Earlier today [12/31], the Judicial Mediator in Detroit's Chapter 9 bankruptcy case, Judge Gerald Rosen, ordered Detroit's Emergency Manager to disclose to bond holders the details of the City's plan to convert DWSD into a regional authority. Specific details of the City's plan have thus far been kept secret.
In a two-page order, Judge Rosen ordered the City of Detroit to disclose to water and sewer bond holders by the close of business on Thursday, January 2, 2014 detailed information including the following:
The amount that the City expects to receive if the water and/or sewer systems are leased, sold, or transferred, including a summary of how those amounts will be paid.
Payment terms, including interest rate, treatment of existing call provisions, and any proposed make whole provisions. and how the payments will be treated relative to the bond payments.
The
amount of legacy pension, other post-employment benefits (OPEB) and
certificate of participation (COP) liabilities the City intends to
assess to the water and sewer systems under all potential approaches
being addressed by the plan including, without limitation, those being
assumed by the City as part of the lease/transfer payment, those being
assumed by the lessee/transferee, and those being assessed to the
water and sewer systems as operating and maintenance (O & M)
expenses if the City retains the water and sewer systems.
Judge Rosen has also scheduled two mediation sessions in New York with bond holders for January 6 and January 7, 2014.
Thus far, the specific details of the Emergency Manager's plan for regional authority have been confidential, and shared only with the suburban counties that would comprise the new regional authority and their advisers. The general outline of the EM's plan, however, is not a secret and follows the plan first adopted by the Board of Water Commissioners on March 13, 2013.
Under the proposed "Metropolitan Area Water and Sewer Authority," the City
would either lease the assets of the DWSD system to the authority for up to
40 years, sell it to the newly created body, or operate under a
concession agreement. The authority would collect water bill payments
and pay the City a monthly fee. How much of a fee, of course, is one of the major sticking points.
Update (1/2): As of 5:20 p.m. today, no documentation related to the Plan of Adjustment had been filed with the bankruptcy court. Judge Rosen did not specifically order that the City file its information with the Court, but I thought there might be a proof of service indicating compliance with the Court's order.
I've seen kids make some amazing things with Lego, but I've never seen a wastewater treatment plant, nor one built by such an impressive 4 year old!
Update: Click here to see the video at YouTube where you can view it full screen. I realize that the right side of this video is cut off the way I embedded it on this site.
(Hat tip to Kari Stuart for posting this first on the Wastewater Professionals forum on LinkedIn.)
On Friday, November 22, 2013, the Detroit Water and Sewerage Department filed suit against the City of Highland Park over unpaid water and sewer bills totaling $17.7 million. Highland Park's annual general fund budget is about $12 million per year. The Detroit News first reported this story here, and here.
The lawsuit, filed in U.S. District Court, alleges that DWSD was forced by the State of Michigan to begin furnishing wholesale water services in 2012, and water treatment services in January, 2013 as Highland Park's long-running financial crisis deepened and it was unable to maintain its water system in compliance with MDEQ standards.
In addition to seeking payment under breach of contract and breach of implied contract theories, DWSD is alleging conversion and seeking treble damages under MCL 600.2919(a). Under this statute,
(1) A person damaged as a result of either or both of the following may recover 3 times the amount of actual damages sustained, plus costs and reasonable attorney fees:
(a) Another person's stealing or embezzling property or converting property to the other person's own use.
(b) Another person's buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property when the person buying, receiving, possessing, concealing, or aiding in the concealment of stolen, embezzled, or converted property knew that the property was stolen, embezzled, or converted.
Note: If you write me (here),
I would be glad to e-mail you a copy of DWSD's lawsuit against the City of Highland Park, Case No. 2:13-cv-14827. Just put "Highland Park" in the subject field. I'll try to get it posted next week. For more about DWSD Update, click here.
