIT BOARD, and subject to its inspection. The DETROIT BOARD agrees to maintain said meters and to cause such repairs and/or adjustments as may from time to time be necessary, to be promptly made. Such repairs shall be made at no expense to the AUTHORITY unless it can be shown that the necessity for such repairs was brought about by an improper act or neglect on the part of the AUTHORITY. The AUTHORITY agrees to accept the DETROIT BOARD'S estimates of quantities of water supplied during all periods in which the meters fail to measure correctly all water supplied the AUTHORITY, provided there is reasonable basis for such estimates. 8. The AUTHORITY agrees to pay for all water supplied by the DETROIT BOARD at such rates as the DETROIT BOARD may establish from time to time, it being mutually understood that such rates shall always be reasonable in relation to the costs incurred by the CITY OF DETROIT for the supply of water and shall be comparable to the rates charged other public corporations or public agencies served by the DETROIT BOARD under like conditions. It is mutually understood and agreed that the rates shall include an annual minimum charge which shall be computed by applying the current rate to one-half of the estimated annual consumption of Detroit city water by the AUTHORITY, which estimate is agreed to be as follows: Estimated Estimated Year Water Consumption Year Water Consumption In Million Cubic Feet In Million Cubic Feet 1960 883.6 1971 1,550.6 1961 910.2 1972 1,377.5 1962 941.1 1975 1,405.9 1965 977.5 1974 1,450.0 1964 1,018.9 1975 1,456.1 1965 1,065.8 1976 1,481.9 1966 1,118.4 1977 1,507.5 1967 1,176.3 1978 1,552.0 1968 1,256.0 19791,554.2 1969 1,294.1 1980 1,561.0 1970 1,322.5 and thereafter

The DETROIT BOARD shall give 90 days notice of any change in the rates and such notice shall be in writing and shall be delivered in person or by mail to the Secretary of the AUTHORITY. Bills for water service shall be rendered monthly and delivered to the Office of the AUTHORITY at 3910 Webster in the City of Royal Oak, and shall be payable on or before the due dat shown thereon which shall be not less than 15 days from such delivery. There shall be a further charge of five per cent of the amount of the bill if not paid on or before the due date. All delinquent balances remaining unpaid for one year or more shall be subject to an additional charge of six per cent per annum until paid. Water service to the AUTHORITY may be discontinued if any bill is not paid within sixty days of due date. The AUTHORITY hereby waives any and all claims for damages resulting from such discontinuance of service. 9. The AUTHORITY agrees to conform to all CITY OF DETROIT standards and specifications, from time to time in effect, governing the installation of water pipes, taps, service connections, fittings, meters and appurtenances, and to all rules and regulations of the CITY OF DETROIT and/or DETROIT BOARD pertaining to the control of or restrictions on the use of water taken from the Detroit water system. The AUTHORITY further agrees to require all of the AUTHORITY'S constituent municipalities and/or customers to conform in a like manner except that the foregoing shall not apply to fire hydrants and except that the City of Birmingham shall be permitted to install and use Class 150 cast iron water pipe and American Water Works Association standard valves. 10. The AUTHORITY agrees that no extensions or additions of water mains or pipes shall be made and no pumping, regulating, storage or other facilities shall be installed in the AUTHORITY water system until clear and complete plans and specifications for such work shall have been submitted to and approved by the DETROIT BOARD. 11. It is understood and agreed that the DETROIT BOARD shall have the right to inspect all water pipes, taps, service connections, fittings, meters, and appurtenances, during installation, installed, or intended for use in the system, during the continuance of this contract, for the purpose of insuring a uniform standard of construction for all areas served by the Detroit Department of Water Supply, and to avoid any damage to the Detroit system as a whole, arising from inferior material or workmanship in the component parts; with the understanding, however, that such inspection shall not relieve the AUTHORITY from full responsibility for the conformance of finished work with DETROIT BOARD standards and with approved plans and specifications. For the benefit of the AUTHORITY and the DETROIT BOARD, the DETROIT BOARD will continue to keep record maps of all systems supplied with water from the water system of the CITY OF DETROIT and for this purpose the AUTHORITY shall furnish the DETROIT BOARD with exact copies of original survey records showing the locations of all new water mains and appurtenances as 242

actually constructed in the systems of the AUTHORITY and its constituent municipalities and/or customers. These records shall be based on accurate field measurements taken during the progress of construction before the work is backfilled or otherwise made inaccessible. These records shall be delivered to the DETROIT BOARD as promptly as possible after each job, contract or section has been completed but in no case shall the elapsed time therefore exceed thirty calendar days. 12. For the protection of the health of all consumers supplied with water from the water system of the CITY OF DETROIT, the AUTHORITY agrees to guard carefully against all forms of contamination, and that if at any time contamination should occur, the area or areas affected shall immediately be shut off and isolated and remain so until such conditions shall have been abated and the water declared again safe and fit for human consumption by the properly constituted Governmental health agencies having jurisdiction of the areas affected. 135 The DETROIT BOARD expressly reserves to itself the right to temporarily discontinue the supply of water to any of the water mains or pipe lines of the AUTHORITY, and likewise the AUTHORITY expressly reserves to itself the right to temporarily discontinue the supply of water to any of its constituents, whenever either the DETROIT BOARD or the AUTHORITY shall upon its own determination find it necessary for health reasons, and/or for purposes of testing, repairing, or replacing water mains, meters, or other of its facilities serving the AUTHORITY or the AUTHORITY'S constituents, or other similar or necessary reasons as the case may be. No claim for damages for any such temporary discontinuance or for any discontinuance caused by Acts of God or other causes beyond its control shall ever be made against the CITY OF DETROIT, the DETROIT BOARD, or the AUTHORITY. 14. It is understood and agreed that the AUTHORITY will not, under any circumstances, permit water from any other source or supply to be introduced into the water system of said AUTHORITY, nor any part thereof, or to therein be mixed or mingled with water from the water system of the CITY OF DETROIT, without prior written approval of the DETROIT BOARD. 15. It is agreed that water from the water system of the CITY OF DETROIT shall be supplied solely through the AUTHORITY to the areas within the following municipalities. City of Berkley City of Huntington Woods Village of Beverly Hills City of Lathrup Village Village of Bingham Farms City of Pleasant Ridge City of Birmingham City of Royal Oak City of Clawson City of Southfield Village of Franklin Township of Southfield 243

