Wayne, Oakland, and Macomb Counties Approve New Regional Water Authority (UDPATED)

On  October 9, 2014, Macomb County joined Wayne and Oakland Counties in approving plans to join the new Great Lakes Water Authority, which will lease DWSD's water and sewerage assets for 40 years.

Update (10/16): Oakland County has appointed Robert Daddow, deputy county executive, to serve on the Board for the new Great Lakes Water Authority.  Daddow is quoted by the Detroit News: 

"I'll have two measuring sticks while serving on the board," Daddow said. "One will determine whether a matter before the board helps or harms ratepayers. The other will ascertain whether it makes monetary sense."

Update: (10/21): Macomb County has appointed Brian Baker, finance and budget director for the City of Sterling Heights, to serve as its representative on the new Authority. 

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Detroit Water Board Adopts Resolution Endorsing MOU, Great Lakes Water Authority (UPDATED)

On September 17, 2014, during a Special Meeting, the Board of Water Commissioners adopted a resolution endorsing the Memorandum of Understanding (MOU) and the formation of the Great Lakes Water Authority.  

The Detroit City Council is expected to vote on September 19th on a similar resolution. However, if the City Council fails to endorse the new authority, the Emergency Manager Kevyn Orr has the power to do so. 

Oakland and Macomb County Commissions are also in the process of reviewing and voting on adoption of the MOU and the Great Lakes Water Authority. 

Oakland County has a website here with much more information about the Great Lakes Water Authority, including draft Articles of Incorporation here.  Macomb County has posted information about the new authority here. 

Earlier this week, Crain's Detroit Business published two terrific articles here and here explaining the details of the new authority and how it will impact Detroit and the suburbs. 

Update (9/19): Detroit City Council voted 7-2 to approve the plan for a regional water authority. 

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Detroit, Suburbs Strike Deal to Create Regional Water Authority (UPDATED)

Earlier this morning at a joint press conference, county executives from Wayne, Oakland and Macomb County, and Detroit Mayor Mike Duggan announced their agreement to the creation of a regional authority, the Great Lakes Water Authority.  

This agreement was just announced. More details will details will follow. 

   MOU Regarding Formation of Great Lakes Water Authority

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Deal for Creating Regional Water Authority May Be Near, Detroit News Reports

Nolan Finley, columnist with the Detroit News, reports this morning that the City of Detroit and its suburban customers are close to a deal that would see the formation of a regional water authority. The City would reportedly be paid $50 million per year over 40 years as part of the deal being negotiated with Judge Sean Cox. 

Specific details are not available due to a gag order issued for the talks, however, Mr. Finley reports the following outline: 

A six-member board would be formed, with two appointments coming from the city of Detroit, one each from Wayne, Oakland and Macomb counties, as well as one from the state. Currently, the authority that runs the city-owned water system has four members appointed by Detroit and three by the suburbs.

All major decisions by the new authority, including contract awards, rate increases and construction projects, would require five votes.

That’s similar to the protocol at the Cobo Center authority, which requires a unanimous vote on major issues, a stipulation demanded by Oakland County Executive L. Brooks Patterson. In exchange for acquisition of the water system and its assets, the authority would pay the city $50 million a year for 40 years. That premium was the major sticking point of the talks.

Stay tuned for more details. 

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Support Building for Regional Water Authority Among DWSD's Suburban Wholesale Customers

Among DWSD's suburban wholesale customers, there is growing support for a regional water authority, despite continued opposition by Oakland and Macomb Counties. Wholesale customers are also seeking to join the currently-private mediation process aimed at forming a new water and sewer authority.   

On May 2, 2014, the Southeastern Oakland County Water Authority (SOCWA), which represents 11 suburban wholesale customers, including Birmingham, Royal Oak, and Southfield, filed papers with the bankruptcy court in Detroit's Chapter 9 case seeking to participate in the private mediation process originally requested by Wayne County in April. 

The Western Townships Utility Authority (WTUA), which represents Canton, Northville, and Plymouth has also endorsed a regional water authority as a viable alternative and sought participation in the process. 

