Monday, February 24, 2014

Detroit’s Plan of Adjustment, and DWSD’s Future: More Work to Be Done

Last Friday [2/21], Detroit’s Emergency Manager published his long-anticipated “Plan for the Adjustment of Debts of the City of Detroit.” These two documents, weighing in at over 600 pages, outline how Kevyn Orr plans to restructure the City’s debts.

The Plan of Adjustment (below) outlines two alternatives for DWSD, but otherwise does not present anything that hasn't already been reported here and here.

Under the first alternative, DWSD would remain part of the City of Detroit. The second alternative would involve the formation of a regional authority. If agreed upon, the Great Lakes Water and Sewer Authority (GLWA), which would lease and operate the assets of DWSD.

How much money the new authority would pay the City has been hotly contested, and remains the subject of on-going negotiations with Oakland and Macomb Counties. The Emergency Manager’s original $200 million per year offer quickly dropped to$49 million per year over 20 years.

Alternative 1

If DWSD remains part of the City of Detroit, the Department would retain FY 2015 rate setting protocols for a minimum of 5 years, but immediately following the Effective Date of the Plan of Adjustment the City would begin planning a “rate stability” program for City residents. This plan would be taken into account in the development of wholesale rates across the system.

Comment: There is no detail provided as to the "rate stability" program mentioned in the Plan. It sounds to me like a cap on future rate increases for City residents, that will be factored into by the wholesale (suburban) customer base. Is this a good thing, like an insurance pool where the healthy subsidize the sick, or is it just a subsidy? Does it matter when we're talking about something as fundamental as water? 

In addition, there would be an adjustment of DWSD’s bond debt and the issuance of new bonds. Unlike other bond holders, water and sewer debt would be paid off in full. The “New Existing Rate DWSD Bonds” would also allow for the lease or transfer to a new authority. Thus, even if the Emergency Manager can’t make a deal with suburban communities in the short term, there’s room made for a regional authority down the road. 

Alternative 2

If the Emergency Manager can strike a deal with DWSD’s suburban customers, this would lead to the formation of the Great Lakes Water and Sewer Authority. 

This alternative is Kevyn Orr’s preferred alternative, but it must overcome mounting suspicion that the suburbs are being rushed into buying a dilapidated water and sewer system with huge unknown costs and future liabilities. 

For more about DWSD Update, click here

Saturday, February 8, 2014

State of Michigan to Join Stalled Negotiations for New Regional Water Authority (UPDATED)

The Bond Buyer* reported on Friday (here) that representatives of Governor Snyder and the City of Detroit's investment banking firm, Miller Buckfire, will meet next Tuesday, February 11th, with representatives of Oakland County in an effort to jump-start stalled negotiations for the creation of a regional water authority.

Robert J. Daddow
"The state has not stepped up to deal with the issues, though they have been at the table," Oakland County deputy executive Robert Daddow said in an interview Friday "I am hopeful that this Tuesday meeting coming up will solve the issues or set in motion something to solve them."
The state and Detroit, represented by the city's investment banking firm Miller Buckfire, are expected to address the county's two top concerns Tuesday, Daddow said. That includes lack of adequate financial information and the county's worry that several of the governments in the system won't have the money to pay their bills or the large capital needs looming in the next decade.
Oakland County is one of three suburban counties that have balked at Emergency Manager Kevyn Orr's proposal citing a lack of information with which to evaluate the costs and risks associated with taking over the DWSD system. 

Comment: I'm glad to see Governor Snyder's office getting involved in this process.  The State of Michigan needs to participate, and contribute financially in order to get the Great Lakes Water Authority off the ground. 

* The Bond Buyer is a subscription based publication. This article is available through Westlaw at 2014 WLNR 3489653, and other databases, such as Gale's Infotrac. 

