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City of Detroit
CITY COUNCIL
LEGISLATIVE POLICY DIVISION
208 Coleman A. Young Municipal Center
Detroit, Michigan 48226
Phone: (313) 224-4946 Fax: (313) 224-4336
TO: COUNCIL MEMBERS
FROM: David Whitaker, Director
Legislative Policy Division
DATE: March 4, 2024
RE: Report on the June 30, 2023 Audited Financials and Other Financial
Issues of DWSD
This report reviews major financial issues of the Detroit Water and Sewerage Department
(DWSD), and its financial relationship with Great Lakes Water Authority (GLWA).
We thank the DWSD Director, Gary Brown and his staff, the GLWA CEO, Suzanne
Coffey and her staff, for their assistance as we prepared this report. We must especially
commend the DWSD Director, Gary Brown and his staff for some of the excellent work
that they have accomplished over the past years in several areas. They took a system with
billions of dollars in debt, survived through a difficult bankruptcy, a bifurcation with
GLWA, and continued providing clean water and safe disposal of sewage. We also
commend the DWSD CFO, Istakur Rahman, for his assistance in writing this report.
One of our long-range objectives in providing this report is to make every effort to ensure
that our children, grandchildren and future generations have access to safe, clean and
affordable water, and safe disposal of wastewater including drainage.
This report will provide information on:
Marcel Hurt, Esq.
Kimani Jeffrey
Anthony W.L. Johnson
Edward King
Kelsey Maas
Jamie Murphy
Latawn Oden
Analine Powers, Ph.D.
W. Akilah Redmond
Rebecca Savage
Sabrina Shockley
Renee Short
Floyd Stanley
Thomas Stephens, Esq.
Timarie Szwed
Theresa Thomas
Ian Tomashik
Ashley A. Wilson
David Whitaker, Esq.
Director
Irvin Corley, Jr.
Executive Policy Manager
Marcell R. Todd, Jr.
Director, City Planning
Commission
Janese Chapman
Director, Historic Designation
Advisory Board
John Alexander
LaKisha Barclift, Esq.
Paige Blessman
M. Rory Bolger, Ph.D., FAICP
Lisa DiChiera
Eric Fazzini, AICP
Willene Green
Christopher Gulock, AICP
Derrick Headd
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Fiscal Year 2023 Year-End Budget Variances
•
Lead service lines replacement
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Affordability rates – DWSD lifeline plan
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Federal, State and Local dollars that benefit DWSD
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DWSD Capital Improvement Program
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Status of DWSD’s 2024-2025 Rate Increase for Detroiters
Fiscal Year 2023 Year-End Budget Variances
The following comparisons were presented to the Finance committee of the
Board of Water Commissioners (BOWC) on December 6, 2023. The table below
shows the operating results for both Water and Sewer.
• Water Commodity Revenue
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was $11.9 million (12.1%) over budget. Actual volume
exceeded budgeted volume by 251,600 Mcf
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or 9.8% resulting in a positive variance of
$9.6 million. In addition, there was a $2.3 million increase due to average rate variance.
• Water Service Charge Revenue
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was $1.5 million (6.5%) above budget.
• Decrease in Other GLWA Reimbursement is because the budgeted amount represents
GLWA’s share of pension expense ($11.4 million) plus debt service ($0.9 million) on B
& C Notes. GLWA’s share of pension expense is included in the budget for budgetary
control purposes and not included in the actual expense. The actual expense only includes
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Water Commodity Revenue is the actual water usage (volume) based on meter readings. Water usage is the amount
charged for freshwater. It is broken down by centum cubit feet (CCF). A CCF equals 100 cubit feet or approximately
748 gallons of water. Current water charges cover the cost of providing freshwater which flows into a customer’s
property, be it for drinking, bathing, washing dishes, or watering your garden. Source: “How to Read Your Detroit
Water Bill”, Outlier Media.
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Mcf equals 1,000 cubic feet. Water usage represents the cost of service for each Mcf of water used during a billing
period. A customer’s usage is based on the monthly meter reading at the customer’s home.
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Water Service Charge Revenue is a fixed monthly charge based on the size of a customer’s water meter and covers
the cost of the meter, billing, and customer service.
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the interest portion of GLWA’s share.
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• Sewer Commodity Revenue
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exceeded budgeted revenues by $8.2 million (6.9%).
Positive variance is primarily due to actual volume exceeding budgeted volume by
167,000 Mcf resulting in $9.3 million offset by average rate variance of $1.1 million.
• Drainage Charge Revenue
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fell short of budget estimates by $5.0 million (2.8%).
