Thursday, March 27, 2014

Emergency Manager Gives His Account of Failed Negotiations for Regional Water Authority

On March 26, 2014, the Michigan Chronicle published an exclusive interview with Detroit Emergency Manager Kevyn Orr and asked for his take on why negotiations for a regional water authority (have thus far) failed.

Here are excerpts from that interview:

MICHIGAN CHRONICLE: What really happened in the deal involving the Detroit Water and Sewerage Department that made Oakland and Macomb counties balk?

KEVYN ORR: We tried to design a proposal for them that was responsive in a number of ways. First, it was responsive to their request for decades that they have increased governance control and management of the water department. Suburban communities make up over 65 percent of our revenue. We appreciate that and we want to be responsive. Secondly, it was to make sure that citizens of Detroit continue to own the water department. So the pipes, the lines, switches, the sewerage system, all of that is still going to be owned by the City of Detroit. You can’t replace that overnight. No matter what happens it will be owned by the City of Detroit. Number three, it was to generate sufficient cash from interest rate savings by having a better credit rating department.

Number four, capital improvements. The concerns about capital improvements were going to be addressed, provide a reserve for delinquent accounts that would be replenished yearly. That there will be no delinquencies, rate pressures on the counties customers or city customers and result of rate pressures. And generate a revenue stream of 47 million dollars a year for 40 years for Detroit’s creditors. We thought it was an ideal solution that was going to benefit all parties and be responsive to the requests that people have been talking about.

* * * 

MICHIGAN CHRONICLE: Can you explain what you meant by leasing as an option?

KEVYN ORR: We were going to create an authority, which would essentially lease the department and operate it and pay the city a lease payment. That would be $47 million a year. Our county partners don’t want to do that. That’s fine. So we are going to move away from the lease concept more to a contract. There are operating contractors out there who would bring greater efficiency to the system. That’s what they do. We would also entertain requests for information about an outright purchase. I said when I first came in here I did not want to sell the water department. I still do not want to sell the water department.
But I think because our expectation was that we were going to have an authority deal in fairly short time, that’s what everybody wanted. But I think in order for me to be responsive to our creditor class now that the authority proposal appears to be slipping away, we have to be able to say we explored every avenue to rationalize the key assets of the city. And when I came in I said there are 15 buckets of assets. We’ve dealt with most of them.
Click here to read the full interview with Mr. Orr at the Michigan Chronicle

Photo Credit: Reuters

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