Detroit, suburban officials reach deal on Great Lakes Water Authority

Steve Pardo, Robert Snell and Darren A. Nichols
The Detroit News

Detroit cleared another potential roadblock in bankruptcy court Tuesday, with a deal between the city and Wayne, Oakland and Macomb counties to create a regional water authority.

Lawyers for Wayne and Oakland counties told U.S. Bankruptcy Judge Steven Rhodes they will drop their opposition to the city’s bankruptcy exit plan now that a plan has been hammered out for a Great Lakes Water Authority. Macomb County Executive Mark Hackel also backed the water deal.

“We need to put down the swords ... and focus on the region,” Hackel said during a press conference earlier Tuesday with city and county leaders to announce the authority.

Detroit will not have to make major changes to its plan to shed $7 billion in debt since it already contemplated a regional water deal, city bankruptcy lawyer Heather Lennox told Rhodes.

Gov. Rick Snyder visited the federal courthouse in Detroit Tuesday to meet with U.S. District Judge Sean Cox and sign a memorandum of understanding with the parties involved in the deal, Snyder spokeswoman Sara Wurfel said.

Cox and Snyder aide Rich Baird mediated the water authority negotiations at the direction of Chief U.S. District Judge Gerald Rosen, the lead mediator in Detroit’s bankruptcy case.

A spinoff of the Detroit Water and Sewerage Department into a regional authority has been an elusive piece of the bankruptcy plan. The deal announced Tuesday largely follows the terms first reported by Detroit News columnist Nolan Finley, who wrote last month that an agreement was imminent.

The authority aims to maintain Detroit’s ownership of the system while giving suburbs more of a stake in its operations. The city will lease infrastructure to suburban communities in exchange for a 40-year, $50 million annual fee and an annual $4.5 million payment assistance fund. It’s not clear exactly how much each county will contribute, but officials said the money already exists within the system and rate increases will be capped at 4 percent over the next 10 years.

The Detroit City Council, or Emergency Manager Kevyn Orr, and at least one of the three counties must approve the authority by Oct. 10, officials said Tuesday.

The water department will maintain more than 6,400 miles of water and sewer pipes within the city’s boundaries. The authority will be responsible for the infrastructure in the communities outside Detroit. The $50 million fee would not go into the city’s general fund, but stay within the water system for improvements and upgrades.

Under the deal, the new water authority will still be required to make $428 million in pension payments to Detroit’s General Retirement System over the next 10 years, to accelerate payments on those legacy costs, said Bill Nowling, spokesman for Orr.

The regional authority will be governed by a board made up of two members appointed by the city’s mayor and one each appointed from Wayne, Oakland and Macomb counties. The sixth appointment would come from the governor and represent communities outside the three main counties.

Major decisions, such as rate increases, will require five of the six votes to be approved.

“Any two individuals can block an action,” Mayor Mike Duggan said. “We’ve structured it in a way where everybody can participate.”

Additionally, the deal calls for:

■ The authority to support a bond issue to speed up Detroit’s infrastructure improvements. If Detroit leaders choose, the authority would support using some or all of the lease payment for bond issues, supporting up to $800 million for the city to rebuild the system.

■ Detroit to be solely responsible for its system’s operating costs.

■ The authority to be up and running in 200 days.

Detroit and suburban officials have been negotiating in closed-door meetings for months over the water issue and were under a federal gag order not to talk. The deal has been hung up in part over suburban concerns that Detroit’s demand for an annual premium would send water rates soaring.

Suburban leaders said Tuesday that capping rate increases at no more than 4 percent — as well requiring a “super majority” vote on major issues — helped convince them the authority was viable. They also stressed the importance of keeping the $50 million within the water and sewerage system.

“I was a Doubting Thomas going in,” said L. Brooks Patterson, Oakland County executive. “I didn’t think we’d be able to get to this point.”

Hackel and Patterson said suburban customers needed stronger representation on a board. A formation of the new authority would help accomplish that, they said.

“This is very similar to the process we went through to establish the authority that now runs Cobo Hall — a lot of people said it couldn’t be done,” Wayne County Executive Robert Ficano said. “It took all of us coming together to do what’s in the best interest of the region.”

Not everyone praised the deal.

The suburbs were concerned about taking on legacy costs and absorbing Detroit’s high rate of unpaid water bills. The city recently triggered a national outcry when it began shutting off service to delinquent customers. The $4.5 million for an upcoming water affordability plan will be used to help needy people — in the suburbs as well as Detroit — with their water bills, Duggan said.

Of the 1,400 current Detroit water department employees, it is expected that approximately 500 will remain working on Detroit’s local system and approximately 900 will transfer to the authority to run the regional system. The new authority will honor all collective bargaining agreements, Duggan said.

John Riehl, a former president of AFSCME Local 207, said Tuesday he is concerned about the potential loss of employees in the department.

“It takes workers to run the department,” Riehl said. “They have tried various schemes to cut back staff for a couple of years now. It's driving people away.”