The AUTHORITY shall include such provisions in each of its contracts for supplying water to its constituent members and/or customers, as may be necessary to effectuate the provisions of this Agreement, and the AUTHORITY shall enforce these provisions to the extent of its legal powers so to do. 16. It is the intent of both parties to interconnect transmission mains for the purpose of providing an adequate and efficient water system, provided each such connection shall be specifically approved by the DETROIT BOARD and the AUTHORITY. 17. The DETROIT BOARD shall supply and sell water from the system of the CITY OF DETROIT to the AUTHORITY, and the AUTHORITY shall receive and purchase such water in accordance with the terms of this Agreement for an indefinite period of time but at least to July 1, 1995. This Agreement may be terminated by either party after July 1, 1995, upon two year's written notice served upon the other party by delivering the same to the Secretary of the DETROIT BOARD or to the Secretary of the AUTHORITY as the case may be, or at any time upon mutual consent of both parties. In the event that there should be created any metropolitan area, authority or other public corporation or agency, for the purpose of supplying water to the so-called Detroit Metropolitan Area, and if the CITY OF DETROIT shall secure its entire water supply from such source, then this AUTHORITY shall have the right to terminate this contract notwithstanding the foregoing provisions and to likewise secure its water supply direct from such specific corporation or agency. 18. This Agreement shall insure to the benefit of and be binding upon the respective parties hereto, their successors and assigns. 19. This Agreement shall take effect upon its adoption and execution by the respective parties hereto, and its approval by the Common Council of the CITY OF DETROIT and ratification by such of the constituent members of the AUTHORITY as have approved the prior contract between the AUTHORITY and the CITY OF DETROIT dated November 17, 1954. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. WITNESSES: CITY OF DETROIT By its Board of Water Commissioners By President, Oscar A. Wagner __________________By Secretary, F. J. Pipp

WITNESSES: SOUTHEASTERN OAKLAND COUNTY WATER AUTHORITY By Chairman, Fred L. Yockey By Secretary, Charles D. Kelley 245

APPENDIX I MISCELLANEOUS STATISTICS 247

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TABLE I-2 1968 DMWS OPERATING DATA* Daily per capita consumption Total billed revenues Total revenue from suburbs Percent of revenue from suburbs Percent of water pumped to suburbs Quantity pumped to suburbs Total annual pumpage Total population (est.) Detroit City population (est.) Total area served Area of Detroit City Water consumption in Detroit: Domestic (17.82%) Commercial (12.77%) Industrial (14.16%) Other (10.01%) Number of accounts in Detroit: Domestic Commercial Industrial 162 gallons $30,332,691 $15,767,161 51.96% 45.24% 13,395,658,000 cu ft 29,609,478,000 cu ft 3,735,400 1,590,000 677.75 sq mi 139.60 sq mi 5,227,397,000 cu ft 3,779,797,000 cu ft 4,192,416,000 cu ft 2,964,210,000 cu ft 355,141 28,811 2,172 *From DMWS 1968 Annual Report. 249

TABLE 1-3 THE REGIONAL WATER SYSTEM IN SOUTHEAST MICHIGAN* A. The Water Supply System** Assets Outstanding bonds Water sales Capital investment since 1955 Construction contracts awarded in 1968 Population served Percent of state population served Communities using Detroit water Service area $425.8 $150.8 $ 31.3 $252.2 $ 351 million** million** million** million** million 3,735,400** 40% 70 including Detroit 677-3/4 sq mi** Pumpage-fiscal year Average day pumpage Record day pumpage (July 1, 1966) Daily per capita consumption 221.5 605.2 1.066 162 gallons** 8,153.1 mi** billion gallons million gallons** billion gallons Total length of mains Detroit owned mains Suburban owned mains 3,368.8 mi** 4,789.8 mi** How DMWS used $0.41 0.21 o.38 $1.00 the water supply revenue dollar*: Operation, maintenance, wages Debt service System improvements, additions B. The Water Pollution Control System Assets Outstanding bonds Operating revenue Operating expense Wastewater processed: Year Average day Population served Communities served $65 $ 8.9 $ 8.7 $ 6.9 million* million* million* million* 275.7 755.3 billion gallons* million gallons* Miles of sewers Combined (including storm relief) 2,855 Sanitary sewers 34 Storm drains and outfalls 16 Sanitary interceptors 30 3,000,000* 54 including Detroit* 2,915 mi mi mi mi mi How DMWS spends your water pollution control dollar: $0.62 Operation and maintenance 0.07 Debt service 0.31 System improvements, additions $1.00 *All data from DMWS sources. **For fiscal year ending June 30, 1968. 250

