May 28, 2014 at 11:37 pm

Snyder's stance on Detroit water department plan riles suburbs

Howes and Finley, Day 1
Howes and Finley, Day 1: Columnist Daniel Howes and Editorial Page Editor Nolan Finley discuss the key issues discussed Wednesday at the Mackinac Policy Conference.

Mackinac Island — Gov. Rick Snyder is trying to keep a fight over control of Detroit’s water department from swamping the city’s bankruptcy “grand bargain.”

The governor on Wednesday implored suburban leaders to stop attaching demands to legislation that would provide millions to shore up city pension funds. County executives L. Brooks Patterson and Mark Hackel want strings tied to the bills to protect suburban interests in the water system, but Snyder said those efforts will only “interfere” with the goal of helping Detroit pensioners.

“We’re not here to bail out the water department,” Snyder said in an interview with The Detroit News at the Mackinac Policy Conference, an annual gathering of government and business leaders held on the resort island.

As part of its bankruptcy reorganization plan, Detroit wants to force Detroit’s Water and Sewerage Department to make $428.5 million in accelerated payments by 2024 — or $47.6 million annually — toward water department employee pensions.

Snyder said the accelerated payments would result in an annual rate hike of $2.50 per household for the regional water system’s 4 million customers, but save them $500 million in 30-year retiree legacy costs.

It was the first time the Republican governor has acknowledged that suburban water ratepayers have to chip in to help get Detroit out of bankruptcy. Snyder said the water department payments help the city contain base cuts to retirees in the General Retirement System to 4.5 percent.

“Instead of paying your mortgage over 30 years, you pay it over 10 years, saving even more money,” Snyder told The News. “It doesn’t cost the ratepayers any more. It’s just an acceleration of the payment schedule. It actually saves the ratepayers money in the long-term.”

Patterson, of Oakland County, and Hackel, of Macomb County, are trying to get senators to amend Detroit bankruptcy legislation to block the city’s accelerated payments. It’s a condition they want lawmakers to attach to the state’s contribution of $194.8 million to the so-called bankruptcy “grand bargain.”

“It’s a grand bargain for Detroit because Detroit ain’t going to pay a dime during that 10 years,” Patterson told The News. “(The suburbs are) picking up their payments, we’re picking up our payments and somehow they’re going to say we’re saving money. It just doesn’t work.”

Snyder said the accelerated payments save ratepayers about a half billion dollars by reducing long-term liabilities.

Detroit’s plan would reduce the water department’s 30-year pension liabilities by $250 million and eliminate $243 million in retiree health care and benefits, according to city projections obtained by The News.

Hackel said Snyder and Detroit Emergency Manager Kevyn Orr’s plan to accelerate pension payments amounts to an “artificial tax” on suburban customers for the benefit of Detroit’s general fund.

“I’m concerned about any attempt to try to monetize that water department,” Hackel told The News. “Why should ratepayers in southeast Michigan have to pay for the bad management of Detroit’s finances?”

Hackel said he wants the state to contribute financially to restructuring the water department and cover the costs of consultants for the suburbs.

Last week, Patterson lobbied Oakland County representatives on the issue in an attempt to get them to add an amendment to the Detroit pension aid bills preventing the accelerated payments.

Patterson said Wednesday he intends to lobby senators over the next two days of the conference on Mackinac Island.

“I don’t have a good feeling about my ability to stop this runaway train,” Patterson said.

Snyder isn’t the only one concerned about the water fight bogging down the “grand bargain.”

Chief U.S. District Judge Gerald Rosen, the chief mediator in Detroit’s bankruptcy, held a conference call with a group of lawmakers a week ago and urged them not to add provisions to the bills related to the water department, according to Oakland County Reps. Eileen Kowall and Gail Haines.

Rosen has tapped U.S. District Judge Sean Cox to lead closed-door negotiation sessions between the counties and Detroit after U.S. Bankruptcy Judge Steven Rhodes ordered all parties to mediation over the city’s original proposal to form a regional water authority.

Wayne County Executive Robert Ficano said the counties need to reach a deal on the water department with Orr early this summer or risk the city seeking a bankruptcy court “cramdown” of privatizing the water system. A private operator could accelerate pension and infrastructure payments, passing along bigger rate hikes to customers, Ficano said.

“There’s going to be some (amount of money) that goes back to the city,” Ficano told The News. “We have to give mediation an honest shot to see if this will work.”

Modest rate increases likely

While water department politics were playing out Wednesday on Mackinac Island, the city’s plans also got hashed out in bankruptcy court in Detroit.

Detroit attorney Heather Lennox told Rhodes water rates need to be hiked in the city’s debt-cutting plan to pay for capital improvements.

“We are predicting modest rate increases,” she told Rhodes during a hearing.

Rhodes has said Detroit’s bankruptcy “offers a unique opportunity” to give counties long-sought input into management of a utility that services 4 million customers across the region. Detroit has pushed for cash payments from suburban users to upgrade city services and pay legacy costs.

The department covers nearly 1,100 miles and serves about 40 percent of the state’s population in 125 suburban communities.

Communities pay a combination of a fixed amount per month as well as an amount for every thousand cubic feet of water — or every 7,480 gallons. Detroit residents, on average, pay about 25 percent less than suburban water customers.

More than half of the city’s customers have delinquent water bills.

The city’s debt-cutting plan would save the counties and water customers about $260 million, Lennox said.

“Wow, that’s a big number,” the judge said.

The debt-cutting plan relies on pension cuts and other measures that would help overcome a shortfall in the city’s pension funds.

Rhodes asked the city’s bankruptcy attorney whether there would have been a pension shortfall if customers had been paying higher rates over the years.

“I think that’s a logical conclusion,” Lennox said.

“So, in a sense, they were undercharged all those years?” the judge asked.

“I think everyone was undercharged,” the lawyer said.

The city’s pension funds used insufficient estimates in determining how much money was needed to pay for pensions and benefits over the past few decades, Lennox said.

“That didn’t happen overnight,” Lennox said.
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'There's a lot of good discussion that can happen on water and sewer, but it shouldn't interfere with the grand bargain in my view,' Snyder told reporters at the Mackinac Policy Conference. 'This is the right thing to do; let's get this package done. And then I'm happy to have separate dialogue on water and sewer.' / John L. Russell / Special to the Detroit News