Update (2/12): The Detroit News reports here that Oakland, Macomb and Wayne Counties met on Tuesday, but the article does not mention anyone from the State of Michigan. Does anyone know whether the State participated in the meeting? And if not, why not?
For more about DWSD Update, click here

Friday, February 7, 2014

Oakland County to Study Plans for Regional Water Authority

On February 6, 2013, the Oakland County Board of Commissioners formed a study committee to evaluate the plans for a regional water authority offered by Detroit Emergency Manager Kevyn Orr.
The committee will gather information about DWSD's finances, consider the impact on water and sewer rates, hold a series of public meetings to gather public feedback. Commissioner Robert Gosselin will chair the study committee.   

For more about DWSD Update, click here.

Tuesday, February 4, 2014

Guest Editorial: Emergency Manager's Plan for New Water Authority Falls Short

By: James Lang*
A gross inequity exists in the plans to disentangle Detroit from debt, in part by reorganizing the Detroit Water and Sewerage Department (DWSD).

As owner of DWSD, the City of Detroit is responsible for capital investments, including major improvements and replacements.  If that responsibility were being met, then perhaps the City would be justified in requiring lease payments from ratepayers as part of the conversion of DWSD to a regional authority.

But the city doesn’t have the cash or credit to rebuild DWSD, the city’s (purported) capital asset.

It appears to me that Emergency Manager Kevyn Orr and other city leaders want to rely on the ratepayers’ credit worthiness to pay for capital improvements and replacements (as if the ratepayers were the owners), as well as requiring ratepayers to make lease payments to the city (as if they were renters).  Bear in mind that the system was never intended to be a cash cow for the City of Detroit. Rates were not supposed to include a profit margin.

Let’s face it, DWSD's infrastructure is old and worn out, with negative or negligible value.  No sooner is one cluster of belt presses, incinerators or water mains replaced than another one breaks down.  Nick Carey of Reuters on December 16, 2013 quoted an Oakland County official [Gerald Poisson, deputy executive for Oakland County] who said he had seen estimates of $20 billion to upgrade the system in coming years.

The only value in this whole scenario is the revenue stream flowing from city (20%) and suburban (80%) ratepayers.

It’s one thing to require that ratepayers take over the responsibility to rebuild DWSD.  It’s something entirely different to also require that they make lease payments to the city for the “privilege” of assuming ownership responsibilities.

If conversion to a regional authority goes through, the savings realized by refinancing debt and cutting costs should accrue to the ratepayers without being offset by so-called lease payments to the city.

* James Lang earned his undergraduate degree from  Case Western Reserve University (B.A.) and his law degree from the University of Michigan Law School (J.D.). Mr. Lang practiced law in Flint for many years, and formerly served as a Board Member of Legal Services of Eastern Michigan. In 2012 and 2013, Mr. Lang was a guest lecturer at MSU’s Knight Center for Environmental Journalism. His interests include the Great Lakes, water quality and transparency in government. You may contact James Lang at  --

For more about DWSD Update, click here

Oakland County, Brooks Patterson Still Not Buying EM's Plan for Regional Water Authority (UPDATED)

The Detroit Free Press reports this morning that Oakland County Executive, L. Brooks Patterson is still sounding pessimistic about the Emergency Manager's revised plan for a regional water authority.  

“I tell my team no deal is better than a bad deal — and right now it’s a bad deal, so we’re probably going to walk,” Patterson told a crowd of public officials at Governing magazine’s Outlook in the States & Localities conference.

Question: So, if Oakland County doesn't want to participate in a new regional water and sewer authority, what's Plan B look like?   

Update (2/5): The Detroit News reports this morning that suburban leaders are still asking DWSD and the Emergency Manager for "more information" to evaluate the the proposed new authority. What's missing, and why can't DWSD fill in the gaps? Are Oakland and Macomb Counties seeking answers, or a degree of certainty that does not exist? I think we can agree there are "known unknowns" that will have to be addressed (and paid for) as they arise.

Update (2/19): is reporting here that Detroit officials delivered some of the long-awaited financial data to Oakland County officials earlier this week. Suburban officials had been seeking the 2013 audited financial reports for DWSD. The article does not indicate whether that's the specific data that was produced, and DWSD's website is still only showing the 2012 report.      

For more about DWSD Update, click here