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 County officials say they are stuck over the price tag and
estimates of repair costs, likely delaying plans by Detroit's
emergency manager to deliver a financial restructuring plan early
next month.
State-appointed manager Kevyn Orr set a deadline of December 20 to
reach a water deal, which would help meet a self-imposed early
January date for filing a plan to bring Detroit out of bankruptcy — well ahead of a March 1 requirement set by U.S. Bankruptcy Judge
Steven Rhodes.
Suburban officials expressed grave doubts about Orr's timeline.
"That deadline is dead in the water," said Mark Hackel, executive of
Macomb County, who has participated in talks.
A key sticking point is the estimate of what it would cost to repair
or replace underground pipes and other Detroit Water and Sewerage
Department infrastructure.
Gerald Poisson, deputy executive for Oakland County — home to 1.2
million DWSD customers — said preliminary financials he had seen
estimated it would cost $20 billion to upgrade the system over two
decades. Rates would have to quadruple to fund repairs, he said.
Hackel said the suburban representatives do not yet have a reliable
estimate.
"There are major costs underground that haven't come to the
surface," Hackel said. "We have not yet had a chance to kick the
tires and see what we're being asked to pay for."
The DWSD serves around 4 million customers, covers 1,100 square
miles and only recently emerged from decades of court oversight for
failing to comply with federal environmental regulations. The DWSD
is also losing customers in the Flint area who are building their
own pipeline to save money.
Still, the DWSD is seen as the most valuable asset Orr can use to
help fund the city's operating costs.
Detroit entered bankruptcy with $18 billion in long-term debt and
steep budget deficits. Orr, who has made clear some creditors will
receive only pennies on the dollar, also must create a plan so
Detroit can emerge from bankruptcy with enough from taxes and other
sources revenue to fund operations.
Orr's office floated a deal in October in which DWSD customers would
pay a total of $9 billion to Detroit over 40 years to lease its
assets. A new Metropolitan Area Water and Sewer Authority would
benefit from the suburbs' higher credit ratings, making it cheaper
to borrow money for repairs.
Oakland County Executive L. Brooks Patterson rejected that offer
outright as too expensive for the suburban communities.
Orr's office declined to comment on the talks with the counties.
Douglas Bernstein, a bankruptcy attorney with Plunkett Cooney in the
Detroit suburb of Bloomfield Hills, said the lack of a deal so far
is "not optimal, but not fatal" for Orr's plans. He can always wait
until March 1 to file, Bernstein said.
"Orr is going to have to do a sales job to show the suburbs why it's
in their interest to be part of a regional authority," he said.
IN NEED OF REPAIR
The DWSD serves around 40 percent of Michigan's population in eight
counties using more than 4,300 miles of water pipes. But Detroit's
population has plummeted to around 700,000 from a peak of 1.8
million in the 1950s, and revenue has not kept up with repair needs
on its decades-old network of pipes.
"The city has a population with limited means so we have to stretch
the life and use of equipment," said William Wolfson, DWSD's chief
operating and compliance officer. "There is no question that we need
to invest in the system."
Public DWSD investment plans count on spending around $1.4 billion
on its water and sewer systems by fiscal year 2017. For the fiscal
year ending June 30, 2012, the DWSD had combined water and sewer
revenue of around $800 million.
Shortfalls widened in years prior to Orr's arrival in part due to
rampant corruption. Former Detroit mayor Kwame Kilpatrick was
sentenced to 28 years in prison in October on racketeering and other
charges, including funneling tens of millions of dollars out of the
DWSD.
Some suburban officials want veto power over major decisions in any
new regional water authority to avoid such problems.
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The DWSD currently has around $6 billion in outstanding bonds.
Oakland County's Poisson says under preliminary talks the regional
authority would keep that debt, but legacy pension costs would go to
the city.
Complicating the situation is competition in the form of a new
pipeline under construction by the recently formed Karegnondi Water
Authority to serve 250,000 customers in the Flint, Michigan area,
beginning in 2016. Those customers currently account for 12.5
percent of DWSD revenue.
Jeff Wright, water commissioner for Genesee County which is part of
the new authority, said the pipeline has a projected cost of $300
million and lower water rates will save customers $200 million over
25 years.
"We decided we could do this more cost effectively," he said.
SEWAGE PROBLEM
Environmentalists and public officials are keeping a close watch on
developments, saying DWSD management must press ahead with repairs.
"They (the DWSD) seem to be heading in the right direction," said
William Creal, chief of the Michigan Department of Environmental
Quality's water resources division. "The question is how long it
will take them to get there."
The city has a combined water and sewer system and on a typical day,
the city's lone waste treatment plant, built in the 1940s, handles
up to 900 million gallons of human waste daily.
According to state officials, the DWSD and environmentalists, the
plant has problems during heavy rains, and weather data shows annual
precipitation in the area rose 25 percent from 1981 to 2010. It is
expected to keep rising.
"Call it climate change or whatever you want, the reality is it's
getting wetter," said Robert Burns, of environmental group Friends
of the Detroit River.
Storms yielding 2 or 3 inches of rain can send billions of gallons
of water through Detroit's system, overloading it and pouring raw
sewage and partially treated waste into the Detroit River. This
generates fines the DWSD must pay.
The DWSD is developing plans to spend $50 million to install trees
and other water-absorbing plants on Detroit's ever-growing supply of
vacant land.
"There are some exciting opportunities here for Detroit to do
something really innovative," said Nancy Love an engineering
professor at the University of Michigan.
Because the fate of the DWSD will have an impact across the state,
Oakland County's Patterson argues that Michigan's Republican
Governor Rick Snyder should broker a deal.
Sara Wurfel, a spokeswoman for Snyder, said Snyder's office has been
monitoring talks between Detroit and the suburbs but will not
comment further.
While there is plenty of mistrust in the suburbs following decades
of strained relations with Detroit, Oakland County's Poisson said
ultimately they want to make a deal.
"Something has to happen and someone has to pay for it. The question
is who has to bear the burden," he said. "But we have to move
forward. We have to have sewer and water."
(Reporting by Nick Carey; editing by Tim Dobbyn)
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