Earlier today, Ric-Man Detroit submitted a low bid of $29,738,418 for the project known as “42-Inch Parallel Water Main in 24 Mile Road, Romeo Plank Road to Rochester Station,” DWSD Contract WS-681.
There were five (5) bidders on this project. The as-read bids are as follows:
The Detroit News reports this morning (here) that the Emergency Manager is pressing ahead with plans for the creation of a regional water authority. Wayne, Oakland and Macomb Counties reportedly have put up $100,000 each for the accounting firm UHY Advisors to evaluate the formation of a new authority.
State Rep. Kurt Heise (R-Plymouth Township), who introduced legislation calling for a regional authority in January (HB 4009), is against the
plan being considered by Orr and the current water and sewerage board. “It
is my opinion as a legislator and as a municipal lawyer that the three
counties do not have the authority to bind the members of the DWSD,”
Heise said. He believes it would take a state law to properly create an
authority. “My model involves the
communities directly in the governance,” he said. “If we’re going to
have a regional system it needs to be truly regional.”
Update: On Thursday, October 10, 2013, Rep. Heise will be a special guest at a town hall meeting in Livonia hosted by Council President Laura Toy. The meeting is to discuss water and sewer rates from DWSD and the potential for a regional water authority. The meeting will take place at the Livonia Civic Center Library, 32777 Five Mile Rd, Livonia, MI from 7:00 to 9:00 p.m.
Detroit Contracting, Inc. (DCI) submitted the low bid on August 8, 2013 on the Re-Bid of the project known as Contract DWS-884A “Central Services Facility (CSF) Improvements Phase IIA.” DWSD received four (4) bids for this project:
Even
after the bids are equalized, DCI will be low bidder since all of the
bidders are Detroit Base Businesses and will receive the same 1%
equalization credit.
This job was originally bid as Contract DWS-884 in September, 2012. Walsh Construction low bidder at $12.9 million, but DWSD decided to revise the scope of work to reduce costs. The work primarily involves replacement of aging HVAC equipment at the Department's Central Services Faclity. For more about DWSD Update, click here.
Weiss Construction Co., LLC submitted the low bid on July 16, 2013 for the project known as Pumping Station 1 Rack & Grit and MPI 1 & Jefferson Sampling Stations Improvements,” DWSD Contract No. PC-789.
There were four bidders on this project. The as-read bids are as follows:
Update (8/28): The Board of Water Commissioners voted today 6-0 to approve the award of Contract PC-789 to Weiss Construction for $20,335,000 and a contract duration of 1,350 calendar days.
Earlier today, the City of Detroit's Emergency Manager, Kevyn Orr, signed and filed a petition for Chapter 9 bankruptcy*, the largest municipal bankruptcy in U.S. history.
For a copy of the bankruptcy petition filed earlier this afternoon in the U.S. Bankruptcy Court in Detroit, click here.
How will this affect the Detroit Water and Sewerage Department?
Comment: I fully expect that DWSD to become an independent water authority, as outlined by the EM on June 14, 2013. That was the direction the Department was headed even before the EM was appointed. What will that look like? How long will that transition take? Stay tuned.
If you'd like to get a copy of Detroit's bankruptcy petition, write me here, and put "Detroit Chapter 9" in the subject line.
* For those readers with a PACER account, the case has been assigned Case No. 13-53846.
Update (7/19): The Hon. Steven W. Rhodes has been assigned to this case by the Chief Judge for the Court of Appeals for the Sixth Circuit. Judge Rhodes is a highly respected jurist, who has served as a bankruptcy judge for 28 years in the Eastern District of Michigan. He was recommended unanimously by the other bankruptcy judges in the Eastern District of Michigan. For more about DWSD Update, click here.
On July 3, 2013, Standard & Poors downgraded its rating of Detroit water and sewer bonds to junk status. The rating agency reduced its rating on $5.42 billion bond debt to BB-minus from A and A-plus. This action was taken due to the potential the debt could be restructured by Detroit's Emergency Manager, Kevyn Orr. Uncertainty about the EM's future actions, including a possible bankruptcy, weighed heavily in S&P's decision.
