$4.6 Billion in DWSD Water, Sewer Revenue Bonds Downgraded

On December 20, 2010, Moody's Investor Service lowered its rating on $4.6 billion of water and sewer bonds issued by the Detroit Water and Sewerage Department.

Moody's lowered to A1 from Aa3 the credit rating on $1.43 billion of outstanding sewer bonds secured by a senior lien pledge of net revenue, and lowered to A2 from A1 on $1 billion of revenue debt secured by a second lien. At the same time, Moody’s lowered to A1 from Aa3 the rating on $1.54 billion of senior lien water bonds and to A2 from A1 on $660 million of second lien water bonds.

All of Detroit's water and sewer revenue bonds are now graded in the "Upper Medium Grade" category, down from "High Grade." Moody's also revised its outlook for Detroit's water and sewer bonds to negative.

Moody's cited the risk from interest-rate swaps and "lean financial flexibility" that could crimp Detroit's ability to service this debt. Moody’s said debt service coverage on the bonds has diminished amid the economic slump that has hit the Detroit area and because of large payments it may face to cancel interest- rate swaps.

Federal Indictments Heighten Calls for Regional Water Authority

Not unexpectedly, the federal corruption charges brought last week against former Mayor Kwame Kilpatrick, Contractor Bobby Ferguson, and former DWSD Director Victor Mercado, have led to renewed calls for the creation of a regional water authority. Many of the allegations in the 38-count indictment involve bid rigging, kick-backs and general corruption in the DWSD contracting process over the past 8 years.

Oakland County's Brooks Patterson (County Executive) and John McCulloch (Water Resources Commissioner) have been outspoken in their calls for a new regional water authority.  

"The entire system has been extremely dysfunctional, and we need to start with a blank sheet of paper as to how the system is governed and how the system is managed on a day-to-day basis," McCulloch said.

Macomb County officials, including Public Works Commissioner Anthony Marrocco also supports a regional authority citing last week's indictments as the final straw. Wayne County Executive Robert Ficano opposes a regional authority. Mayor Bing has not weighed in yet on this issue.

Of the plans being considered, including legislation to be proposed by Kurt Heise, recently elected to the Michigan House of Representatives, most involve the City retaining ownership of the water and sewerage system with management of the system shifting to a regional authority. Advocates of this approach cite the transition of Cobo Hall and the Detroit Zoo to independent authorities with ownership retained by the City of Detroit. As we reported (here) in April, under such an arrangement, the City of Detroit would likely receive a significant annual revenue stream at a time when it desperately needs money. As such, Mayor Bing is unlikely to dismiss out-of-hand  the idea of  creating of a regional water authority. 

Mayor Bing will also have to contend with an issue that is certain to arise -- privatizing daily operation of DWSD's water and sewerage plants. Contracting with a private company for such services will stir up fierce opposition by the unions representing most of DWSD's  employees, operators and professional engineering staff. This debate will play out over the next 12 months. 

Update: Local journalist and political commentator, Jack Lessenberry, has also weighed in on this issue. His December 21, 2010 essay entitled "Time for Sanity," which endorses a regional approach, is published here. 

Judge John Feikens Steps Down, Oversaw DWSD for 33 Years

More than 33 years after he became known as the "Sludge Judge," Judge John Feikens has passed the title. Nearing his 93rd birthday, and reportedly in ill health, Judge John Feikens has turned over control of the case and consent decree involving the Detroit Water and Sewerage Department. 

The 1977 case, originally filed by the EPA, has been randomly assigned to Judge Sean Cox, a man nearly 40 years his junior. A simple Notice of Reassignment was entered by the Court on November 24, 2010, and a 33 year assignment ended quietly. Judge Feikens has served as a U.S. District Court Judge for more than 40 years.   

