New Detroit Water and Sewer Deal Announced – harmony reigns — for now.

9 Sep 2014

Photo Credit: Christine Cousins, www.christinecousins.com

Photo Credit: Christine Cousins, www.christinecousins.com

I have blogged previously about the DWSD, arguing that a regional deal makes sense.  I’ve also blogged about rumors that the Emergency Manager was threatening to privatize the system and concerns about funds needed for infrastructure might go into the City of Detroit’s general fund to help the City get out of bankruptcy.  A reported 40 year regionalization deal is now on the table.

if rates look to climb beyond 4% a year – it may be back to a very uncertain drawing board.

There are a number of interesting points in the reported deal, which needs to be approved by October 10th:

1. A regional authority – the Great Lakes Water Authority (GLWA) will be created to operate the regional water and sewer system. The GLWA will have 6 members: 2 appointed by the Mayor of Detroit, 1 each by Wayne, Oakland, and Macomb Counties, and 1 by the Governor. 5 of 6 votes will required for major issues.

2.  Detroit will own and control its own water and sewer system – making it similar to every other community in the system.

3. GLWA will lease the regional assets from Detroit for $50 million/year and Detroit will retain ownership of those assets. Interestingly, Oakland County Executive, L. Brooks Patterson claimed that those payments shouldn’t increase rates.  All of the lease payments will stay within the DWSD system to fix Detroit’s infrastructure and not to support payments to the City’s general fund.  This may be a challenge for the City’s bankruptcy.

4.  Detroit will be solely responsible to pay its system’s operating costs and any shortfalls will be the responsibility of Detroit.  This was a huge concern of the suburbs, particularly given the recent reports of City residents and businesses not making payments.

5. A $4.5 million water affordability fund created to support water customers across the region (not just Detroit) who are financially unable to afford water service. This is significantly more than the $200,000 the DWSD had to avert shut-offs.

6. A key concern to the suburbs – rate increases are not to exceed 4% a year for 10 years.  The parties have retained a consultant, Veolia, to independently review this rate assumption and the parties have the right to opt out of the deal if the review shows that the 4% annual rate limit will not be able to be achieved.  This is the big concern – if rates look to climb beyond 4% a year – it may be back to a very uncertain drawing board. Given projections earlier this summer that rates would rise at 8% a year, I question whether the deal will hold.

7. All union contracts will be honored although many DWSD employees will become GLWA employees.

If the parties can pull this off, it will take one issue away from the Bankruptcy Court, but it may complicate the Emergency Manager’s plans to fund the Detroit Bankruptcy by removing a source of funds.  Interestingly, while all the County Execs and Mayor Duggan were very complimentary of each other and the others involved in the process, L Brooks Patterson made it clear that there was no other choice and that this deal was struck in the shadow of a potential “cram down” of something far worse by the Bankruptcy Court.  The due diligence isn’t done and there is still an opt-out period but, barring some unforeseen bad news, it appears the regional water and sewer system we all thought should happen, may very well be in place before Spring of 2015.

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