TABLE 1-4 Water Supply System.... Assets 1957 1966 1967 Assets: Property, Plant and Equipment-at Cost............................. $ 209,708,540 $ 373,322,475 $ 403,803,339 Less Allowance for Depreciation.................................... 75,863,841 116,152,257 123,115,805 Net Property, Plant and Equipment............................... $ 133,844,699 $ 257,170,218 $ 280,687,534 Special Funds (cash, U.S. Government securities at cost and accrued income, and Federal grants receivable of $1,215,402 and $131,741, respectively): Construction Fund (bond proceeds)................................. 5,476,176 42,662,970 25,231,802 Improvement and Extension Fund.................................. 1,292,797 17,245,716 18,813,699 Debt Redemption Funds.......................................... 306,366 5,254,005 5,928,517 Sinking Fund for Term Bonds...................................... 28,738,591 Collection Agency Security Deposits (per contra)........................ 100,000 100,000 100,000 Assets Held in Trust for Purpose of Paying Air Conditioning Demand Charge Refunds.................................. 94,063 92,545 Hurlbut Trust Fund (available for maintenance of grounds at Water Works Park)............................................... 8,974 4,552 4,370 Current Assets: Operating Cash.................................................. $ 1,523,508 363,627 $ 371,931 U.S. Government Securities-at Cost and Accrued Income.............. 2,924,843 2,958,103 Accounts Receivable (including $3,935,699, $3,963,061 and $2,185,709 respectively, for unbilled water sales)..................... 2,628,338 5,185,659 5,706,276 Due from Other Funds......................................... 306,498 310,470 333,249 Inventories-at Cost.............................................. 1,965,405 1,235,965 1,394,392 Prepayments.................................................... 15, 585 53,287 38,846 Total Current Assets.......................................... $ 6,439,734 $ 10,073,851 $ 10,802,797 Deferred Charges: Payments to Retirement System in Advance of Actuarial Requirements 137,500 25,000 12,500 Total Assets................................................. $176,344,837 $ 332,630,375 $ 341,673,764 Fiscal Year Ending June 30 NOTE A -The DMWS has since December 1, 1960 operated the Wayne County Water Supply System under a lease-purchase agreement covering the existing facilities of the System and those under construction, when completed. The total cost to DMWS is estimated at $53,000,000, of which $12,000,) 00 had been paid to the County on June 30, 1967. The balance is to be paid in scheduled annual installments from 1970 to 1991. The construction of the County System was substantially completed on June 30, 1967. NOTE B -DMWS is engaged in a water development program for Southeastern Michigan. The current estimated cost of this program through 1970 is $257,800,000, of which $142,000,000 remained to be completed on June 30, 1967. This program is being financed by water supply system revenues and through issuance of revenue bonds. A total of $83,800,000 of revenue bonds had been issued on June 30, 1967. -- I -- 251

TABLE I-4 (Continued) balance sheet Liabilities: 1957 1966 1967 Liabilities: Bonds Payable General Obligation Bonds (including due within one year, $739,000, $744,000 and $6,871,000 respectively)....................... Revenue Bonds (including due within one year, $1,950,000, $1,900,000 and -0- respectively)................................... Total Bonds Payable.......................................... Due to County of Wayne for Water System Acquired under LeasePurchase Agreem ent............................................. Collection Agency Security Deposits (per contra)........................ Air Conditioning Demand Charge Refunds Payable...................... Current Liabilities of Special Funds: Accounts and Contracts Payable................................... Accrued Salaries and Wages......................................... Accrued Interest on Revenue Bonds................................. Due to Other Funds.............................................. Total Current Liabilities of Special Funds........................ Other Current Liabilities: Accounts and Contracts Payable.................................... Accrued Salaries and Wages..................................... Accrued Interest on General Obligation Bonds......................... Due to Other Funds............................................... O ther Liabilities................................................. Total Other Current Liabilities................................. Total Liabilities.............................................. Reserves: Workmen's Compensation......................................... Hurlbut Trust Fund.............................................. Uncompleted Service Installations.................................. Total Reserves............................................... City Equity: Contributions from Governmental Agencies.......................... Contributions from Customers...................................... From O perations................................................. Total City Equity............................................ Total Liabilities, Reserves and City Equity....................... Fiscal Year Ending June 30 $ 63,167,000 $ 15,118,000 12,000,000 iut,010,000 $ 75,167,000 $ 124,128,000 100,000 39,470,976 100,000 295,888 $ 1,305,990 $ 4,156,853 66,327 405,367 1,865,756 40,163 $ 1,711,357 $ 6,129,099 $ 14,374,000 107,110,000 $121,484,000 39,759,041 100,000 294,370 $ 5,309,907 64,889 1,835,094 120,970 $ 7,330,860 $ 435,316 342,986 133,324 633,675 351,092 $ 1,896,393 $170,864,664 $ 126,682 248,314 112,390 390,274 71,047 $ 948,707 $ 77,927,065 $ 392,696 469,727 140,695 804,858 270,747 $ 2,078,723 $ 172,202,686 $ 30,410 8,974 67,376 $ 106,760 $ 4,566,576 22,847,621 70,896,816 $ 98,311,013 $ 176,344,837;,. $ 174,459 4,552 40,190 $ 219,201 $ 22,571,620 26,864,871 110,771,997 $ 160,208,488 $ 332,630,375 = ~ iiL $ 257,412 4,370 78,225 $ 340,007 $ 26,595,049 27,066,910 116,807,124 $170,469,093 $341,673,764 =,~, NOTE C -All permanent DMWS employees are covered by pension plans administered by the City of Detroit. Contributions by the DMWS water supply system for pension costs aggregated $1,199,173 in 1967 and $1,105,457 in 1966, including actuarially computed contributions for the current plan, and $94,737 in 1967 and $43,417 in 1966 under the old, closed pension plan which is funded on a pay-as-you-go basis. Contributions to the current plan are computed in the latest actuarial valuations to represent amounts applicable to current service, and amortization of unfunded accrued liabilities over approximately 17 years. The practice is to fund pension costs accrued. Unfunded accrued liabilities were $7,680,315 for the current plan and $708,052 for the old plan on June 30, 1966, the date of the latest actuarial valuations. 252