Commentary:  Judge Feikens' departure adds to a growing leadership void at a utility that provides water and sewerage services to over 4 million residents in Southeast Michigan. While not involved in the daily operations of the Department, Judge Feikens' has played a key stabilizing role over the past 33 years. Director Pamela Turner retired in July. Her position has yet to be filled. Assistant Directors George Ellenwood and Woodrow McCarty have also retired recently. Neither have been replaced. In fact, there are currently three (3) Assistant Director positions vacant on the DWSD Executive Team.  Mayor Bing's COO, Robert Buckler, who was tasked with oversight of DWSD, abruptly retired in early October, 2010. 

At a time when there are renewed calls for a regional water and sewer authority, the Department continues to struggle with compliance issues, and the dark clouds of a 5 year federal investigation continue to loom over the Department, DWSD desperately needs strong leadership. Deputy Director Darryl Latimer, is a very capable administrator, but he cannot be expected to deal with the multitude of issues facing DWSD by himself. Leadership starts with the Mayor. And Mayor Bing must recognize that he has a very serious problem that isn't going to be solved by appointing a new Director or allowing DWSD to limp along. Major change is required.

Oh, and one more thing, within 2 months, DWSD is expected to propose another round of rate increases. Get ready for more public outrage over rates.

Smalley Named Assistant Director for Wastewater Operations

Samuel Smalley, P.E., was recently appointed Assistant Director of Wastewater Operations for the City of Detroit Water and Sewerage Department (DWSD).
 

Mr. Smalley is a registered professional engineer in California and Michigan, and has over 20 years of experience in engineering design, construction management, and utility management in the water and wastewater industry. He obtained a B.S. in Civil Engineering from San Diego State University, and holds both an F-1 Water Treatment Plant Operator license and an S-1 Water Distribution System Operator license. 

Mr. Smalley joined DWSD in June, 2007 and served two years as Assistant Director of Asset Management before his recent promotion to Wastewater Operations.

House Candidate Kurt Heise Proposes Regional Water Authority for Southeast Michigan

The former Director of the Wayne County Department of Environment, and Republican candidate for the open 20th District House seat in Plymouth, Kurt Heise, has outlined a 6-point plan for replacing the Detroit Water and Sewerage Department (DWSD) with a new regional water authority (Southeast Michigan Water Quality Authority). Heise envisions a regional authority operated by a private company.

My plan would keep ownership of the system with the people of Detroit, but would transfer decision making to a regional board elected by community customers of which Detroit would be a member," Heise said. "State law would also be amended to allow the new Authority to refinance existing and future improvements, saving hundreds of millions of dollars that could stabilize water bills and provide new investment for infrastructure repair both in Detroit and the suburbs.

Mr. Heise is not the first to to promoting the idea of a regional authority -- legislation was introduced in 1999 (S.B. 781) and again in 2003 (H.B. 4206) -- nor is he alone. Earlier this year, in April, 2010, the Citizens Research Council of Michigan issued a report (here) which detailed the financial benefits to the City of Detroit of selling DWSD to a regional authority.  Op-Ed pieces in the Detroit Free Press (here) have also pointed in the same direction. The Mackinac Center for Public Policy also advanced the idea almost 10 years ago in several articles (here and here).

 

Update: The chorus of voices calling for a regional approach to water and sewer matters has grown louder following the federal indictments announced on December 15, 2010. Many of the allegations focus on corruption within DWSD.

Former DWSD Director Testifies Before Grand Jury, Denies Being a Target of Federal Investigation

Former DWSD Director, Victor Mercado, was back in Detroit earlier this week reportedly to testify before a federal grand jury that is investigating corruption during the Kilpatrick Administration. Mr. Mercado denies being a target of the federal investigation. 

Mr. Mercado was Director of the Detroit Water and Sewerage Department between June, 2002 and July, 2008.  He currently serves as General Manager for the Bexar Metropolitan Water District in San Antonio, Texas.

Update: Despite his denials, it turns out that Victor Mercado was in fact a target of federal investigators. On December 15, 2010, Mr. Mercado, age 58,  was indicted along with disgraced, former-Mayor Kwame Kilpatrick, his father, Bernard Kilpatrick, and Contractor Bobby Ferguson, on four charges, including racketeering conspiracy, and obstruction of justice. U. S. Attorney Barbara McQuade acknowledged that there was no evidence that Mr. Mercado received any money other than his salary. Mr. Mercado was fired by the BexarMet Water District Board on December 16, 2010. He is appealing the Board's decision.

