Oakland County Executive L. Brooks Patterson believes Detroit's suburbs will ultimately fund its bailout. (Clarence Tabb, Jr. / The Detroit News)
L. Brooks Patterson wants everyone to know who is really paying for the grand bargain to bail out Detroit. He says it’s the region’s water customers.
The Oakland County executive and his team have been doing a little math, and they say it adds up to a massive transfer of cash from the pockets of regional water ratepayers to the city treasury.
It’s all a bit complicated, but here’s what Patterson says is happening:
The bankruptcy plan of adjustment put together by Emergency Manager Kevyn Orr establishes a Pension Restoration Trust that will erase the shortfall in city pension funds with additional payments over and above the required annual contributions.
Most departments will amortize the debt over 30 years.
But the plan demands the water department substantially fund pensions for its retirees in 10 years. That shortened period means higher annual payments. Water department ratepayers, who are now contributing $15 million to $18 million a year to the pension fund, will be bumped to $65.4 million in the first year, and $45.4 million for the next nine.
That adds up to about $474 million.
The extra revenue, Patterson contends, will cover the city’s entire obligation to the trust for the next decade, so that it can use the payments from other departments to bolster the city’s general fund, if it chooses. Patterson figures they’ll have a $25 million-a-year windfall to work with.
“You think the $195 million from the state is a big deal?” Patterson asked. “What about the $474 million rate payers will fork over?”
Thus far in 2014, fully half of the retail water customers in the city of Detroit aren’t paying their bills, the bulk of the burden will fall on suburban ratepayers.
Oakland and Macomb counties have said from the outset of the proposal to create a regional water authority that there are too many consequences of the plan that haven’t been fully exposed or explored.
The accelerated pension amortization falls into that category. Negotiations on the authority are currently being mediated by the bankruptcy court, and the parties are under a gag order. But since the pension payback was also a subject of the bailout legislation, Patterson feels unleashed.
And you can bet he’ll be talking about the issue long and loud when he heads to Mackinac Island for the Detroit Regional Chamber’s policy conference.
The message he’ll pound home is that water customers, who can already expect to be on the hook for at least $2 billion in infrastructure repairs, will now have to erase a pension shortfall caused in part by city’s failure to make adequate contributions to the funds.
Over the next decade, Patterson says, water customers can expect their rates to double or more. That’s no grand bargain for them.