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

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.

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

Shikha Dalmia|Jan. 25, 2016 4:33 pm

http://reason.com/blog/2016/01/25/the-flint-water-crisis-is-the-result-of

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 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 refused 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.

Flint (MI)

Dayne Walling was the mayor of Flint (MI), an Oxford University Rhodes scholar, and Dale E. Kildee was his field coordinator.

Note: William J. Clinton was an Oxford University Rhodes scholar, the spokesman for the Bush-Clinton Katrina Fund, Strobe Talbott’s roommate at Oxford, Lael Brainard was his deputy national economic adviser, and is the founder of the Bill, Hillary & Chelsea Clinton Foundation.

Bush-Clinton Katrina Fund raises funds to help victims of Hurricane Katrina.

Thomas F. McLarty III was a director at the Bush-Clinton Katrina Fund, and a funder for the Bill, Hillary & Chelsea Clinton Foundation.

Open Society Foundations was a funder for the Bill, Hillary & Chelsea Clinton Foundation.

George Soros is the founder & chairman for the Open Society Foundations, and was the chairman for the Foundation to Promote Open Society.          

Foundation to Promote Open Society was a funder for the Brookings Institution (think tank), and the Pew Charitable Trusts.

Susan E. Rice was a senior fellow at the Brookings Institution (think tank), an Oxford University Rhodes scholar, and is the White House national security adviser for the Barack Obama administration.

Strobe Talbott is the president of the Brookings Institution (think tank), was an Oxford University Rhodes scholar, and William J. Clinton’s roommate at Oxford.

David H. Romer was a senior fellow at the Brookings Institution (think tank), and is a professor at the University of California, Berkeley.

Jennifer M. Granholm is a practitioner of law & public policy at the University of California, Berkeley, a policy adviser for the Pew Charitable Trusts, and was the Michigan state government governor.

Rick Snyder is the Michigan state government governor, and was the chairman for Gateway, Inc.

Haas School of Business is a business school at the University of California, Berkeley.

Richard C. Blum is a board member at the Haas School of Business, married to Senator Dianne Feinstein, and an honorary trustee at the Brookings Institution (think tank).

Lael Brainard was a VP & director for the Brookings Institution (think tank), and William J. Clinton’s deputy national economic adviser.

Vernon E. Jordan Jr. is an honorary trustee at the Brookings Institution (think tank), a senior counsel for Akin, Gump, Strauss, Hauer & Feld, LLP, Valerie B. Jarrett’s great uncle, a director at the American Friends of Bilderberg (think tank), and a 2008 Bilderberg conference participant (think tank).

James C. Langdon Jr. is a partner at Akin, Gump, Strauss, Hauer & Feld, LLP, and was a director for the Bush-Clinton Katrina Fund.

Bush-Clinton Katrina Fund raises funds to help victims of Hurricane Katrina.

Dale E. Kildee was a senior consultant for Akin, Gump, Strauss, Hauer & Feld, LLP, and Dayne Walling’s field coordinator.

Dayne Walling’s field coordinator was Dale E. Kildee, an Oxford University Rhodes scholar, and the mayor of Flint (MI).

Valerie B. Jarrett is Vernon E. Jordan Jr’s great niece, the senior adviser for the Barack Obama administration, and a member of the Commercial Club of Chicago.

Commercial Club of Chicago, Members Directory A-Z (Past Research)

Tuesday, December 17, 2013       

http://thesteadydrip.blogspot.com/2013/12/commercial-club-of-chicago-members.html

Cyrus F. Freidheim Jr. is a member of the Commercial Club of Chicago, and an honorary trustee at the Brookings Institution (think tank).

Newton N. Minow is a member of the Commercial Club of Chicago, and a senior counsel at Sidley Austin LLP.

R. Eden Martin is the president of the Commercial Club of Chicago, and counsel at Sidley Austin LLP.

Michelle Obama was a lawyer at Sidley Austin LLP.

Barack Obama was an intern at Sidley Austin LLP.

Virginia A. Seitz was a partner at Sidley Austin LLP, and an Oxford University Rhodes scholar.

Dayne Walling was an Oxford University Rhodes scholar, his field coordinator was Dale E. Kildee, and was the mayor of Flint (MI).

William J. Clinton was an Oxford University Rhodes scholar, the spokesman for the Bush-Clinton Katrina Fund, Strobe Talbott’s roommate at Oxford, Lael Brainard was his deputy national economic adviser, and is the founder of the Bill, Hillary & Chelsea Clinton Foundation.

Bush-Clinton Katrina Fund raises funds to help victims of Hurricane Katrina.

Thomas F. McLarty III was a director at the Bush-Clinton Katrina Fund, and a funder for the Bill, Hillary & Chelsea Clinton Foundation.

Theodore W. Waitt was a funder for the Bill, Hillary & Chelsea Clinton Foundation, and a co-founder for Gateway, Inc.

Rick Snyder was the chairman for Gateway, Inc., and is the Michigan state government governor.

Dianne Feinstein is married to Richard C. Blum, a U.S. Senate senator, and a member of the Alfalfa Club.

George H.W. Bush is a member of the Alfalfa Club, and was a spokesman for the Bush-Clinton Katrina Fund.

Bush-Clinton Katrina Fund raises funds to help victims of Hurricane Katrina.

Michael R. Bloomberg is a member of the Alfalfa Club, and the founder of Everytown for Gun Safety.

Everytown for Gun Safety is a “Gun Safety, Gun Control” group for guns.

David L. Boren is an advisory board member for Everytown for Gun Safety, and an Oxford University Rhodes scholar.

Dayne Walling was an Oxford University Rhodes scholar, Dale E. Kildee was his field coordinator, and the mayor of Flint (MI).