DWSD Proposes to Overhaul Operations at WWTP to Address Permit Violations

In response to Violation Notices issued by the State of Michigan DNRE on November 12, 2009 and again on April 14, 2010,  the Detroit Water and Sewerage Department has submitted a 28 page Corrective Action Plan (CAP). 

The CAP outlines DWSD's plan to bring its waste water treatment plant (WWTP) back into compliance with the City's NPDES discharge permit. The permit violations, discharging high concentrations of sludge (TSS),  are primarily the result of the City's inability to dewater and dispose of sufficient quantities of biosolids (sludge). 

Earlier reports have identified multiple causes of this problem, including equipment failures, inadequate preventive maintenance, lack of spare parts, and limitations on off-site disposal. The Synagro contract, canceled  in January, 2009 under the cloud of scandal, was designed to alleviate some of these problems.

DWSD Contractor Bobby Ferguson Facing Federal Charges

Bobby Ferguson (Ferguson Enterprises, Inc.), a major contractor on DWSD projects over the past decade, and three associates were named yesterday in an 8 count federal indictment that includes conspiracy to defraud the United States, mail fraud and money laundering. The indictment centers around a project with the Detroit Building Authority, Garden View Estates, and does not focus on any particular DWSD project. 

The Detroit News reports that since 2002, Ferguson Enterprises, Inc. was awarded about $170 million in contracts by the City of Detroit, and that about $109 million of that amount (64%) represented contracts awarded by DWSD.

The federal indictment unsealed yesterday does not come as a surprise.  To anyone.

In January, 2009, the FBI served a search warrant on Ferguson Enterprises, Inc., and Xcel Construction, a company reported to be connected with Ferguson.  Two months later, we reported (here) that the Detroit City Council had rejected a $2.2 million contract award to Ferguson on small DWSD project.

Miriam Dixon Promoted to General Manager of Contracts and Grants of DWSD

Miriam Dixon has been promoted to General Manager of Contracts and Grants for the Detroit Water and Sewerage Department. Although there has been no official announcement of her promotion (none that has made it to the web), Ms. Dixon was added earlier today to the Executive Team section of DWSD's website (here). Ms. Dixon replaces Darryl Latimer, who was promoted to Deputy Director in February, 2010.

Ms. Dixon previously served as Manager of Consultant Contracts, where she was responsible for managing the Consultant Contracts, Design/Build and Local Economic Development Units, along with the Print Shop.  Ms. Dixon has been with the Detroit Water and Sewerage Department in 1989.  She holds a B.S. degree in Public Administration from Oakland University.

DWSD Pricey Land Acquisition is Old News

Recent reports (here and here) that DWSD paid more than $5 million an acre to acquire a 3.27 acre parcel of property along the Detroit River are old news.

With all due respect to suburban officials quoted by the Detroit Free Press, this land deal occurred 2 years ago. There's no doubt that DWSD paid too much for this property,  but both Oakland and Macomb County are represented on the Board of Water Commissioners.

On June 18, 2008, the Detroit Board of Water Commissioners approved the acquisition of the 3.27 acre parcel of land, known as the Atwater West Parcel, for $17,715,708.46, or more than $5.4 million per acre.

At the same meeting, the Board of Water Commissioners also approved the acquisition of a 28.665 acre parcel of property, known as “Revere Copper & Brass,” at 5601, 5815, and 5851 W. Jefferson Ave. for $5,000,000, or about $175,000 per acre.   

The resolutions to acquire these parcels of property, both slated for future CSO control facilities, were originally tabled, but then brought back on for reconsideration. And then they were both approved. All in the same meeting.

Commissioners at the June 18, 2008 Water Board Meeting raised concerns about the high cost of the Atwater property, more than $5.4 million per acre, but the purchase was eventually approved. This Board Meeting was also Director Victor Mercado’s last meeting before he resigned his position with the Department.  

