17 February 2014


This story first appeared in The Detroit News

Timely resolution of Detroit’s bankruptcy may hinge on whether Emergency Manager Kevyn Orr can convince the suburbs to buy what they suspect is a pig in a poke.

Orr’s plan of adjustment counts on Detroit selling its water and sewage department to a regional authority for $47 million a year for 40 years. The revenue will be used to bolster the city’s general fund.

He had hoped to get sign-off on a memorandum of understanding by the end of last week. It didn’t happen, and may not. Oakland and Macomb counties are skeptical that the system is worth the asking price. In fact, they fear that instead of generating revenue, the new authority will be a huge liability for their residents.

But they can’t be sure, says Bob Daddow, the deputy county executive negotiating for Oakland, because Detroit hasn’t coughed up the data needed to assess the viability of the deal.

“Not a single person I’ve talked to would enter into a transaction of this magnitude without having some key questions answered,” Daddow says.

He wants to see up-to-date financial statements, for starters. Beyond that, he wants to know the status of labor contracts, a truthful assessment of the cost of upgrading the system (estimates he’s received range from $2.5 to $5 billion — “an awfully big range” ), the extent of legacy costs, whether the department is in compliance with federal environmental rules, whether it can get its debt rated to sell bonds, and the list goes on.

Oakland County also wants to know who’s going to cover the cost of providing water to customers who don’t pay their bills. The water department writes off about $40 million a year in bad debt, mostly from customers in Detroit and other distressed communities. Currently, water users in those cities cover the cost. Under an authority, it will be spread across all bill payers.

Daddow wants the state to commit to pick up those costs, or find a charity to do so.

And although he says Oakland wants a regional authority to assure more competent operation of the system and better representation for the suburban users who make up 80 percent of the customers, he’s not optimistic an agreement will come soon.

In Macomb County, Executive Mark Hackel would rather the system be sold to a private investor than have his county take on any responsibility for its cost and operation.

“Everything about the system is bad,” he says. “It can’t be considered an asset.”

Asked about the likelihood of a regional authority forming, Hackel says, “I don’t see it happening.”

What both he and Daddow do see happening, either way, are big increases in water bills. No matter who runs the system, it will need billions of dollars in investment.

“Costs are going to go up because of all of the past neglect,” Hackel says. “Why do I want to be the one who raises rates?”

Clearly, Kevyn Orr has a selling job to do in convincing Oakland and Macomb to pay for a water system they’re not sure they’d take if Detroit were giving it away.

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