Earlier today, at a closed-door meeting with about 150 banks, bondholders, unions and pension funds, Detroit's Emergency Manager, Kevyn Orr, outlined his plan to restructure the City of Detroit's massive debt.
The EM proposes creating a new authority called the Metropolitan Area Water and Sewer Authority (MAWSA), which would operate as a standalone public authority. The City would permit the new authority to operate the DWSD assets through a concession agreement or lease agreement.
Note: The report presented to creditors by the EM can be found here. The portions relevant to DWSD are at pages 37-38, 83-86, and 101-102.
As the City of Detroit veers closer to Chapter 9 bankruptcy, and news reports suggest that creditors will be offered pennies on the dollar by the EM, the recent experience in Jefferson County (AL) may be a template for Detroit. Bloomberg News reported earlier this week (here) on a deal between Jefferson County and its creditors, most of whom held sewer system debt, to recover approximately $0.60 on the dollar.
Compared to the $0.10 on the dollar being floated in Detroit, Jefferson County creditors might have made a good deal. Or maybe the figures being floated in Detroit are designed to soften up bond holders for what promises to be a difficult negotiation process.
The Flint Journal is reporting (here) that the City of Flint has decided (again) to stick with its original decision to join the Karegnondi Water Authority, and leave DWSD. This decision comes after DWSD made a "second" best-and-final offer last week, which included a seat on the Board of Water Commissioners.
Comment: Whether this is really the end, or just another step in an on-going negotiation is anyone's guess. My guess? Its not over yet.
Update (5/2): Flint's EM confirmed the City's decision to leave DWSDyesterday at a news conference. The Flint Journal covered the event and reports here on the decision.
Update (6/25): The Fling Journal reports (here) that a groundbreaking ceremony for the new pipeline will take place on Friday, June 28th at 10:00 a.m. at the corner of Fisher Road and M-25.
If it accepted DWSD's latest offer, the City of Flint would not only receive an immediate 45% reduction in the cost of water supply, but Flint could get "purchased capacity rights" of 40 MGD in DWSD's Lake Huron Water Treatment Plant. DWSD is also offering representation on the Board of Water Commissioners ("DWSD is receptive to this concept and will pursue modification of the current governance structure to accommodate it.") DWSD is also proposing redundancy in its water supply to address a frequent criticism of present operations:
"Redundancy Solution - Emergency backup supply is provided to the Imlay pump station, with the associated standby charge. A second transmission water main from the Imlay CIty Pumping Station west to either the current connection at Baxter/Potter roads or to another location to be determined by Flint, as necessary to meet the full redundancy requirements specified is assumed for comparison purposes. To maximize Flint's interest in ownership, it is proposed that this line be constructed by Flint or KWA, and owned by Flint or KWA.
Comment: I applaud DWSD's persistence in seeking a deal with the City of Flint. And while the Governor's Treasurer, Andy Dillon, approved Flint's decision to leave DWSD, I have to believe that when Governor Snyder met with DWSD, Flint and Genesee County officials in Detroit late last week, he urged cooperation. With the Detroit Board of Water Commissioners already moving in the direction of a regional authority, there's probably no good reason not to make the table bigger and give Flint and Genesee County a seat. Note: You can read DWSD's latest offer online (here). If you would like to read all of DWSD's latest to Flint's Emergency Manager, write me here and put "Flint Offer 2.0" in the subject line.
Update (4/30): The Flint Journal is reporting (here) that Flint has decided to stick with its original decision to join leave DWSD and join the Karegnondi Water Authority. For more about DWSD Update, click here.
Update: Late Friday, it was reported by the Flint Journal (here) that Governor Snyder met privately in Detroit with officials from Flint, Genesee County and DWSD.
Click here to read online the full text of the Notice of Termination. If you'd like to get a copy of DWSD's Notice of Termination, write me here, and put "Flint Letter" in the subject line. For more about DWSD Update, click here.