Monthly Highway Drainage credits were $170,000 more than budget. Also, Wayne
County Roads were billed at pre-MDOT Settlement rates for the first 2 months of the
fiscal year. Additionally, Green credits exceeded budgets by approximately $95,000 per
month.
• Decrease in Other GLWA Reimbursement is because the budgeted amount represents
GLWA’s share of pension expense ($20.5 million) plus debt service ($2 million) on B &
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Council should note that the large positive budget variances associated with the “GLWA’s Share of Pension &
Notes” on DWSD’s operating revenue table above, and with the “Pension Expense” on DWSD’s operating expenses
table below are based on the following: 1) Budgeted pension revenue and expense figures are based on the full
contribution amount based on a post-bifurcation pension agreement between the City, DWSD and GLWA and the
amount of contribution to the Legacy Pension was fixed at $45.4 million per 4 year for 9 years. This agreement is
ending on June 30, 2023. It included both the GLWA and DWSD share of Legacy Pension costs. 2) For the actual
revenue and expense pension figures, the GASB 68 required contribution is done annually by the City based on
actuarial determination and is different from the fixed contribution stated in 1).
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Sewer Commodity Revenue is, for most customers, based on the actual water usage (volume) based on meter
readings. Commercial businesses are based on their higher sewer line sizes. Sewer charges cover wastewater that
flows away from a customer’s property, be it from toilet flushes and water going down a drain to rainwater running
off a customer’s driveway. Sewerage Disposal is the cost to collect, treat, and dispose of untreated sewage. The rate
is charged for each CCF of water brought into a customer’s house and measured on a customer’s water meter. Meters
don’t track water leaving your property. Source: “How to Read Your Detroit Water Bill”, Outlier Media.
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Drainage Charge Revenue is calculated based on the amount of hard, impervious surface (a surface that does not
allow a fluid to flow through) on a customer’s property. This includes the roof of a customer’s home, garage, and
driveways and patios. DWSD uses planes to estimate impervious surface areas. Those areas are measured in acres,
and then multiplied by the rate charged per month, per acre. A drainage charge fee is for treatment and disposal of
stormwater or snowmelt, which runs off a customer’s home or driveway. Detroit has a combined sewer system, where
the sewage leaving a customer’s home gets combined with rainwater or snowmelt entering street drains. Because it
combines with untreated sewage, water runoff must be treated before being returned to the environment. Source: “How
to Read Your Detroit Water Bill”, Outlier Media.
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C Notes. The actual expense only includes the interest portion of GLWA’s share.
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The following table shows the Combined Operating Expenses by budget and
actual figures for the entire 2022-2023 fiscal year.
• Employee Benefits were under budget for the year due to a reduction in workers’
compensation based on the actuarial valuation. Workers’ compensation expense was
reduced by $2.6 million compared to the budget. Also included in the budget is an amount
of $31.9 million which represents GLWA’s share of pension costs. This amount is
included in the budget for budgetary control purposes and not included in the actual
expense.
• Contractual Services were under budget due to delay in starting certain projects and
contracts such as iTron, service interruptions, and GSI maintenance and restoration ($5.9
million), internal audit services, external audit chargebacks, a proposed warehouse
consolidation project and other consulting initiatives ($1.4 million).
• Shared Services were under budget due to final true-up of invoices/services based on
account reconciliation with GLWA. This impacts various cost centers, specifically cost
centers in Operations and Compliance.
• Other Operating Expenses were under budget mainly due to certain purchased
services ($2.2 million) not required by year end.
• Bad Debt Expense The decrease at year end is due to adjustment to the bad debt
allowance based on evaluation of receivables and potential collectability. This was offset
by an increase in actual revenues compared to the budget.
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See footnote 4 for more explanation of the variance between budgeted and actual Other GLWA Reimbursement
revenue.
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The following table shows Combined Departmental Expenses by budget and
actual figures for the entire 2022-2023 fiscal year.
• Operations savings include: (1) Personnel cost savings due to vacancies and (2)
Contractual services savings due to delay in starting certain projects and contracts such
as iTron, service interruptions, and GSI maintenance and restoration ($5.9 million).
• Compliance savings include: (1) Personnel cost savings due to vacancies and (2) certain
Contractual services were delayed to FY2024.
• Finance savings include: (1) Personnel cost savings due to vacancies and (2)
Contractual services savings due to delay in starting certain projects such as internal audit
services, external audit chargebacks, a proposed warehouse consolidation project, and
other consulting initiatives.