TABLE I-4 (Continued) Water Supply System.... revenue&expenses I Operating Revenue: Water Sales-Detroit............................................ Water Sales-Surburban.......................................... Penalties....................................................... Miscellaneous................................................... Total Operating Revenue...................................... Operating Expense: Source of Supply................................................ Low Lift Pumping................................................ Purification.................................................. Electric Power Pumping........................................... General Production.............................................. Transmission and Distribution..................................... Commercial.............................................. Administrative and General...................................... Depreciation.................................................... Total Operating Expense...................................... Operating Income............................................ Other Income: Earnings on Investments.......................................... Antitrust Lawsuit Award........................................... Miscellaneous................................................... Total Other Income.......................................... 1957 1966 $ 16,117,138 $ 13,188,874 12,538,822 85,867 146,407 81,725 198,257 $ 16,284,730 $ 26,072,360 $ 34,642 510,122 1,246,566 1,712,980 409,102 2,160,131 1,044,789 1,551,468 3,747,644 $ 12.417.444 $ 3,867,286 $ 70,661 583,666 1,276,851 1,696,719 657,241 3,773,404 1,140,180 2,489,155 7,118,190 $ 18,806.067 $ 7,266,293 1967 $ 13,584,296 13,309,051 160,854 180,412 $ 27,234,613 $ 63,444 670,311 1,419,581 1,826,777 734,894 4,127,069 1,249,355 2,872,574 7,268,700 $ 20,232.705 $ 7,001,908 $ 3,021,630 25,737 76.521 $ 3,123,888 $ 776,482 2,903,800 277,081 73.583 $ 1,053,563 2,977,383 Interest Expense................................................... (2,424,888) (4,173,887) (4,090,659) Revenue Required for Capital Improvements..................... $ 2,495,961 $ 6,069.789 $ 6035137 Fiscal Year Ending June 30 NOTE D -Operating income, before depreciation, for 1966-67 was $14,270,608, equal to 227% of the highest principal and interest maturities of any future year on revenue bonds outstanding on June 30, 1967. The revenue bond ordinance requires that before additional revenue bonds may be issued, operating income, before depreciation, for the preceding fiscal year must equal at least 150% of the highest amount of revenue bond principal and interest falling due in any future year, including principal and interest on proposed new bonds. 255

TA-BLE I-4 (Continued) Water Pollution Control System.... balance sheet A A I\ _ h~~~~~~~~~~ll~ I 1 Assets: Fiscal Year Ending June 30 Property, Plant.and Equipment-Substantially at Cost................... Less Allowance for Depreciation..................................... Net Property, Plant and Equipment.............................. Special Funds (cash, U.S. Government securities at cost and accrued income, and Federal grants receivable of $497,053, $236,300, and respectively): Construction Fund (bond proceeds),. -............................ Improvement and Extension Fund.............................. Equipment Replacement Fund...................................... Bond and Interest Redemption Fund................................. Current Assets: O perating Cash.................................................. U.S. Government Securities-at Cost and Accrued Income.............. Accounts Receivable (including unbilled service of $1,711,970, $1,691,531 and $473,841 respectively).............................. Due from Other Funds............................................. Inventories-at Average Cost....................................... Prepaym ents.................................................... Total Current Assets...................................... Deferred Charges: Payments to Retirement System in Advance of Actuarial Requirements.... Total Assets................................................. LIABILITIES, RESERVES AND CITY EQUITY Liabilities: Revenue Bonds Payable (including due within one year, $420,000, $400,000, and $180,000 respectively)................................. Current Liabilities of Special Funds: Accounts and Contracts Payable.................................... Accrued Salaries and Wages........................................ Accrued Interest on Bonds......................................... Due to Other Funds............................................... Total Current Liabilities of Special Funds........................ Other Current Liabilities: Accounts and Contracts Payable.................................... Accrued Salaries and Wages....................................... Due to Other Funds.............................................. Other Liabilities................................................. Total Other Current Liabilities................................. Total Liabilities.............................................. Reserve for Workmen's Compensation................................. City Equity: Contributions from Federal Government............................. Contributions.from City of Detroit................................. From O perations................................................ Total City Equity............................................. Total Liabilities Reserves and City Equity....................... 1957 1966 1967 $37,841,065 $54,229,733 $55,729,586 8.499,552 17,007,489 17,826,559 $29,341,513 $37,222,244 $37,903,027 128,663 2,899,857 108,214 242,771 2,538,627 14,862,366 220,220 1,057,432 2,637,258 15,897,928 241,294 1,101,016 $ 407,609 $ 122,231 $ 211,322 652,334 898,569 474,070 1,767,502 1,768,840 164,004 476,099 490,454 342,956 251,258 210,158 5,218 15,448 6.780 $ 1,393,857 $ 3,284,872 $ 3,586,123 225 060 46,015 42,728 $34,339,935 $59,231,776 $61,409,374 $ 7,220,000 $ 9,670,000 $ 9,270,000 $ 44,327 $ 198,395 $ 214,843 982 1,842 7,284 13,124 12,629 15,538 21,722 $ 51,611 $ 288,039 $ 251,036 $ 38,438 $ 129,344 $ 154,454 35,766 178,649 146,837 873,624 204,817 236,850 86,596 66.998 89,542 $ 1,034,424 $ 579808 $ 627,683 $ 8,306,035 $10,477,847 $10,148,719 11,945 15,513 13,644 $ 9,000,000 $11,544,967 $12,008,920 12,068,909 15,339,293.15,278,135 4,953,046 21,854,156 23,959,956 $26,021,955 $48,738,416 $51247,011 $34,339,935 $59,231,776 $61,409,374 -3.3 _~ NOTE E -The System is engaged in a long-range capital improvement program. The estimated cost of this program through November, 1970 is $114,000,000, of which substantially all remained to be completed on June 30, 1967. The present plan is to finance approximately 80 per cent of the cost through Federal and State grants. NOTE F -All permanent employees of the Water Pollution Control System are covered by the pension plans administered by the City of Detroit. Contributions by the System for pension costs were $240,196 in 1967 and $224,364 in 1966. These contributions as reported in the latest actuarial valuations, included actuarially computed amounts for current service and amortization of unfunded accrued liabilities over approximately 40 years. The practice is to fund pension costs accrued. Unfunded accrued liabilities were $1,352,281 on June 30, 1966, the date of the latest actuarial valuations. 254

