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Dept. of Justice installs Powerful Third-Party Manager over Jackson’s Water System

The proposed city manager position for Jackson’s water crisis comes with impressive pay, but also impressive power and problems.

The U.S. Dept. of Justice recently filed an interim proposal for overseeing the City of Jackson’s problematic water system. If approved by a federal court, that proposal appoints an Interim Third-Party Manager (ITPM) with more power than the city’s mayor and council, in some respects.

The DOJ proposes U.S. Water Alliance Senior Fellow Edward “Ted” Henifin as ITPM. Henifin is a civil engineer who, as general manager of Hampton Roads Sanitation District (HRSD), helped implement a large-scale aquifer recharge program designed to reduce strain on natural water supply systems in Virginia’s Chesapeake Bay.

An oversimplified way of describing what Henifin did at HRSD is “clean and dump wastewater back into the underground system supplying area wells,” but his work with the City of Jackson will be nothing like that. In Jackson, Henifin will be up against bureaucratic and software malfunction that will require more than a sublime, new way of dumping effluent—but at least he’ll be making $400k a year in salary, living and travel expenses while doing it.

Henifin’s Heft

The Department of Justice order gives Henifin unprecedented capacity to drum up revenue in the majority Black city of Jackson by acting outside the office of the city’s mayor and council to set and approve residents’ water rates. While the mayor can suggest “an amendment” to Henifin’s proposed rate, Henifin has “full power and authority to adjust the rates, rate structure, and/or fees without the necessity of any actions on the part of the City Council,” if the council fails to accept the mayor’s proposed amendment after a certain deadline.

To clear the city’s water department of its red ink and make repairs, Henifin also has the power to set up and oversee an Operations and Maintenance Account to hold city operational funds for repairs and maintenance. He gets to develop and submit a budget and a funding schedule to the city, and if the council or mayor does not approve Henifin’s budget before September 15th of any year, the ITPM must submit the budget for the court to approve, allegedly without city intervention.

The order also gives Henifin the power to fire and hire contractors, and to pick and choose contract bids and make purchases “as the ITPM deems necessary.” The order demands Henifin “use best efforts to have the procurement process be competitive, transparent, and efficient,” but stipulates “in exercising procurement authority and awarding New Contracts, the ITPM need not comply with Miss. Code Ann. §31-7-13,” the laws laying out the state’s process for awarding fair contract bids.

While Henifin’s power is greater, in some ways, than that of the mayor and council, the DOJ appears to have learned from the mistakes of the city of Detroit in selling off city assets. While cleaning up its own failing water department, Detroit Emergency Manager Kevyn Orr labored to privatize Detroit’s assets during the city’s bankruptcy settlement, namely its lucrative water department. Like Jackson, much of Detroit’s revenue comes from water sales, but Orr established the Great Lakes Water Authority (GLWA), to regionalize Detroit Water and Sewage Department (DWSD) operations, and he fired the bulk of the water department’s workforce before rolling operations into GLWA.

Derrick Johnson, President of the NAACP and a Jackson resident, warned city residents not to “buy into the snake oil” of regionalization.

“Regionalization means diluting your voting power and your ability to control your property taxes and your ability to have a say in the future of Jackson,” Johnson said. “Do you all recall the concept of the Metro Chamber of Commerce? It operated for more than 30 years and all the major industries that came to the Jackson metro area [ended up] operating outside the City of Jackson, including all the development that is happening in Madison and Rankin County. Where are all the suppliers for the [Canton] Nissan [factory] in Jackson? Why isn’t there an Amazon fulfillment center in Jackson? Why is Continental Tire in Clinton and not in Jackson? That is the work of the Metro Chamber of Commerce. That is the reality of regionalization.”

Johnson can find relief in that aspect of the DOJ order, at least. The ITPM third party manager does not have the power to “encumber or sell any real property asset of the City.” He also may not “Propose or agree to consolidate the System with any other public or private utilities,” or “authorize another governmental agency to operate a public water system within the System’s current service areas.”

Henifin’s Hard Road

Despite his enhanced power, the Interim Third-Party Manager will face some daunting challenges. Many city residents are still dealing with $4,000 water bills after a slew of painful city boil water notices.

“It’s not fair for anyone, any resident in the city of Jackson,” Jackson resident Virginia Evans told CNN. “I don’t know what they need to do, but they need to do something because no one should be paying this amount when you’re not even able to use the water.”

