Flint Redux

12/30/2016 09:00 am ET Updated Dec 31, 2017

The people of Flint and the thousands of other cities who have water contaminated by lead are between a rock and a hard place. For some, there is the short-term solution of adding chemicals to the water that will retard the lead corrosion. But the long-term solution is to replace the lead pipes with safe ones. It is going to cost millions, if not billions, for sewer utilities to replace the lead pipes in the right-of-ways in each community. But, even if they do, what about the lead in the pipes that go from the street to the meter? What about the lead in the pipes in the bathroom and the kitchen? Who's going to replace those lead pipes?

The pipes under the street are the property of the local water authority. They are public property. But the pipes that go from the street to the house, and the pipes in the house, are private property. The water authority can't just barge into a private home and start banging away on the pipes. So what are homeowners going to do? How are they going to protect their families from lead poisoning.

There are four options.

The first option is for the homeowner to hire a competent plumber to come in and replace all the pipes. This is not as easy as it may sound. Plumbers are licensed. So, there is a presumption of competence. But is every plumber in the Yellow Pages competent enough to rip up your lawn and tear lead pipes out of your walls? Maybe not.

But assuming you find an eminently qualified plumber, tearing out all the pipes from the curb to the second-storey bathtub is a big job. It will cost thousands of dollars. Probably $10,000 or more. So, under Option #1, what does the homeowner do? He takes out his checkbook and writes the plumber a check for $10,000. Ouch! Suffice it to say that there are millions of homeowners in America for whom casually writing a check for $10,000 is not an option. They don't have that kind of money lying around in their checking accounts. They can't afford it.

So, what about Option #2. If the homeowner can't write a check for the $10,000 plumbing job, maybe he can go to his bank and take out a $10,000 second mortgage. The bank might give him a ten-year term and an interest rate in the 6-8% range.

What is Option #2 going to cost the homeowner? Well, a 10-year second mortgage loan of $10,000 at, say, 7% would cost the homeowner about $116 a month. This is almost $1,400 a year. Certainly better than trying to scrape up a one-time $10,000 payment; but there are still thousands of Americans for whom an additional $1,400 annual payment would be a great burden. The Median Household Income (MHI) in the United States is a little over $50,000 a year. This means that the additional $1,400 payment would be about 2.8% of the average family's yearly income. That's for the average family. What about the half of the population whose household income is below the median? Ouch, indeed! And, don't forget that this payment is on top of the homeowner's water bill and their sewer bill, and that the pipe replacement in the streets is now tucked into the water bill as well.

There is one more unfortunate aspect of Option #2. Let us say that the homeowner moves in two years and sells his home. There would still be over $8,000 left on the second mortgage. The homeowner would have to pay this off at that time. Again, ouch!

What about Option #3? This is not really an option at all. Option #3 means that the homeowner just forgets about the problem. He just doesn't replace the pipes under his lawn or in his home. There are two major problems with this option. First, the homeowner is imperiling his family by exposing them to the lead-contaminated water. This is an obviously serious problem. But the second problem is that the homeowner cannot sell his home. He is stuck with it. He would be forced to disclose that there were lead pipes on the premises. Prospective buyers would refuse to buy a house in such condition. And even if they did buy, they would deduct the $10,000 plumber payment from the purchase price. So, the homeowner would lose again.
Option #4 offers homeowners a real ray of hope. But only if the local water authority is really on the ball.

Under Option #4, homeowners would give the local water authority easements to enter their property and replace the lead pipes. In this case, the authority would hire the competent plumber. (And the water authority would certainly recognize a competent plumber, since that is their business.) The authority would pay the plumber his $10,000.

How would the water authority get their money back? They would borrow the money from their State's Drinking Water State Revolving Fund (DWSRF), one of the most successful environmental finance program in the world. The DWSRF loan would be for a 30-year term at, maybe, a 1% rate. The monthly payment on this loan would be about $32 per month, or $387 per year. Certainly better than $116 a month or $1,400 per year. The water authority would recoup the $32 per month by putting a lien on the homeowner's property. There is a hidden benefit with this Option: when the homeowner goes to sell his home in two years, he doesn't pay the lien off. The next owner picks up the burden - but then the new owner gets the benefit of the good, new pipes.

Is Option #4 really possible? Well, to date the DWSRF has been willing to finance the replacement of lead pipes under the lawn, called service lines. But not the plumbing. So, you'd be halfway there at least. But there is nothing in writing that prohibits the DWSRF from financing the replacement of the lead plumbing. No statutes, nor regulations. So, it's definitely worth an ask. After all, Options 1, 2, and 3 are pretty unattractive.