Talks involving leaders from Wayne, Oakland and Macomb counties about a regional takeover of the Detroit Water and Sewerage Department are playing out on the sidelines of Detroit's bankruptcy eligibility trial. (David Coates / The Detroit News)
Detroit— Emergency Manager Kevyn Orr wants the suburbs to pay approximately $9 billion for greater control of the Detroit Water and Sewerage department, money that could help bankroll the city’s restructuring, sources told The News.
The offer emerged within the past few weeks during private meetings with city restructuring agents and suburban leaders. It’s the first proposal in what could be a prolonged negotiation over Orr’s plan to spin off the department, share control and reduce the cost of running one of the nation’s largest public utilities.
Orr wants $9 billion paid over 40 years, which would provide a steady, unrestricted revenue stream for Detroit. Suburban leaders have been “cool” to the concept, said his spokesman Bill Nowling, who would not comment on the $9 billion figure.
“This is a typical first out-of-the-block offer,” Nowling said. “It’s not like we said ‘one trillion dollars!’ with our pinkie finger out. But we don’t want to negotiate against ourselves.”
The $9 billion figure brings focus to confidential negotiations headed by the city’s investment banker Kenneth Buckfire that would impact more than 4 million customers across southeastern Michigan. The talks involve leaders from Wayne, Oakland and Macomb counties and are playing out on the sidelines of Detroit’s bankruptcy eligibility trial, which will determine whether the city is eligible for Chapter 9 bankruptcy relief.
The trial continues Monday.
Several officials from surrounding counties declined comment, citing the confidential nature of discussions.
The $9 billion figure is intended to spark negotiations that could lead to a deal that would be a major element of any plan by Detroit to restructure $18.5 billion in debt and emerge from bankruptcy court.
“I don’t see the suburbs willing to cough up that kind of money, which would apparently go straight to the city,” said state Rep. Kurt Heise, R-Plymouth Township. “If the customers are going to pay that kind of money, they are going to want it reinvested back into the department with a far more accountable and transparent governance structure.”
Heise has introduced bills calling for a regional authority. House Bill 4009, issued in January, would incorporate the department and have scores of members — one each from the 126 municipalities served. He is against the plan being considered by Orr and the current water and sewerage board.
The department, which has about $6 billion in debt, is currently overseen by a seven-member board that includes four Detroit residents and three from Wayne, Oakland and Macomb.
In June, Orr said he wants to strip the name “Detroit” from the city’s water department, transfer assets to a regional group and refinance the utility’s debt, moves that could generate almost $1 billion in savings.
The utility’s fate needs to be decided by the end of the year. If Detroit is eligible for bankruptcy relief, the city’s legal team has said it will file a plan to adjust its debt by year’s end. That plan would include spinning off, selling or keeping the Water Department.
The so-called Metropolitan Area Water and Sewer Authority would either own or lease the department, collect revenue from water bills and make payments to the city.
Under the $9 billion proposal, annual payments would start under $100 million and steadily climb to more than $200 million, sources told The News.
County officials privately say the annual payments are too high and unrealistic for a department with an annual operating budget of almost $381 million and $1.4 billion in needed improvements and repairs.
The city’s financial crisis and July 18 bankruptcy have triggered uncertainty for a utility plagued by problems complying with federal environmental laws and fights over management and control. The city owns the department but most customers live in the suburbs.
U.S. District Judge Sean Cox ended his oversight of the Water Department in March after a decades-long fight for control among city, regional and state leaders. In doing so, he rebuffed an earlier proposal to transfer one of the city’s largest assets to a regional authority in exchange for as much as $70 million in annual payments to the city.
In March, Cox cast doubt on the $70 million figure.
“This appears to be sheer speculation, based upon the hope that the DWSD’s bond ratings would improve substantially upon the creation of the proposed authorities,” Cox wrote in a court filing.
The regional group likely would have to float bonds to come up with the $9 billion, Nowling said.
“The ability to bond is good,” Nowling said. “The moment you take the Detroit name and management off, you cut 2 percent off the bond rate. That’s huge. That’s the attractive part — the long-term savings.”
The revenue could be spent on pensions, Nowling said. The city filed bankruptcy, in part, to slash retiree pensions and cope with an estimated $3.5 billion shortfall in the city’s retirement system.
It remains unclear whether the $9 billion purchase factors in the cost of repairs and improvements to an aging water and sewer system. Also unresolved: the exact makeup of a new regional authority and whether unpaid water bills would be erased or if the new authority would be in charge of collecting the money.
Private-equity firms are interested in buying the utility, too, according to testimony last week during the bankruptcy trial.
“Private equity is sniffing around a lot of stuff,” Nowling said. “A lot of investors are looking for sweetheart deals. We don’t want to give one at the expense of residents.”
The city also could decide to keep the department, Nowling said.
“If it doesn’t make sense,” Nowling said, “the city will keep it. The suburbs have been saying they want a chance to run it. At some point, maybe they’re going to say they don’t want to.”