TABLE I-4 (Concluded) Water Pollution Control System.... revenue & expenses v _ n 1 Operating Revenue: General Rate Customers............................................. Suburban Rate Customers........................................... City Departments-Sewage Disposal Charge............................ Sewer Use Charges................................................. Miscellaneous..................................................... Total Operating Revenue.................................. Operating Expense: General Plant...................................................... Sewage Disposal Pumping Station..................................... Rack and Grit..................................................... Sedimentation..................................................... Chlorination....................................................... Digestion......................................................... Filtration and Chemical............................................. Incineration and Ash Handling....................................... Boiler Plant....................................................... Interceptors and Regulators.......................................... Sewer Pumping Stations............................................. Sewer Cleaning.................................................... Sewer and Basin Maintenance........................................ Sewer Engineering and Inspection..................................... Unallocated....................................................... Administration and General.......................................... Depreciation...................................................... Total Operating Expense....................................... Operating Income............................................. Other Income: Earnings on Investments............................................ Antitrust Lawsuit Award............................................ Miscellaneous..................................................... Total Other Income............................................. 1957 1966 $ 1,616,454 $ 4,108,184 1,127,351 3,120,430 370,778 465,999 171,882 32,188 $ 3,114,583 $ 7,898,683 $ 207,294 272,122 81,873 122,820 256,676 7,406 251,925 413,306 62,803 37,793 236,109 92,428 125,840 671,117 $ 2,839,512 $ 275,071 $ 223,997 301,130 128,962 289,081 430,978 8,616 357,736 437,814 58,518 39,255 808,990 1,057,804 335,255 37,434 87,569 755,724 938,842 $ 6,297,705 $ 1,600,978 1967 $ 4,264,978 3,213,411 462,976 231,320 31,574 $ 8,204,259 $ 251,010 326,235 169,016 288,728 471,013 8,875 382,032 381,894 72,843 41,056 842,047 1,149,799 281,154 131,159 105,367 959,578 938,785 $ 6,800,591 $ 1,403,668 $ 930,958 77,209 2,509 $ 1,010,676 $ 73,157 $ 759,670 2,610 $ 348,228 $ 762,280 Interest Expense..................................................... N et Incom e.................................................... Fiscal Year Ending June 30 (194,285) (320,417) (308,544) $ 153,943 $ 2,042,841 $ 2,105,800 $i 2,04284,1 NOTE G -Operating income, before depreciating, for 1966-67 was $2,342,453, equal to 317% of the highest principal and interest maturities of any future year. The revenue bond ordinance requires that before additional revenue bonds may be issued, estimated operating income, before depreciation, must equal at least 150% of the highest amount of principal and interest falling due in any future year, including principal and interest on the proposed new bonds. Detroit Metropolitan Water Services Information-Educational Services For Further Information: 735 Randolph Detroit, Michigan 48226 Phone: 962-5550 255

APPENDIX J THEORY AND PRACTICE OF WATER SUPPLY PRICING* *This Appendix was prepared by Gerben DeJong, a research assistant for the project. 257

Introduction There has never been complete agreement on what the appropriate price for water, particularly in the humid portions of the United States, should be. The debate on this issue has continued for more than half a century, but neither the "practical" men of the industry, nor rate makers, nor accounts, nor economists, are close to adoption of a single model for rate structures. This essay attempts to outline the major ingredients in current rate making theory and practice, hopefully avoiding the normative question of what the water price policy should be. It is useful, however, to assume that the present "state-of-the-art" with respect to water pricing is illustrated in the guidelines published by the American Water Works Association (AWWA) in its Water Rates Manual, and that this represents the "best" thinking in the water supply industry.1 Nature of the Water Supply Industry The confusion regarding an appropriate rate structure in particular situations relates to the peculiar cost conditions of the water supply industry. Unlike many other public utilities, fixed costs assume an overwhelming share of the total costs which must somehow be recouped by future revenues. Two principal schools of thought have emerged to answer the dilemma of high fixed costs. The first school of thought insists that the water utility should pay for itself, primary emphasis being on the adequacy of water revenues to meet both fixed and variable costs. In this approach, costs are assigned to classes of customers based on their estimated share of total costs. This is known as average cost pricing and is the dominant view and practice of the waterworks industry. By contrast, the marginal cost school of thought insists that the price should be set at the cost of producing the marginal or incremental. unit 1. We do not believe that our assumption is too heroic. The Water Rates Manual was published in 1960 even though the body of the document had been published earlier in the Journal of the American Water Works Association in March, 1954, as a report of the AWWA Committee on water rates which began its deliberations in 19490 Many monographs on water pricing since 1960 have referred to AWWA's Water Rates Manual as their point of departure. 258