The following table shows Combined Non-Departmental Expenses by budget
and actual figures for the entire 2022-2023 fiscal year.
• Legacy Pension Expense variance represents $31.9 million GLWA’s share of pension expense
which is included in the budget for budgetary control purpose but not in actual expense.
• Bad debt Expense decrease is due to year-end adjustment of approximately $21 million based
on evaluation of receivables and potential of collectability. This was offset by an increase in
bad debt allowance due to the increase in actual revenues compared to the budget.
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By reviewing the above tables, DWSD management has made a considerable effort to
operate within budgeted amounts. However, LPD is concerned with any negative impacts
that project delays may have on service delivery, such as service interruptions, internal
audit services, a proposed warehouse consolidation project, and other consulting
initiatives.
City Council needs to closely observe the financial performance of the Water and
Sewage Disposal Funds every year after the bifurcation to ensure revenues cover
expenses, cash collections are equal to, or more than, cash disbursements, and
essential services are provided. LPD assists City Council in observing the financial
performance of the Water and Sewage Disposal Funds by providing your Honorable
Body with periodic reports such as this report on DWSD’s financial matters, as well
as reviewing the City’s, DWSD’s, GLWA’s annual financial statements and other
financial documents. LPD also raises questions regarding DWSD’s budget and other
financial matters during the annual budget process.
Lead service lines replacement
Since 2018, DWSD has replaced lead service lines while on the same block replacing the water
main. Additionally, DWSD has had two separate contracts ($1M and $10M) using Michigan State
Revolving Funds to replace individual lead service lines on a first-come, first-served basis. Those
two contracts are complete. Under these projects, nearly 3,000 lead service lines have been
replaced and DWSD continues with replacing lead service lines during water main replacement.
Since Summer 2023, DWSD has moved to a neighborhood-by-neighborhood approach to replace
lead service lines (in addition to water main projects) using $75 million in ARPA funding through
the Michigan Department of Environment, Great Lakes & Energy (EGLE). The City Council
approved separate contracts to have five vendors provide the services. The neighborhood areas are
prioritized by age of housing stock, density of population with seniors and children in the homes,
and low-income areas. These DWSD contractors are currently in seven neighborhoods. DWSD is
also using two in-house employee crews to replace the lines. So far, 2,060 additional lead service
lines have been replaced under this neighborhood-by-neighborhood approach as of January 16,
2024, and the goal is to replace 5,000 to 10,000 service lines per year as long as federal funding
continues to come to Detroit and have all the estimated 80,000 lead service lines replaced within
10 years.
DWSD at this time is not replacing individual lead service lines upon request. When DWSD arrives
to each neighborhood, under the approach outlined above, the department will replace the lines of
those houses that residents submitted to the wait list.
Currently, the Detroit water system is under the action level for lead content in the drinking water
and has not exceeded the state or federal action level under the Lead and Copper Rule. Our drinking
water is some of the best in the world and meets or exceeds the federal Safe Drinking Water Act.
Detroit is one of a very few major cities in America that is replacing lead service lines without an
action level mandate.
Affordability rates - DWSD lifeline plan
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The DWSD Lifeline Plan launched in August 2022 as an income-based water affordability
program. As of January 16, 2024, there are 27,196 households determined enrolled as eligible in
the Lifeline Plan with 22,713 households receiving an $18 monthly bill based on their annual
household income. DWSD utilizes three buckets of funding to support the program including
GLWA WRAP dollars provided annually, remaining federal Low Income Household Water
Assistance Program (LIWHAP) funds and state funding allocations including two recent budgetary
appropriations for statewide affordability funding. Wayne Metropolitan Community Action
Agency administers the DWSD Lifeline Plan.
Enrolled households start fresh with a zero balance – their DWSD account past due amount is
erased upon enrollment. Then, the household receives the following benefits when they pay their
monthly Lifeline Plan bill:
• Affordable fixed bill based on household income and number of household members;
• Get up to 1,125 gallons of indoor water usage per household per member per month; shutoff
protection while on the plan and as long as the household pays the monthly bill; and
• If qualified, the household receives a free water audit and minor plumbing repairs (as
funding allows) to fix leaks and inefficient equipment which saves them money.
The income tiers for the DWSD Lifeline Plan are as follows:
DWSD was part of the 60-member stakeholder group that provided input as Senator Stephanie
Chang and her office crafted three senate bills (SIB-0549, SIB-0550 and SIB-0551) to create a
water affordability program with 3% maximum of household income for the fixed monthly water
bill, shutoff protection and a sustainable funding source using a $2 per meter per residential
household statewide fee. DWSD supports the bills, and it provides for sustained funding for the
Lifeline Plan, if passed. Senate hearings were held in October 2023 and the bills should be
introduced to the legislature in 2024 for consideration and vote.
