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.     

   2014 02 21.Plan of Adjustment Re Detroit Chapter 9 by Peter Cavanaugh

http://www.scribd.com/doc/208441216/2014-02-21-Plan-of-Adjustment-Re-Detroit-Chapter-9