demanded by the customer. In this view it is assumed that social utility and efficiency is maximized when prices are set at marginal costs. The principal difficulty with this approach is that marginal cost pricing will not always yield enough revenue to meet fixed costs since in urban water supply marginal costs tend to decline as output increases. In spite of the losses, marginal cost price advocates insist that their pricing is socially more efficient, i.e., "additional units should be made available so long as any members of the community are willing to pay the additional or marginal costs incurred.tT2 The dilemma of inadequate revenues can be demonstrated diagrammatically. If we assume that all customers fall within a single class, we can then illustrate the principal difference between average and marginal cost pricing (see figure below). Price theory maintains that profit will be maximized if the firm produces Q1 of water where the marginal cost (MC) curve intersects the demand (DD) curve. Profit will only be realized if MC intersects DD in a range where the average cost (AC) curve is rising. Consistent application of the marginal cost rule runs into trouble when MC intersects D1D1 while AC is still declining. This is the situation at output Q2 and price of P2. At this point the firm encounters a loss of RP2ST. This situation is typical of firms with large fixed costs such that the AC curve is declining for much of the relevant range of output. Average cost pricing is advocated instead. Under average cost pricing the firm would produce Q3 and price water at P3. There are no profits but all costs are met through revenues. Average cost pricing is the dominant theory and practice of the waterworks industry and will be discussed in greater depth later. Marginal Cost Pricing Even though marginal cost pricing does not exist in its pure form, its advocates have suggested ways in which it might be implemented. So far we have made the assumption that all customers are to be treated as one class. Like the average cost advocate, the marginal cost advocate recognizes that there are several classes of customers reflecting different cost conditions. Price differences would exist between classes but within each class all customers would be charged the same marginal price to reflect identical cost conditions. The problem of losses is not an insoluble one for marginal cost advocateso They insist that the problem of profits and losses is a distributional one. Hirschleifer et al. suggest five possible ways of meeting losses. First, a 2. Hirschleifer, et al., Water Supply: Economics, Technology and Policy, p. 40. 259

Price Mc Ac P I R I_|D — D Q Q Q Output Average vs. marginal cost pricing. 0 260

government subsidy could be used to cover the loss. Second, the water firm could rely on voluntary contributions after threatening that the firm will be abandoned. Third, a utility could discriminate "o..by setting up a descending scale of prices as a function of quantity taken, but subject to the guiding principle that each customer must end up paying some marginal price."3 This would be achieved by some trial and error process. Fourth, a two-part tariff could be instituted where a customer would be charged the marginal price per unit but would also have to pay a supplementary charge for the mere use of the system, Finally, a fifth method might involve some form of price discrimination between classes of consumers but this would not be true marginal cost pricing. There are telling arguments against these solutions, not to mention the issue of whether they would meet with public acceptance, There are other problems with the marginal cost view, Since variable costs are such a small proportion of the total costs, a rate system based on marginal cost pricing would approach zero or some ridiculously low rate so as to encourage excessive use and waste, Further, many water firms, both public and private, have floated bonds to finance large sums of fixed costs. In order to retain their financial credibility firms must insure their ability to meet all costs. For the most part, marginal cost pricing is an abstract theory and not standard practice. But some marginal costs pricing principles have been incorporated ink current rate practiceso Afifi and Bassie found that many communities in Illinois do "promote and extend water services as long as direct operating costs are coveredo"4 The marginal cost approach has other redeeming features which have indirect implications for rate-making. Marginal cost pricing is defective when viewed solely from the microscopic perspective of the firm, If, however, marginal cost pricing took into account marginal social costs as well, we might expect an entirely different rate structure, In many instances, one's use of water restricts another person's use of the water because (a) the supply is limited and/or (b) the quality of water has worsened. If these external social costs were included in the rate structure, incremental uses of water would be far more expensiveo Because water is managed by individual firms rather than on a watershed basis, these additional social costs are difficult to take into account, The present microeconomic view of the firm has produced declining block rates to reflect declining marginal costs but a more encompassing social view of our water supply might generate a system of graduated block rates to reflect increasing social cost. 3, Ibid., p. 92. 4. Afifi and Bassie, Water Pricing Theory and Practices in Illinois. 261

Average Cost Pricing In spite of all the furor about marginal cost pricing over the last several years, average cost pricing is still the preferred method of the waterworks industry. There is, however, little agreement on how average cost pricing should be implemented. Varying supply conditions and debt charges make uniform implementation of the average cost principle impossible. In many instances cost allocations to different classes of consumers are difficult to determine and therefore arbitrary and controversial, There are several hurdles in deriving a rate structure based on the average cost principle, First, total revenue requirements must be ascertained. Second, costs must be allocated to different classes of users; and third, developing the actual structure for (a) special users, and (b) normal users. Revenue Requirements Average cost pricing assumes that the "...waterworks should receive a gross revenue in an amount that will suffice to provide adequate service and assure the maintenance, development and perpetuation of the system."5 The first task in water rate making is determining gross revenue requirements. There are two principal methods used in determining the amount of revenue required to make the firm financially solvent. First is the "utility" basis which attempts to identify the major cost components upon which a rate of return can be earned. This method applies mainly to private firms. Gross revenue requirements are set to include enough to cover operation and maintenance, debt requirements, taxes, depreciation and a rate of return. The "fair" rate of return if then a matter fixed by the supervising public utility commission and the courts. The second is the "cash" basis method which applied mainly to publiclyowned waterworks. The basic cost components typically include operation and maintenance, debt requirements, depreciation, replacements, extensions and improvements. The most controversial cost components include reserves for improvements and funds ("profits") for other municipal operation. Funding other municipal functions is generally criticized by the waterworks industry but it is known to go on especially where basic management and accounting procedures are lax. Major disagreements exist as to what proportion of future improvements should be financed out of current earnings (reserves) and what proportion should be met by revenue and general obligation bonds. These decisions depend on the 5o American Water Works Association, Water Rates Manual, p. 2. 262

