The Flint Water Crisis Is the Result of a Stimulus Project Gone Wrong

The new water system was never a cost-cutting measure. It was an expensive jobs project.


Flint Water Pollution
Bert van Dijk via Foter.com / CC BY-NC-SA

Liberals are wrongly blaming Flint's lead poisoning crisis on austerity measures imposed on the city by a fiscallyconservative Republican Governor Rick Snyder, as I wrote last week. (Snyder had appointed an emergency manager in 2011 to help the city balance its books and avoid bankruptcy.) However, I didn't quite realize just how wrong they were. As it turns out, the debacle is the result of Snyder's efforts to stimulate the local economy—the exact opposite of the liberal line.

The whole mess occurred because Flint decided against renewing its 30-year contract with the Detroit Water and Sewage Department (DWSD) and switched instead to Karengondi Karegnondi Water Authority (KWA). KWA was planning to build its own hugely expensive pipeline, parallel to DWSD's, to harness water from Lake Huron and service the Genesee County area where Flint is located. This left the city in the lurch for a few years when its contract with DWSD ended but the new facility had not yet gone online, prompting it to reopen a local mothballed facility that relied on the toxic Flint River as its source (more on the rank stupidity of this decision later).

The rationale for the original decision to switch Flint's water providers was that, in the long run, KWA would generate substantial savings for the cash-strapped city. Not only was this false but Snyder had very good reasons at that time to believe that this was false.

Documents that have just resurfaced show that the then DWSD Director Susan McCormick presented two alternatives to Emergency Manager Ed Kurtz that slashed rates for Flint by nearly 50 percent, something that made Detroit far more competitive compared to the KWA deal. "The cliff notes version," she said in an internal e-mail to her staff, is that the "proposal offers a today rate of water for Flint/Genesee of $10.46 as compared to $20.00 paid currently per Mcf—48% less that could be realized nearly immediately and even more when compared to the increases coming with KWA." In fact, when compared over the 30-year horizon, the DWSD proposal saves $800 million or 20% over the KWA proposal, she pointed out.

That works out to over $26 million in annual savings for a city in precarious financial shape.

So why didn't Flint jump at the offer?

If McCormick had been corrupt and untrustworthy like her predecessor, who was indicted in the scandal involving former Mayor Kwame Kilpatrick (for, among other things, illegally steering contracts to friends and cronies), it would have been one thing. But McCormick has a stellar reputation as an administrator and was brought on board after a federal court ordered a reorganization of the DWSD to clean up its operations and ensure that it was complying with federal water regulations. (Despite opposition from the city's powerful unions, she made a nearly 80 percent reduction in staff while improving operations, all of which ended 35 years of court oversight of the department!) In fact, she even offered the city representation on the board and a say in "facility operations and capital investment" in order to guard against unwarranted future rate hikes, removing an issue that has long been a bone of contention between Detroit and its municipal clients.

What's more, lest one dismiss McCormick as a biased party with a fiduciary interest in pressing DWSD's case against its competitor's, a study commissioned by Snyder's own treasurer from Tucker, Young, Jackson & Tull, a prestigious engineering consulting firm, confirmed that the KWA's plan to supply Flint didn't make any financial sense. It estimated that KWA was lowballing the project by at least $85 million. "Cost overruns and delays in completion will both negatively impact Flint's final costs," the report concluded.

The Genesee County Drain commissioner at the time went on a jihad to impugn the study, accusing it of relying on inaccurate data, but the question is, why did Snyder — aka one-tough-nerd who prides himself on his business acumen and wonkery — fall for it?

Snyder's office did not return my call, but sources close to the situation at the time tell me that it was essentially because Genesee County and Flint authorities saw the new water treatment as a public infrastructure project to create jobs in an area that has never recovered after Michigan's auto industry fled to sunnier business climes elsewhere. And neither Snyder nor his Emergency Manager Ed Kurtz nor the state treasurer Andy Dillon had the heart to say "no," especially since to hand Flint to DWSD would have made the whole project less viable.  What's more, they felt that just as Detroit was receiving an infrastructure boost post-bankruptcy (with the state-backed $650 million ice-hockey-arena-cum-entertainment center that I wrote about here) it was only fair that Flint get one too.

All of this shows two things:

One, the Flint water crisis is the result of a Keynesian stimulus project gone wrong.

Two, emergency managers are not always a panacea for fiscally mismanaged cities. The assumption behind handing them control of city finances is that they are grown-ups who, unlike politicians, are immune from special interest pressure and therefore more capable of making tough cuts. In reality, they can have their own political grand plans that don't always overlap with the city's fiscal interest.

But to add insult to Flint's injury, while the rest of the Genesee County continued to be served by DWSA before the new system became operational, Flint was switched to its old, moribund facility. That's not because Detroit threatened to cut off Flint, as the governor's office and local authorities have suggested. It's because Kurtz and the then Flint mayor, Dayne Walling, sources say, believed that this facility was an underutilized asset that ought to be put to good use to save money.

This was a penny wise and pound foolish decision given that Flint had neither the in-house scientific expertise to assess what would be required to adequately treat the water nor the economic expertise to judge whether this made any financial sense. They expected to get all their scientific guidance from the DEQ, but the agency was clearly in over its head (and is, not unfairly, taking the fall).

Snyder has called Flint his Hurricane Katrina. In reality, it is far worse because at least Katrina represented a botched response to a natural disaster. The Flint disaster, however, is wholly man-made.