For households with past due bills and are not low-income, they can enter the 10/30/50 Plan with
a 10%, 30% or 50% deposit of their past due balance depending on their account status and the
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remainder of the delinquency will be spread out over a number of months, added to their monthly
water, sewerage, and drainage charges. As of January 16, 2024, 3,878 households are in the plan.
Federal, State and Local dollars that benefit DWSD
During fiscal 2023 and as of the date of this report, DWSD has received approval of $211.2 million
in various grants. Except for one, all of the grants are funded from the Federal American Rescue
Plan Act (ARPA), awarded to the department primarily through the Michigan EGLE. Notable
among these is the ARPA grant of $75 million for lead service line replacement awarded by EGLE.
DWSD is currently constructing a project (Far West Project) to remove storm water from
approximately 216 acres of a residential neighborhood immediately west of the Rouge River and
north of West Warren Avenue. GLWA has identified this area for improvements that would reduce
the combined sewer overflow discharge frequency and volume. The Evergreen-Farmington
Sanitary District (EFSD) has agreed to make a capital contribution, disbursed through GLWA, in
the amount of $31.6 million for the design and construction of this project.
DWSD Capital Improvement Program
The fiscal 2024-28 Capital Improvement Program (CIP) that was approved by BOWC is for a total
investment of $675 million, of which $150 million was for projects planned or under construction
in fiscal 2023-24 and $183 million for projects in fiscal 2024-25.
Five contracts were awarded in the recent past to replace lead service lines, for a total amount of
$80 million. Several other construction projects are in progress, either to replace aged water and
sewer mains, or to repair and rehabilitate existing mains.
DWSD uses debt financing, issued by GLWA, along with Federal, State and Local Funds as
summarized above to fund the CIP. In addition, DWSD leverages the $50 million annual lease
payment it receives from GLWA for the CIP.
The Infrastructure Coordinating Committee of the City ensures that infrastructure investments are
scheduled and implemented in ways that are complementary to other necessary infrastructure
investments. For example, when the Department of Public Works intends to replace a stretch of
roadway, it will work with the Detroit Water and Sewerage Department and the Public Lighting
Authority to ensure that any investments planned by these respective entities are undertaken while
the road surface is already removed.
Status of DWSD’s 2024-2025 Rate Increase for Detroiters
On February 7, 2024, the DWSD Executive Team presented a preliminary fiscal year 2025 Budget
to their Finance Committee. The Team considered these factors in developing the Budget:
• Affordability – keep rate increases below 4% and support water conservation initiatives;
• Compassionate and responsive Customer Service;
• Operations that support and preserve Public Health; meet or exceed all federal, state and
local Regulations;
• Employee and asset Safety;
• Water and Sewer Upgrades (including Lead Service Line replacement); and
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• Employee Focus – training, retention and recruitment.
Again, this was the first primary budget presentation, and the Team is asking for DWSD Finance
Committee members to review the presentation, and ask any questions prior to the next committee
meeting on March 6, 2024, and then the final budget will be submitted to the DWSD Board of
Water Commissioners for final approval on March 20, 2024.
Presented at the February 7, 2024 Finance Committee meeting was a 3.2% increase in water and
sewer rates, and drainage fees for FY 2025.
Comments presented by the Executive Team:
• The Proposed FY 2025 Budget was developed in an inflationary environment. The annual
inflation rate for the United States was 3.4% for the 12 months ending December 2023
according to U.S. Labor Department data;
• The Budget incorporates expenditures required to operate DWSD’s System for FY 2025;
• This Budget proposes a 3.2% increase in rates across the System (except Private Fireline)
to recover the Revenue Requirement required to operate the System for FY 2025.
• Private Fireline
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rate is projected to increase by 1.7% over FY2024.
Please let us know if we can be of any more assistance.
cc:
Gary A. Brown, Director, DWSD
Istakur Rahman, CFO, DWSD
Jay Rising, CFO, City of Detroit
Auditor General’s Office
John Naglick, Chief Deputy CFO/Finance Director
Tanya Stoudemire, Chief Deputy CFO – Policy & Administration Director
Steven Watson, Deputy CFO/Budget Director
Malik Washington, Mayor’s Office
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Private Firelines serve fire suppression systems within commercial buildings and provide a dedicated connection
where the primary purpose of the water is for extinguishing fires that does not serve domestic water (i.e. fire
sprinkler system).