On April 15, 2013, the City of Detroit Water and Sewerage Department furnished the City of Flint and Karegnondi Water Authority with an 8-page proposal, which offers the City of Flint and Genesee County a wholesale water rate of $10.46 per Mcf (per thousand cubic feet of water), as compared with the current wholesale rate of $20.00 per Mcf. That amounts to a 48% immediate reduction. Over 30 years, DWSD contends that its proposal would save Flint and Genesee County $800 million.
Note: If you write me (here),
I would be glad to send you a copy of DWSD's April 15th proposal. Just put "Flint Water Proposal" in the subject line.
To read DWSD's April 15th proposal online, click here.
Update (4/16): MLive.com reports here that Flint and Genesee County officials met this morning to discuss Detroit's proposal. No word yet on whetherthe proposal offers enough to change Flint's minds.
Update (4/17): No surprise -- the Detroit News reports here that Flint and Genesee County have said "Thanks, but No Thanks" to DWSD's lastoffer to retain Flint as a customer. Both Oakland and Wayne County executives have openly criticized Flint's decision.
About $1.9 billion of senior lien water revenue bonds were
cut to BBB-plus from A, $1.1 billion of second lien water
revenue bonds were downgraded to BBB from A-minus, $1.9 billion
of senior lien sewer revenue bonds were cut to BBB-plus from
A-minus, and $974 million of second lien sewer revenue bonds
were lowered to BBB from BBB-plus.
The factors ininfluencing Fitch's decision are discussed here.
For prior posts about DWSD's debt rating, click here. For more about DWSD Update, click here.
Earlier this morning, Judge Sean Cox entered an order concluding the EPA lawsuit and federal oversight of DWSD which began in 1977.
"The Court concludes that, after more than thirty-five years of federal oversight, the DWSD has achieved substantial compliance with its NPDES permit and the Clean Water Act. This Court shall therefore terminate the Second Amended Consent Judgment and close this case because the existing Administrative Consent Order is a sufficient mechanism to address any future issues regarding compliance with the DWSD's NPDES permit and the Clean Water Act."
"This Court has no intention of ordering the creation of a regional authority and has no intention of ordering or approving the transfer of DWSD's assets to a regional authority. This Court lacks the authority to do so. Moreover, even if this Court had the authority to order what is not being proposed, the Court would not do so for multiple reasons."
Comment: I suspect that Judge Cox's ruling this morning caught many by surprise. If DWSD still plans to become an independent authority, it either needs to convince the new EM, Kevyn Orr, that this is a good idea or throw its support behind Kurt Heise's legislative approach.
(Note: If you write me (here),
I would be glad to e-mail you a full copy of Judge Cox's Opinion and Order. I'll try to get it posted later in the day, but no time now.)
Last night, the Flint City Council voted 7-1 to approve a resolution to buy its water from the Karegnondi Water Authority (KWA), rather than Detroit. Flint would buy up to 16 million gallons of raw water per day from the KWA, which took bids on February 26, 2013 to construct an intake pipeline. No contract has been awarded, and work has not started.
Under the new plan, Flint will be required to treat the raw water it buys from KWA, and also rely on the Flint River as back-up. In either case, Flint will have to rely on its existing water treatment plant to process the raw water it receives from KWA. In 2011, a Flint engineering firm (Rowe) estimated that Flint's water treatment plan needed $61 million in capital upgrades. Because Flint is still under the control of an Emergency Manager, state approval is required to sign a new water supply contract with KWA.
For previous posts about the Karegnondi Water Authority, its creation and history to date,click here.
Citing a report prepared in February, 2013 by Tucker Young Jackson & Tull for the State of Michigan, DWSD asserts that the plan advanced by Genesee County and other members of the KWA "is rife with financial discrepancies and false assumptions." As an example, DWSD cites Tucker Young's analysis of estimated construction costs, which puts construction costs at $357 million(*), or more than $80 million higher than KWA's estimate of $274 million.