financial creditability of the firm and the community and on the amount of cross subsidization that will take place from one generation of consumers to the next. Nor are depreciation policies consistent. Many firms still depreciate on the basis of original book value even though replacement costs run as high as four or more times the original costs. Depreciation charges are one of the principal means of meeting the costs of future improvements and replacements. Cost Classification and Allocation The second major hurdle in the rate-making process is the classification of costs. Historically, the water industry has used some variation of the "Hopkinson"7 method whereby costs are separated into capacity, customer, and commodity costso Customer costs pertain to meter reading and bill collectingo Commodity costs vary with the amount of water produced. Capacity costs refers to the fixed plant investment to generate certain levels of water production. If the Hopkinson classification scheme were applied consistently, two-thirds of all costs would be assigned to capacity. Yet the AWWA recommends that half of all fixed costs should be assigned to capacity and half should be assigned to commodity. As Hirschleifer et al. point out, this recommendation is based on industry practice, not theory, and is justified on the assumption ",.that average-day water deliveryis commonly about half that of the maximum day."8 The next step is to determine how demand or capacity charges should be allocated among users. One solution has been to allocate capacity costs on the size of the meter but this discriminates against residential consumers who do not have a continuous flow. In other words, meter size cannot always be correlated with actual water demanded. The allocation of capacity costs is not rooted in sound economic theory but instead is a disguised attempt to stabilize revenue flows, particularly during periods of economic depression when industry is at a near standstill. Sometimes such policies may reflect deliberate attempts to encourage industrial growth allowing industry to assume a smaller share of the capacity costs. Capacity costs are best assigned when we know the actual water usage of different classes of customers during periods of maximum demando Such information would also serve as a basis for peak-load pricing. Once capacity costs have been determined they are usually incorporated into some kind of a "minimum" or "service" charge. Commodity charges are 6. Welmon, "Utility Depreciation Problems and Procedures," JAWWA (April, 1961), pp, 415-420. 70 Hopkinson, a Britisher, originally applied this classification of cost scheme in the electrical industry where cost conditions are somewhat similaro 8. Hirschleifer, op. cit., p. 99. 265

incorporated in a series of declining block rates to reflect diminishing marginal costs, Sometimes the capacity costs are hidden in the first block rate. The AWWA also recommends an alternative method for classifying costs-a functional basis where fixed and variable costs are separated in production and transmission, distribution, customer-related costs, and hydrants. This classification scheme generates cost data. upon which special uses such as fire protection can be separated from "normal" uses. When applied, this theory calls for a special charge based only on customer-related expenses including a special charge based on meter size. Unlike the demand basis, all fixed charges (capacity costs) are included in commodity rates. "It avoids the problems involved in the separation of total costs into demand and commodity costs and their redistribution to customers."9 A particular benefit of this approach is the breakdown between the production and transmission phase, distribution phase, and customer phase into a wholesale unit rate, an intermediate unit rate and a domestic unit rate. This scheme generates data which enables water utilities to arrive at suitable rates for nonresident customers, Water Rate Practices for Normal Users In larger cities, customers are frequently classified as residential, commercial, or industrial users for water rate purposes. In many instances, commercial and industrial users are consolidated into a, single class. In smaller communities there is no differentiation between customers-all are assumed to be in a single class. Customer classification is justified only to the extent that it reflects different cost conditions in supplying each of the categories. Four major rate schedules can be distinguished-flat rates, constant rates per unit consumed (straight line), step rates, and block rates. The application of these rates varies for residential, commercial, and industrial establishments in light of varying cost conditions, Many communities still apply a flat charge no matter how much water is consumed. Many justify flat rates because they are easy to administer. Others try to justify flat rates because of the costs of installing and servicing meters. The overwhelming arguments against flat rates are that they are in no way related to costs and they encourage wastes since the customer does not have to pay the extra commodity costs, Occasionally flat rates vary for the number of water fixtures within the home. However, this practice is becoming less common. 9. American Water Works Association, op. cit,, p. 28, 264

Metered water is now common practice in most urban areas. At times the variety of metered rate schedules seems to be infinite, The simplest metered rate is a straight line or constant unit charge that does not vary for the amount of water consumed. The step-rate schedule is perhaps the most controversial of the metered rates. Here one price is charged for the entire amount of water but the price is determined by the last unit consumed. The overall per unit charge decreases as more water is consumed. Under this type of schedule, a person is better off if he consumes just beyond the next downward step. Almost needless to say, such a schedule encourages waste even though it may reflect some declining marginal costs. By far the most common type of rate schedule is the declining block rate schedule where each successive block of water is cheaper than the former. Unlike step rates, the total charge always rises. The declining block rates again reflect declining marginal costso Declining block rates are sometimes designed to encourage purchasing additional units of water when there is unused capacity. Although the block-rate system is commonly used, there is little uniformity in its implementation. Some communities have as many as a dozen blocks but leadership within the industry favors fewer blocks, Another major difference is in the size of the reduction from block to block. The reduction from the first to the second block is usually the greatest, reflecting the inclusion of a minimum charge in the first block rate. The rule of thumb is that the last block rate should not be less than the direct operating cost of supplying the last unit of water, i.e., it should not be below marginal cost. Frequently water rate schedules include a minimum or service charge. Minimum charges are designed to reflect fixed capacity costs regardless of whether the consumer uses the water, In other cases, service charges are applied to cover certain customer-related expenses such as meter reading and billing. Initial charges also provide income stability to guarantee the firm's financial solvency. The size of the initial charge often varies with the size of the meter (as the theory suggests) and/or the customer class-i.e., residential, commercial, etc. Some water utilities have found the initial charge to be objectionable and therefore incorporate it in the first block of a block rate system. Afif and Bassie suggest ".,.that the minimum should not be higher than the average used by most of the customers for ordinary sanitary purposes"10'l They point out that higher than average use will encourage water waste or stir up customer ire since they will be paying for more than what they use. 10. Afifi and Bassie, op. cito, po 52. 265