Update: On August 17, 2010, the Detroit Free Press published a story (here) about the 28 acre Revere Copper property acquisition.

DWSD Design and Construction Contracts, List of Q3 (2010) Projects

DWSD has updated its list of Proposed Construction and Consultant Contracts for Q3 2010 here. Three of the projects listed are carry-overs from 2009; DWSD has included 10 construction projects, 7 of which are in the $5 million range.

The construction projects planned include:

• Consolidated Process Control System Upgrades for Treated Water System (PC-773A) (D/B)
• Consolidated Process Control System Upgrades for Treated Water System (PC-773B) (D/B)
• Springwells Water Treatment Plant 1958 Filter Rehabilitation and Auxiliary Facilities Improvement Project (SP-563) 
• Springwells Water Treatment Plant Discharge Header Pipe System Replacement (SP-567) (Repeat)
• Southwest Water Treatment Plant Rehabilitation of the Venturi Meters and Vaults (SW-551)
• Water System Improvements; Various Streets Throughout the City of Detroit (WS-648A) (Repeat)
• Parallel 42-Inch Water Main in 24 Mile Road, from Foss Road to Fairchild Road (WS-674) (Repeat)
• Water System Improvements; Various Streets Throughout the City (WS-680)
• Water Works Park Yard Piping Replacement (WW-536) 
• Specialized Process and Facilities Equipment Purchase Installation at Water Works Park (WW-537)

DWSD Begins Search for New Director

The Detroit Water and Sewerage Department is actively searching for a replacement for Director Pamela Turner, who announced her retirement a few weeks ago. 

A June 24, 2010 posting on the Water Environment Federation's job bank (here) outlines the qualifications sought by the City for Ms. Turner's successor. In the interim, Deputy Director Darryl Latimer is expected to serve as Interim Director.

Update: On March 29, 2011, the Detroit City Council approved Mayor Bing's request to increase the salary range for a new Director to a maximum of $250,000 from the previous $156,000.  

Lapeer Votes to Join New Karegnondi Water Authority

Last week, the Lapeer City Commission voted to join the newly-formed Karegnondi Water Authority, which will own and operate a proposed $600 million water pipeline. Other members of the Authority are Genesee, Lapeer and Sanilac counties, as well as the cities of Flint and Lapeer. 

Comment: Lapeer's decision appears to be a reaction DWSD's annual cost increases, but the City of Lapeer has only three taps and about 5,000 users. There are reportedly only about 7,500 users among the seven members of the Greater Lapeer County Utilities Authority. (These 7,500 users are among the 4.3 million users in Southeast Michigan who rely on DWSD water and sewerage services.)  The $17,393 increased monthly assessment by DWSD works out to be $2.32 per month or about $28.00 per year per user. Not insignificant, but is it enough to justify a new $600 million pipeline and water treatment plant? The "savings" touted by Genesee County for the new pipeline  won't be realized for some 25 years.

Want more information about the Karegnondi Water Authority?

• Karegnondi Water Authority (Homepage)
• DWSD Update (Prior Posts)
  
• Peter Cavanaugh

Water and Sewer Rates to Rise Again

On June 15, 2010, the Detroit City Council narrowly approved water and sewer rate increases for the suburbs and Detroit by a 5-4 vote. For suburban customers of the Detroit Water and Sewerage Department, the average increase ranges from 8.8 percent to 9.7 percent.  For Detroit residents, the average increase will be 8 percent, or about $3.97 more per month. The rate increases are effective July 1, 2010. 

DWSD Director's Retirement Confirmed

More than a month after reports first surfaced that DWSD Director Pamela Turner was going to retire, Crain's Detroit Business reports today that it has confirmed Ms. Turner's retirement from the federal judge who oversees the Detroit and Sewerage Department, Judge John Feikens. 

Ms. Turner began her career with DWSD in 1977. She was promoted Interim Director in September, 2008 By Mayor Cockrel and later to Director a year later by Mayor Bing. 