To read the entire report, entitled "City of Flint Water Supply Assessment Final Report," prepared by Tucker Young, click here.
Comment: DWSD's press release cites a construction cost figure of $374 million from the Tucker Young report, but I only saw $357 million when I read it. See page 15 here.
On March 13, 2013, the Board of Water Commissioners voted 6-0 to approve a resolution moving forward with the plan outlined by the Root Cause Committee's Final Report to convert DWSD into a regional water authority.
DWSD's Matt Schenk presented the plan to the Board of Water Commissioners, which discussed the plan and asked questions for nearly 2 hours before voting to approve it. Chairperson James Fausone said during his comments that inaction was not option under the circumstances and that the Water Board must pursue this dramatic course of action in order to protect DWSD, its customers, and bond holders. Commissioner Bryan Williamsabstained from voting due to his personal concerns about the plan, and a lack of time to study the details. From comments made by Williams and other during the meeting, it appears that Commissioners received the Root Cause Committee's March 13th report only a few hour(s) before meeting to approve the plan to convert DWSD into an independent Authority. A vote on the the Root Cause Committee's plan was required so that Director Sue McCormick could incorporate the plan (or not) into the Director's Final Compliance Report, which was to be filed with U.S. District Judge Sean Cox by March 15, 2013. The plan to convert DWSD into an independent authority is subject to approval by U.S. District Judge Sean Cox, who has scheduled a Status Conference on March 21, 2013 at 10:00 a.m. The plan must also pass muster with Emergency Manager Kevyn Orr, who was appointed March 14th Governor Snyder. Its too soon to know whether the EM will support or oppose the plan. For more about DWSD Update, click here.
On March 10, 2013, the Detroit Free Press reported (here) on a proposal advanced by the Root Cause Committee to convert the Detroit Water and Sewerage Department into a regional water authority.
Under the Committee's proposal, outlined in a slide presentation dubbed "Proposal to Control Our Own Destiny," the City of Detroit would retain ownership of a reversion interest in DWSD, but a new regional authority would provide water and sewerage services independent of city bureaucracy. The new authority would pay the City $35 to $50 million per year. The Committee's proposal would proceed through the courts, and require the consent of all of the parties to the case pending before Judge Sean Cox.
In contrast to the Root Cause Committee's proposal that would be approved by a U.S. District Court, Rep. Kurt Heise in January, proposed legislation that would create a regional water authority. To date, Rep. Heise's bill has not gained traction in the legislature.
The Board of Water Commissioners has scheduled a Special Meeting on Wednesday, March 13, 2013 at 2:00 p.m. The Agendais expected to includes consideration of a report by the Root Cause Committee's proposal, among other pressing matters.
Comment: The calls for a regional water authorityto replace DWSD are not new. But with the Governor's March 1st declaration of a financial emergency, and the appointment of an Emergency Financial Manager for the City of Detroit appearing imminent, a little more than days away, the time for a regional water authority may have arrived. But is it better to create such an authority through the courts, albeit by the consent of the parties to the litigation, or through the legislature? What do you think? Update (3/13): The Board of Water Commissioners today voted 6-0 to approve a resolution moving forward with the plan outlined by the Root Cause Committee's Final Report to convert DWSD into a regional water authority. DWSD's Matt Schenk presented the plan to the Water Board, which discussed the plan and asked questions for 2 hours before voting to approve it. Commissioner Williams abstained from voting due to his personal concerns about the plan, and a lack of time to study the details. From comments made during the meeting, it appears that Commissioners received the Root Cause Committee's March 13th report only a few hour(s) before meeting to approve the plan to convert DWSD into an independent Authority. Approval was also needed so that Director Sue McCormick could incorporate the plan into her Final Compliance Report, which is due to be submitted to U.S. District Judge Sean Cox by March 15, 2013.
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