Special Uses and Special Charges In addition to initial charges there are a variety of special charges to meet the requirements of special users. These would include fire protection charges, tap-in fees, and peak-load surcharges. All three are considered controversial since they tend to be arbitrary and based on heroic assumptions that are not universally shared. Fire protection charges are not based on actual water consumption but on the readiness-to-serve capability of the water system. Problems arise in determining which proportion of fixed cost (capacity) should be assigned to fire protection. AWWA's Water Rates Manual acknowledges "two fundamentally different theories" in assigning fire protection costs. The first theory asserts that ".,,the share of the applicable fixed costs chargeable to fire protection may be based on the ratio of the fire demand to the total demand for water...but that only the incremental operating and maintenance costs are to be included.11 Under this theory the proportion of fire protection costs loom relatively large in small communities but considerably less in large communities. The second theory maintains that the costs assigned to fire protection and general service should be proportioned in manner similar to what it would cost to maintain two entirely separate systems. Under this theory, nearly half of the total costs would be allocated to fire protection. This approach has not won side acceptance within the waterworks industry. AWWA's position is to view fire protection as "...a supplementary service, the charge for which should not exceed the demonstrable additional costs involved in rendering the service."12 This view obviously leads to smaller charges but its vagueness begs the question. There are direct costs which can obviously be assigned to fire protection but the indirect incremental costs of added plant capacity "...cannot be determined with any degree of precisionoo."13 It has been suggested that storage take the place of the extra capacity needed for fire protection. But again, it is difficult to determine what percentage of the storage capacity should be allocated to peak-load demands and what proportion should be assigned to fire protection. Even more uncertain are the methods used to collect fire protection charges. Questions arise as to what is the best indicator of fire protection demand. In some instances fire protection costs are paid out of the municipal treasury on the assumption that the property tax base is a good proxy for fire protection 11. American Water Works Association, op, cit., p. 135 12. Ibid., p. 14. 13. Ibid., p. 15. 266

demand. The error in this assumption is that assessed valuations frequently vary inversely with the soundness of the structure. The more highly assessed home is apt to be less of a fire hazard than a home in the inner city. In the search for alternatives, the AWWA has suggested a more sophisticated proxy of fire protection demand-a charge made ".,oproportional to the product of the assessed valuation of the structure and the applicable rate of insurance underwriters."14 Admittedly such a method would be difficult to administer. A simpler method would involve a minimum demand charge based on meter size, Building the fire protection charge into the commodity rate would tend to discriminate against the so-called "wet industries." In spite of the large costs associated with fire protection, less than 30 percent of water utilities in Illinois, for example, have some kind of fire protection charge. Less than half of these have a fire protection charge related to costs.15 Tap-in fees are once-and-for-all charges applied when a structure is first built or when water services are first made available to that area of the community. The size of the tap-in fee varies with the size of the intake. A tap-in fee of $500 for a 5/8 inch intake is not uncommon. Tap-in charges are a means of covering fixed capacity costs and the additional costs of installing transmission lines into the area. In many instances tapping fees are established to meet the costs of revenue bonds used to finance transmission lines intn new subdivisions. Peak-Load Pricing The greatest strides in water rate-making have been made in. peak-load pricing. Lawn sprinkling and air-conditioning make unusual demands on the water system on hot days and during dry spells. The ratio of maximum day demand to average day demand may run as high as 7 to 1, but the peak hourly demand to average day demand may run as high as 12 to 1 depending on lot sizeo16 To meet these unusual demands, the water utility must expand its production and transmission capacity. Any extra capacity would be wasteful since it would only be used a few days of each year. Much of the extra demand can be met by increased storage capacity which is less expensive, but unusually long dry spells may exhaust the storage capacity of the system. There is evidence that special surcharges can curb peak-load demands in water supply. But charging a higher price during peak periods consumers will 14, Ibid., po 18o 15, Afifi and Bassie, op. cito, p. 114. 16. Hatcher, "Basis for Rates," JAWWA, 57 (March, 1965), pp. 275-276. 267

be encouraged to use the system during off-peak hours thereby stabilizing usage of the system. Peak-load pricing, sometimes known as price discrimination, is a common feature in other utility and communication industries. At one time the price of water was thought to be inelastic for peak-load pricing, i.e., for a percentage change in price there was only a very small percentage change in the amount of water demanded. Data generated by the well-known Residential Water Use Research Project conducted by Johns Hopkins University has shown that domestic (in-house) demand for water is inelastic, but that sprinkling use of water is quite elastic.17 In other words, sprinkling demand for water is far more sensitive to price changes than is domestic demand. Since the Hopkins report is relatively recent, and since communities revise their rates only infrequently, there is little actual peak-load pricing in effect. Several, however, have suggested how peak-load pricing might be implemented. Even prior to the Hopkins report, Hirschleifer et al. insisted that peak-load pricing would be impractical because of the high cost of metering.l8 Others have suggested that each residential customer's average consumption be calculated and "...then charge him a surcharge for consumption in excess of the average during the summer months."19 Some have suggested payment vis a vis the property tax for different lot sizes. It appears that it will take years before the art of peak-load pricing becomes an effective management tool in the waterworks industry. 17. Howe, "Water Pricing in Residential Areas," JAWWA, 60 (May, 1968), pp. 498-501. 18. Hirschleifer, op. cit., p. 105. 19. Afifi and Bassie, op. cit., p. 115. 268

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