Water authority OKs 40-year lease of Detroit system

Charles E. Ramirez and Ursula Watson
The Detroit News

A six-member board representing Detroit, its surrounding counties and the state signed off Friday on a deal to lease the city's water and sewage system to a regional authority for 40 years, ending lengthy and contentious negotiations between the region's top leaders.

The Great Lakes Water Authority board of directors' 5-1 vote launches Metro Detroit into a new era, as Detroit transitions away from providing water and sewer service to other communities after more than 100 years.

The authority will lease the Detroit system from the city for $50 million a year plus about $50 million a year toward pension costs and a fund to help struggling customers.

Reaction from key players in the lease negotiations, mediated in secret by federal Judge Sean Cox, reflected tension between city and suburban interests. For months, leaders in Oakland and Macomb counties had expressed concern that the lease would force them to bail out the money-losing Detroit Water and Sewerage Department.

In a statement Friday, Detroit Mayor Mike Duggan called the approval a historic step "in resolving decades of conflict between Detroit and our suburban neighbors."

Gary Brown, vice chairman of the water authority boar, talked about he new lease agreement.

Oakland County Executive L. Brooks Patterson, who had been a loud skeptic of DWSD's financial data before the talks began in February, said that in the end, agreeing to lease the system was the suburbs' only realistic option.

"There is a sense of reality that really encompassed the whole 200 days of negotiation, and that was, there is only one game in town," Patterson said at a news conference after the vote. "If you want water, you have to buy it from Detroit. It is a monopoly. We are trapped in it. So knowing that, we tried to carve out the best deal that we could."

Approval required the votes of five of the six board members. Brian Baker, Macomb County's representative, was the lone dissenting vote on the deal.

Oakland County Deputy Executive Robert Daddow, the chairman The Great Lakes Water Authority, during Friday’s meeting.

Macomb County Executive Mark Hackel was an outspoken critic of the emerging lease deal and the negotiations that produced it, saying the process lacked transparency and would cost suburban customers millions of dollars in rate hikes to cover the system's costs.

"Unless someone can tell me this bad deal is better than no deal and the alternative will be worse, I cannot vote in favor of the agreement," said Baker, who is also the budget director for the city of Sterling Heights. "A bad deal doesn't help the region."

Baker added: "... we hope our concerns are unfounded and that today's promises are upheld and we can focus on achieving the needed savings for all rate payers."

In another sign of the acrimony surrounding the lease negotiations, the board voted 5-1 to remove Baker from the search committee for the authority's first chief executive officer.

"I don't take it as (the board being) vindictive," he said. "Ultimately, the board will decide on the CEO."

But Hackel said he believed the board's action was in retaliation for Baker's vote against the lease.

"How can you not think that?" he said. "To me it's very simple: what they did in public is a small example of what I've been concerned about all along. Can you imagine what was going on behind closed doors?"

Hackel said Friday he was disappointed the authority's board approved the lease.

"I'm not comfortable with this at all," he said. "Our local communities aren't comfortable with it either and they're the ones who should have been dealing with this from Day One."

"I couldn't agree more that we need a regional authority," he said. "But we need one that wasn't created in the city of Detroit's bankruptcy."

Technically, the authority has two lease agreements with the city, one for the water system and one for the sewerage system. The $50 million lease payment will be split between the two agreements.

Officials said the twin leases give the suburbs a greater voice in the water system's management and are supposed to limit rate increases for Metro Detroiters.

Details of the leases were released Friday afternoon.

Some highlights include:

■All existing wholesale service contracts, vendor contracts and labor contracts will be transferred to the authority, subject to customer approvals.

■A budget stabilization fund will be created and funds will be set aside from Detroit retail revenues to ensure it meets its customer collection responsibilities.

■The $50 million lease payment may only be used, at the city's discretion, to pay for Detroit water department capital improvements or its debt service obligations for bonds issued to pay for local or regional improvements.

■Detroit Water and Sewerage Department bonds will be transferred to the authority and can only be paid from net revenues of the system.

■The authority's revenue requirements that are targeted not to increase by more than 4 percent a year include the $50 million lease payment, $4.5 million Water Residential Assistance Program payment and authority employee-related pension obligations.

In addition, the authority and the city have a water and sewer services agreement that spell out a couple of other things:

■As the authority's agent, the city of Detroit will set water rates for its residents and is responsible for billing, collection and enforcement. The authority can revoke those responsibilities if the city fails to satisfy the authority's requirements.

■The authority will establish two-year budgets and require quarterly financial reporting on Detroit's performance. A reconciliation committee will address significant budget issues, if necessary.

Oakland County Deputy Executive Robert Daddow, the chairman of the water authority board, said Thursday it will take several months for the water department's assets to be transferred to the authority and make it operational after the lease is signed.

Water authority attorneys said at Friday's meeting that several conditions must be met by Jan. 1, 2016. Among them: the authority must receive actuarial reports from the DWSD retiree system.

Baker said he has five major concerns about the deal that he repeatedly expressed during negotiations.

One is, he said, Detroit gets its lease payment from the authority even if the new system doesn't result in savings for rate payers.

Secondly, he said, the deal doesn't treat every community equally.

"Unlike all other communities, Detroit will only pay the authority what it collects from its residents, not the full amount they owe based on what residents use," he said. "Other communities pay the full bill, regardless of what they collect from their residents."

And nothing prevents Detroit from using the lease payment to subsidize and reduce their rate increases and not make needed repairs, Baker said.

In addition, he said, Detroit gets two votes on the authority's board, giving the city an effective veto over all actions.

"We only get one vote," he said. "It's not an equal governing structure. Without Detroit's cooperation, nothing can get done. I have faith in the current players, but this is a long-term deal."

Finally, the issue of Highland Park's debt of $25 million to the water department in unpaid bills still hasn't been resolved.

"At the end of the day, the certainties are only negative," Baker said. "We're paying more with too little say."

Gary Brown, Detroit's chief operating officer and one of the city's two representatives on the board, said he respectfully disagreed with Baker.

"We're making decisions for what's in the best interests of the region, not what's in the best interests for Detroit or the suburbs," he said. "It's taken 40 years to get this point because it always becomes a Detroit versus the suburbs. This deal, hopefully, will put an end to that."

Deputy Mayor Ike McKinnon is the city's other representative on the authority's board.

Wayne County Executive Warren Evans also praised the board's approval of the lease.

"Though the end result is far from perfect, I am satisfied that the due diligence that has been done provides a well-negotiated deal that paves the way for us to move the water and sewer systems forward together," Evans said in a statement

Pontiac resident Linda Hasson, 50, attended Friday's meeting and told the board she's worried some communities will be able to get away with not paying their fair share for water service.

"I'm very disappointed that at the 11th hour there are municipalities that don't have all of their books in order," she said. "I think this sets a bad precedent. My husband doesn't go to work to pay other people's bills."


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