Conference of Western Wayne Communities

Most recently, on May 9, 2014, the Conference of Western Wayne (CWW), a group of 18 wholesale customers in Wayne County representing some 700,000 residents, unanimously adopted a resolution endorsing the concept of a regional authority and seeking participation in the on-going mediation process with the three suburban counties -- Wayne, Oakland and Macomb. 

Comment: The impression I have from these latest developments is that not all suburban communities are in line with Oakland and Macomb County's hard-line stance toward negotiating a new authority, nor do the Wayne County communities fully endorse their county leaders. Given what's at stake, I think as many stakeholders as possible should have a voice in the process of creating the Great Lakes Water and Sewer Authority.

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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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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. 

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   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

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?
 
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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.   

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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  -- michigan.clean.natural@gmail.com


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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): MLive.com 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.      

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Amended Plan Emerges for New Regional Water Authority, Emergency Manager Slashes Proposed Payments to City of Detroit

The Detroit News is reporting here today on a revised plan to convert DWSD into a regional water authority that would require dramatically lower payments to the City of Detroit and cede control of the governing board to the suburban customer base. 

Highlights of the leaked confidential proposal reportedly include: 

• Payments to Detroit would be $47 million per year for 40 years -- $1.88 billion. This is a far cry from the $70 million per year, up to $9 billion in total, that the Emergency Manager originally floated in proposals with Wayne, Oakland and Macomb Counties. 
• Detroit would retain ownership of DWSD facilities, but operations and control would be transferred to a new nine-member board that would include two members each from Wayne, Oakland and Macomb Counties, two city appointees, and one member appointed by Governor Rick Snyder. 
• The new authority would be called the "Great Lakes Water and Sewer Authority," rather than the "Metropolitan Area Water and Sewer Authority." 
• Detroit would become a wholesale customer of the newly created authority.

Question: Is the new name of the proposed authority, "Great Lakes Water and Sewer Authority" -- which sounds more inclusive than "Metropolitan Area Water and Sewer Authority" -- meant to serve as an olive branch of sorts to the City of Flint and Genesee County? They left DWSD last year to start their own water authority and plan to spend $360 million or more just for the pipeline.  

If this plan is adopted, it will be interesting to see who Governor Snyder appoints as the ninth member of the Board. However, it doesn't make sense to appoint someone unless they're part of the customer base, right? 

What do you think? 

I'd like to hear your thoughts, either by online comment or privately. 

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Detroit Emergency Manager Reportedly Considers a "Regional Authority" Minus 2/3 of the Region

The Detroit Free Press reports this morning that Emergency Manager Kevyn Orr is contemplating a regional water authority without Oakland and Macomb Counties if they don't get on board with his plan that would have the suburban communities pay the City $9 billion over 40 years to operate DWSD under the auspices of a new authority. That would leave the City of Detroit and Wayne County, whose finances are not much better than Detroit's, to form the core of a new authority.  

Comment: Huh, what?!?  Cut off about 2/3 of your paying customer base, and go it alone with Wayne County? You can't be serious? The old expression - "cutting off your nose to spite your face" comes to mind when I read this story. 

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Detroit Ordered to Disclose Details of Plan of Adjustment to Water and Sewer Bond Holders

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:

1. 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.
2. 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.
3. 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.

A self-imposed December 20th deadline for reaching a deal with Wayne, Oakland and Macomb Counties passed without a deal.

For more about DWSD Update, click here.

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. 

Plan for Regional Water Authority Moves Forward (UPDATED)

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. 

In June, 2013, the Emergency Manager endorsed the idea of creating a regional authority. This followed approval of a plan for the creation of a regional water authority by the Board of Water Commissioners on March 13, 2013. 

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.

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EM Embraces Root Cause Committee's Plan of Action, Proposes Creation of Regional Authority

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. 

As part of the plan presented to creditors, the EM outlined a plan to convert DWSD into a regional water authority that followed the Plan of Action proposed by the Root Cause Committee, and adopted by the Board of Water Commissioners on March 13, 2013.  

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.

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Water Board Approves Historic Plan to Convert DWSD into an Independent Water Authority

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 Williams abstained 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.  

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