Evans is one of many residents with four-digit water bills. The city’s automatic bill mailing system broke down for more than a year, and thousands of residents spent untold months not receiving a bill. New meters installed by contractor Siemens failed to communicate with the billing office, or they incorrectly measured water amounts used by households and businesses. As city workers began to squash system bugs, many customers who had for months received no bill suddenly caught the sum of their unpaid bills in one go.

City of Jackson workers say some residents took advantage of the absence of a water bill by putting that money toward other debts. Other customers assumed the city was no longer charging for water, or that the city would be responsible for back bills resulting from its billing failures. Jackson spokeswoman Melissa Payne said in October city meters are now “reading accurately based on our assessment to date,” but “there are some remaining software-related issues” that are still creating problems for some residents.

These issues, she said, “have been identified and work is underway,” and the city has created an email at WSBA@jacksonms.gov for customers to request to enroll in a payment plan. Eligibility for additional assistance is based upon the kinds of meters customers are using, and other determiners. Customers can also check www.ms-ramp.com/era to see if they qualify for certain   COVID-related assistance, but most customers will be expected to pay a portion of their debt, in addition to their regular bill each month.

One of Henifin’s most pressing issues will be the legion of customers who are unwilling or unable to pay the brunt of their bill, which could threaten to push the city to the edge of bankruptcy. Water fees are one of the city’s chief sources of revenue, but that revenue has not been delivering since 2018. The year 2017 was the last year the city reported income from customer water bills. It generated $6 million in 2017, but then reported an $80,000 loss in 2018. It reported a $17 million loss in 2019, and an additional $12 million loss in 2020. The city’s water sewer billing system began running out of money and relying upon proceeds from a $90 million settlement with Siemens (over its bad water meters) to cover losses. But the city is depleting the proceeds of the Siemens settlement to fill holes from failing to collect on bills, according to Scott Hodges, of Tann, Brown & Russ, the firm that conducted the city’s 2020 Comprehensive Annual Financial Report.

Hodges told council members earlier this year the city spent millions of dollars more in water and sewer repairs and fixes than it brought in, and spent money according to amounts billed, rather than amounts collected.

“You’ve got revenue reported during the year that is not going to be collected,” Hodges said.

During the 2020 fiscal year, for example, officials wrote off about $7 million in projected revenues, as well as an additional $1 million or $2 million in sanitation funds. And it does not help that sanitation costs have risen, while the council and mayor have been loath to raise residents’ sanitation fees any higher.

Critical failures in the city’s bill collection system will make it difficult to iron out exactly how much money some customers owe, and the city will likely be forced to write-off additional customer outstanding charges. If Henifin attempts to cut off customers to drive up revenue, he could trigger a public relations nightmare of Detroit proportions.

In 2013, Detroit attempted to shut off water to more than 16,000 households while the city was under emergency management and bankruptcy proceedings. It nearly doubled its number of shutoffs in 2014, making national news and earning the contempt of the Michigan ACLU and even the United Nations.

Like Detroit, a large percentage of Jackson residents are impoverished. About 24% of the population is at or below the poverty level. Removing them from their water would put a fledgling city crisis manager in a very ugly light, especially when so many residents can blame their derelict payments on city software or hardware issues. Additionally, while some residents are grandchildren who may have moved into grandma’s old house and neglected to pay the bill, others are renters with dodgy landlords who collected for water bills while failing to pay the city.

On the other hand, falling short of any sort of enforcement will likely compound the city’s revenue issues. As the Lighthouse previously reported, water revenue is the exclusive source of the city’s enterprise fund, which, in turn, finances water and sewer repair projects. The city is facing nearly $1 billion in repairs and upgrades necessary to bring its aging sewer system into federal environmental compliance.

Plus, while working to round up enough collection to make the city’s water department self-sustaining, Henifin must also be mindful of $89.9 million in pre-existing water and sewer revenue bonds for past repair work. Many of these loans are set to mature in 2040.

Jackson resident Brad Franklin said he was happy with the amount of independence Henifin gets to work with, considering he must still work with local leaders to some degree. He was doubly pleased the DOJ proposal removes regionalization from the table.

“The mayor will be working closely with this person and this person will be seeking counsel with the mayor when decisions are being made that affect citizens,” Franklin said. “It’s unfortunate that we have gotten to this point, but I think for everyone the most important thing to do is right the ship. Once we right the ship we can move forward from there.”

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