Friday, April 16, 2010

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. 

1 comment:

ben said...

Then Detroit would have nothing. The water department is the only asset the city has that generates any revenue.