Ms. Turner's retirement comes at time when DWSD revenues are falling due to lower water consumption and Detroit's shrinking population.  In addition, DWSD is expecting to lose many of its engineering and middle management staff over the next couple of years.  The next director will face many challenges, plus an ever aging physical infrastructure.  

 

Genesee County Hired Sam Riddle to Assist in DWSD Pipeline Negotiations

The Flint Journal reported on May 14, 2010 (here) that Sam Riddle served as a political consultant to the Genesee County Drain Commission for nearly two years, from March, 2007 to November, 2008. Riddle, who faces prison under federal corruption charges, was reportedly paid $2,000 per month, plus expenses. According to John O'Brien, Director of Water and Waste Systems, Riddle's consulting company, Meridian Management Systems, was hired to assist Genesee County in its negotiations with the City of Detroit in connection with  a new 30-year water supply contract. No contract was ever signed. 

Genesee County has since formed a new water authority (the Karegnondi Water Authority) and announced plans to move forward with the installation of a new $600 million water pipeline and water treatment plant. 

Update: On May 20, 2010, the Flint Journal reported (here) that Genesee County's contract with Sam Riddle included services related to its new pipeline.  

Update: On June 4, 2010, the Flint Journal reported (here) that Genesee County paid the now-imprisoned Sam Riddle $44,000 in consulting fees.  However, in response to a FOIA request for documentation concerning the scope and nature of Riddle's consulting services, the Genesee County Drain Commissioner (Jeff Wright) reported having no documentation. Adding now to the mystery of Riddle's role, if any, in Genesee County's (unsuccessful) negotiations with DWSD are reports (here)  that the Jeff Wright was cooperating at the same time with the FBI in its efforts to build a public corruption case against Sam Riddle.  Hmmm. . . Was Genesee County's consulting agreement with Riddle legitimate or part of a sting operation?   

Update: On October 6, 2010, Sam Riddle was sentenced to 37 months in federal prison for his role in the Synagro bribery scandal. 

Detroit Water and Sewerage Department, Is Sale to Regional Authority a Solution for Detroit's Financial Crisis?

The Citizens Research Council of Michigan recently released a report on the dire fiscal condition of the City of Detroit.  Among possible solutions to  Detroit's $300-400 million budget deficit, the CRC report explores the idea of selling the Detroit Water and Sewerage Department to a regional water authority, which in turn would provide the City with desperately needed revenues. 

The city has only one asset that could be “monetized”at a rate sufficient to make a major contribution to resolving the accumulated deficit: the  Water and Sewerage Department, which wholesales services to suburban communities. Because this is a self supporting function, transferring the function would not contribute to resolving the city’s general fund structural operating problem.  However, the sale of all or part of the assets of the department to a regional authority could provide much needed revenues. State enabling legislation could authorize the creation of a regional water and sewerage authority with bonding capacity. The city could agree to sell its interest in [DWSD] to the authority for an amount sufficient to resolve the accumulated and current deficits, and representative of the investment the city has made in the system. Provisions in the sale agreement could require that rates in Detroit could be no more than 80 percent of the lowest rate charged in any suburb, or the system would revert to Detroit ownership. The authority could sell revenue bonds that would be the source of the payment to the city, and could include the annual debt service on the bonds in the annual charges to customers. Currently outstanding debt would also have to be addressed, and perhaps defeased.

The effect of this would be higher water and sewer-age rates for all residents and businesses in the service area, to pay debt service on bonds sold to purchase the system from the city.  ["The Fiscal Condition of the City of Detroit," CRC Report 361, April, 2010, p. 60]

Click here for a copy of the CRC's Report. 

Detroit Urged to Sell Water and Sewerage Department

Today's (April 12, 2010) Detroit Free Press includes an Op-Ed piece by a local business consultant, Marcus Hudson, urging the City of Detroit to consider selling the Detroit Water and Sewerage Department. Entitled "Dump the Myths Sell Detroit's Water Department," Mr. Hudson's article seeks to debunk two of the most frequently cited reasons for maintaining DWSD as a public agency: profits and jobs. The principal reason to consider the sale of DWSD: money. Or the lack thereof. 

