Bankruptcy creates 'unique opportunity' for regional water board
If Detroit's historic water deal is an opportunity seized, the proof is in the details — and who pushed hardest to get it done.
Representatives from the city and the three suburban counties made the rounds Thursday to explain the complex transaction. The agreement aims to excise the Detroit Water and Sewerage Department's record of corruption and bad habits by imposing the accountability and strict financial controls found in an Oakland County of L. Brooks Patterson.
Enthusiasm is mixed. As bullish as Detroit officials are over the prospect of cheaper borrowing costs and a fatter capital improvement budget, Macomb County officials admit to "suspicion" of the deal. And no one denies that the pressures of bankruptcy deadlines, federal mediation or pushing by Gov. Rick Snyder and key aides conspired to make the deal reality.
So what? This is a "grand bargain" all of its own, a potential solution to a mutually contentious problem certain to grow more expensive for four million ratepayers across southeast Michigan. How could it do anything else as the aging system continues to fail with burst water mains, sinkholes and delinquencies unable to be sustained by the status quo?
Like it or not, the largest municipal bankruptcy in American history offers the city, the suburbs and the Snyder administration the tools to restructure the sprawling utility that serves Michigan's poorest and wealthiest communities. Failure to address the management, governance and capital needs of the regional asset, still to be owned by the city, would be an epic mistake.
Instead, the region is poised to witness a water restructuring that attempts to respect Detroit's ownership of the underlying asset while addressing the legitimate concerns of suburban customers — namely, whether payments by suburban ratepayers are being used to subsidize Detroiters who don't pay, the general fund, or both.
The Great Lakes Water Authority would create an audit committee that would report directly to the authority's board, not managers who could manipulate decisions by hiding data. It would require a five-vote supermajority to raise rates, and would institute transparent purchasing guidelines to minimize self-dealing, epitomized by the corruption of the Kwame Kilpatrick years.
The authority would have the ability to issue bonds through the Michigan Finance Authority. A concession by the state, the move would give the system ready access to capital markets and would reduce borrowing costs for both the water authority and the Detroit water department, whose credit rating is likely to be negatively impacted for years to come by the city's Chapter 9 bankruptcy.
"We think it's a road map going forward," said Gerald Poissant, chief deputy executive for Oakland County. "It's a unique opportunity only because of the bankruptcy. We thought it was the best deal under the circumstances we were going to get."
It should be, considering the proposed transaction bears the unmistakable mark of the financial controls Oakland has been demanding since emissaries for Emergency Manager Kevyn Orr — chiefly Ken Buckfire, his chief investment banker — began talks with the counties over the future of the sprawling water system.
The passage of time, the on again, off again negotiations and the looming threat of a confirmation trial moved the deal dramatically. Proposals morphed from the counties contributing $9 billion to the system over 40 years to one in which the city and the counties would contribute $2 billion over the same period — for capital improvements only.
The payments of $50 million per year into the system's capital improvement fund would be contributed by all water and sewer department customers, officials say, suburb and city alike. Each locality, Detroit included, assumes responsibility for billing, collections and covering revenue shortfalls, if any.
The goal is to institutionalize local accountability, to reassure suspicious suburbanites that Detroit assumes responsibility for its deadbeats who don't pay as readily as, say, Dearborn or Southfield would assume responsibility for their deadbeats.
"It's a great deal for the city of Detroit," said Melvin "Butch" Hollowell, corporation counsel for Detroit. "We think it would be good even if we weren't in bankruptcy. This deal stands on its own."
In part, that's because it has strong lineage. An underappreciated aspect of Detroit's restructuring, begun long before Orr took the city into bankruptcy 14 months ago, is the model of regional oversight and management quietly established by the authority governing the renovation and management of Cobo Center.
That model is not lost on the water negotiators, who partly patterned the controls, purchasing guidelines, transparency and management expectations on the Detroit Regional Convention Facility Authority. Overseen by appointees from Detroit, the state, and Wayne, Oakland and Macomb, the 5-year-old authority is a success story in a Detroit that shares control but reaps the rewards.
The renovated Cobo, its financials available online, remains in Detroit, just as the city would retain ownership of a water and sewer system. It serves roughly 40 percent of the state's population, who deserve higher standards, better oversight and sweeping upgrades financed by all customers.
Without Chapter 9, that wouldn't be happening.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays.