The suburbs would control a new regional water system, according to a copy obtained by The News. (Brandy Baker / The Detroit News)
Detroit— The city won steep health care concessions from retirees Friday but remained far apart with suburban leaderson a nearly $2 billion water department deal that could help finance bankrupt Detroit’s restructuring.
The developments emerged as the public got its first peek at a leaked plan to reduce the city’s $18 billion in debt and end the biggest municipal bankruptcy case in U.S. history.
The preliminary plan prescribed cuts to various groups of creditors, including pensioners and bondholders. The 99-page plan also provided new details about the price Detroit’s pension funds and the Detroit Institute of Arts would pay to be spared deeper cuts and the possible sale of masterpieces to satisfy creditors.
The proposal’s framework would treat pension recipients more generously than bondholders, but the precise impact to retirees’ bottom line was unclear because the document was missing financial data tied to the disputed health of Detroit’s two pension funds. A person briefed on the document cautioned it is a starting point for negotiations — not the final proposal.
In an apparent attempt to gain creditor support for the plan, the proposal contains scenarios by which pensioners and bondholders could benefit from the conversion of the Detroit Water and Sewerage Department into a cash-generating asset for the city.
But the region’s three county leaders refused to commit Friday to pay $1.88 billion to lease the Detroit Water and Sewerage Department.
“This isn’t just something to jump into because Detroit’s in bankruptcy and we’ve got to hurry,” Macomb County Executive Mark Hackel said.
Also on Friday, the city took legal action in the bankruptcy case to end a troubled $1.4 billion pension debt deal.
The confidential plan surfaced a month before a March 1 deadline for Detroit to secure additional concessions from creditor or force U.S. Bankruptcy Judge Steven Rhodes to implement cuts.
A leading national municipal finance analyst offered a grim review Friday of the city’s plan, saying it appears to be driven by Gov. Rick Snyder’s desire to settle the bankruptcy before September, when the Detroit City Council could legally vote to remove Orr from office.
“The focus seems to be on getting this completed before the November elections,” said Matt Fabian, managing director of Municipal Market Advisors in Concord, Mass.
Fabian, who reviewed the document for The Detroit News, said the plan follows a pattern the city’s lead bankruptcy firm, Jones Day, has displayed in prosecuting the Chapter 9 case.
“The point of these attorneys is to be able to damage the creditors as quickly as possible —that’s really the point of the bankruptcy to date,” Fabian said. “This plan is an attempt to help bully creditors into accepting the Jones Day terms.”
The document also may help the city’s attorneys “regain momentum” after Rhodes twice rejected an early settlement with two big banks, Fabian said.
Fabian said the plan’s treatment of bondholders getting paid pennies on the dollar could leave the city ostracized from the bond market for long-term borrowing for years to come.
And with the city’s casino and property tax revenues still in decline, Fabian said, the city’s finances are not stabilized enough to live without the ability to borrow money for economic development and improving services.
“A plan like this could have the city back in bankruptcy in five years,” Fabian said.
City to collect $47M per year
Under the city’s 40-year proposal for the water department, Detroit would maintain ownership of the utility and collect $47 million a year, which would help pay for retiree pensions and help bankroll Detroit’s revitalization.
“Some of the key areas we’re looking at are that Detroit maintains ownership, a revenue stream back to the city that also is a good deal for rate payers and we hope that pensioners’ rights can also be protected,” Wayne County Executive Robert Ficano said in a statement.
Detroit would be paid $47 million a year for 40 years — $1.88 billion total — and retain ownership of the facilities but would be outnumbered on a new board overseeing the newly created Great Lakes Water and Sewer Authority, according to a preliminary plan of adjustment obtained by The Detroit News.
The board would include two members each from Wayne, Oakland and Macomb counties, two city appointees and one from Snyder.
Detroit would become a wholesale customer of the authority, which would provide water and sewer service to about 4 million customers across southeast Michigan. Currently, Detroit cannot profit from the water department operations.
The impact on rates for water and sewer customers remains unclear.
The $1.88 billion figure is down from the $9 billion price-tag floated to the suburbs last fall. Oakland County officials said they want to see additional savings.
“We’re moving in the right direction,” Oakland County Executive L. Brooks Patterson said. “We’ll see if there’s any more costs that can be cut.”
Patterson said he had not seen the proposal, but is leery about having the suburbs responsible for deferred maintenance, system upgrades and legacy costs.
“So we’re going to take our time and go over all of the details to make sure we don’t make any 40-year mistakes, if you know what I mean,” he said.
Hackel said he remains “confused about the whole process” and that Macomb and Oakland counties may need to hire their own consultants to study the plan.
“If we’re serious about creating an authority, we should do that first,” Hackel said. “And then figure out terms and conditions.”
State Rep. Kurt Heise, a longtime critic of DWSD and former Wayne County environmental director, said Friday the city’s new proposal “is really the best plan I’ve seen so far for the customer communities.”
“Certainly $47 million a year is a lot better than the $200 million a year, which was (Orr’s) original proposal,” said Heise, R-Plymouth, adding the plan would put Detroiters on the same level as suburban users.
“By treating them as regular customers of the system, it gets them to have more skin in the game,” Heise said.
Art would be held in trust
Under the plan, the DIA’s art collection, museum and assets would be held in a charitable trust and remain in Detroit forever, divorced from the whims of city finances and politics.
That effort would be funded by $370 million from 10 regional and national foundations, $350 million from the state and $100 million from DIA donors.
The money comes with strings, though. The city and donors want oversight of the new DIA charitable trust and “appropriate” financial oversight of the city’s pension funds, according to the plan.
Donors also want Michigan Attorney General Bill Schuette to sign off on the plan. Schuette has said he’ll oppose any reductions of pensions in violation of the state constitution, which Rhodes has ruled doesn’t apply in federal bankruptcy court.
Jeff Williams, chief executive officer of Public Sector Consultants in Lansing, said a key hurdle blocking Detroit’s exit from bankruptcy remains convincing the public and philanthropists to approve a plan that would save art, but slash retiree pensions.
“You’re going to approach me to give to art and at the end of the day, I know it’s going to (the pension of) grandma,” Williams said. “That’s a tough sell.”
Staff Writers David Shepardson and Lauren Abdel-Razzaq contributed