Given its current state of disrepair, Detroit needs to start raising revenue and acknowledge that cost-cutting can only get the city so far. Selling DWSD could be an important part of the solution and the impetus for longer-term growth. 

Mr. Hudson's Op-Ed piece may be a trial balloon by the Bing Administration as it wrestles with huge City budget deficits and is looking for ways to raise cash.  In 2009, the City of Detroit sold the Oakland-Macomb Interceptor to Oakland and Macomb Counties. This transfer was more about shedding responsibility and debt then raising cash. And despite requiring immediate and significant repairs (discussed here, and here), these two counties were glad to assume this responsibility.

Update: Mr. Hudson is quoted again in this May 12, 2010 Fox2 Detroit article promoting the notion of selling DWSD.   

 "I would suggest that they sell it or at least look at the option of selling it. If the deal doesn't make sense, don't sell it. However, not to understand the value of the water department is derelict."

MLive.com also reported May 12, 2010 on this issue (here). 

Posen Low Bidder on Fischer Pump Station, PC-772

Yesterday, March 23, 2010, Posen Construction was read low bidder on the Fischer Pumping Station project, DWSD Contract PC-772.

Posen Construction ------------ $5,130,844
DeMaria Building Company --- $5,828,658
Detroit Contracting, Inc. ------- $5,840,250

Detroit Water Board, Agenda and Meeting Minutes Online

The Final Agenda and Approved Minutes from the monthly meeting of the Board of Water Commissioners are now being posted on DWSD's website (here). 

The Water Board approves contracts that range from several thousand dollars worth of manhole covers to  $300 million dollar tunnel contracts. 


Upate (3/8/12): Fixed dead link to Water Board's calendar. 

Oakland-Macomb Interceptor Receives Second Round of ARRA Funding

The Michigan DEQ has awarded $15.9 million of additional funding for the Oakland-Macomb Interceptor repair project. This is the second round of funding for the OMI drain repair project, and comes courtesy of the ARRA federal stimulus program. 

While local reports indicate the OMI is a $42 million project, it is in fact part of a $160 million project to repair and restore a 21 mile sewer line that serves most of Macomb County. The first two phases of the project, totaling almost $29 million, were bid in late November, 2009. Ric-Man Construction was the low bidder both times.

When a portion of the OMI collapsed in Fraser several years ago, emergency repairs cost more than $50 million. The OMI was owned at that time by the Detroit Water and Sewerage Department, which has since sold this aging sewer line to Oakland and Macomb Counties. 

Plans for New Water System Gain Momentum in Genesee County

Plans for a new water authority and a proposed $600 million pipeline project in Genesee County appear to be gaining momentum, despite some who have declared the project "reckless folly." 

The new Chairman of the Genesee County Board of Commissioners, Jamie Curtis, has come out squarely in favor of the plan advanced last year by Genesee County Drain Commissioner, Jeff Wright. 

"I'm not going to settle for anything less than for us to complete that waterline," Curtis said of the long-talked-about project. “It is priority-one."

 Click here for the rest of the story from the Flint News.

DWSD Water and Sewer Rates to Increase (Again)

DWSD's rate consultant, Bart Foster, reports that declining water consumption is the key variable driving this year's proposed 9.5% in Metro-Detroit water and sewer rates.  Declining revenue was also a key factor in DWSD's decision last year to delay construction of new water mains into Genesee County. The other critical factor was Genesee County's announced plans to build their own water system.   

Oakland-Macomb Interceptor Drain District: 2010 Meeting Schedule Set

The Board for the Oakland-Macomb Interceptor Drain District (OMID), the legal entity that owns and operates the Oakland-Macomb Interceptor (OMI) as of October 22, 2009, has published its schedule of meetings for 2010 (here).  Half of the meetings will be held in Oakland County, and half in Macomb County.

The OMID recently bid out the first two contracts for what is planned to be a $160 million repair and rehabilitation project spread out over 6-8 contracts. 

Click here for more information about the Oakland-Macomb Interceptor Drain project.