Highland Park may be dissolved over water deal

Nolan Finley, Ingrid Jacques and Chad Livengood
The Detroit News

Mackinac Island — Highland Park may be dissolved as a government entity to finish a long contentious deal to form a regional water authority.

That's one of the solutions under consideration to bust through a major barrier and move the city-owned Detroit Water and Sewerage Department under the control of an authority made up of Detroit and Wayne, Oakland and Macomb counties, county officials confirm.

In the negotiations, Oakland County is insisting on a resolution of roughly $32 million in unpaid water bills, most of which is owed by residents of Highland Park and the rest by Detroit.

The initial water authority deal was forged a year ago with the help of Gov. Rick Snyder during the Detroit Regional Chamber's policy conference here. Although a memorandum of understanding was signed by leaders of the city and all three counties, a final pact has been elusive. There is a June 14 deadline to finalize a deal.

The parties will meet Monday with federal Judge Sean Cox for a mediation session specifically focused on resolving how the delinquent water bills will be covered, according to sources.

Oakland County Executive L. Brooks Patterson, supported by Macomb County Executive Mark Hackel, is balking at the idea of dissolving Highland Park, which would lead to having the debt absorbed into the water system and spread across all customers. The idea would benefit the city of Detroit.

The board is to meet at 9 a.m. to consider the agreement, which would lease Detroit's system to the authority for $50 million a year

"It's not the responsibility of the suburbs to cover Detroit and Highland Park's arrearage," Patterson says. "That's a deal-breaker. I can't go to my taxpayers and tell them I agreed to this."

Patterson says the memorandum of understanding originally contained so-called backstopping protection, meaning "we're not going to backstop Detroit if it fails." But he says that language is no longer in the agreement.

The memorandum did not contain language about Highland Park's unpaid bills.

Highland Park is $25.6 million in arrears on its water bills and has $2 million in assets, according to a source familiar with the finances. Collecting the debt from the enclave is a lost cause.

So Patterson is asking the state to float a bond issue to cover the water bill debt. Hackel is also objecting to spreading the arrearages of Highland Park and Detroit ($5.6 million) across the system.

"This is a huge issue," says Hackel, who has been vocally opposed to the deal since signing the outline. "It's a bad precedent and sends the wrong message to other communities about their responsibilities. It's an example of the inconsistencies between what the (memorandum) says it will do and the reality of how it's being implemented."

One way out that is being discussed is having the state take Highland Park into bankruptcy and asking a federal judge to dissolve it as an organized community, with Detroit absorbing its residents. The judge could then force the regional authority to take on the debt or impose a special tax levy on the region to raise the money.

"The community goes away, but the debt doesn't," Patterson says.

Last month, a Wayne County Circuit judge ordered Highland Park to pay the Detroit Water and Sewerage Department $20 million for its unpaid water bills. The city's mayor, DeAndre Windom, has vowed to appeal the ruling.

Hackel says another possibility for dealing with Highland Park is to use the first of $50 million in lease payments Detroit will receive from the authority over the next 40 years to wipe away all of the unpaid water bills. That approach would deny Detroit money it is counting on to fix its water infrastructure, forcing it to dip into its general fund for maintenance and repair dollars.

"If all of a sudden now we're trying to divert that $50 million to pay for an unpaid debt or for those who aren't able to pay their debt, that's a conflict of what was agreed upon in the beginning," Hackel says. "That's not what this is for. I don't believe the ratepayers would expect that that's what we should agree to."

Oakland County is also demanding tighter restrictions on how Detroit spends the lease payments. Patterson wants the city to spend the money first on fixing water leaks that are driving up costs for the entire system.

A final agreement needs the approval of Detroit Mayor Mike Duggan and a majority of the six-person regional water authority board. The board consists of two Detroit appointees; three representatives from Macomb, Wayne and Oakland counties; and one appointee of the governor representing water customers outside the three-county region.

Cox, who has placed a gag order on participants in the talks, wants Duggan and Patterson to meet alone with him Monday in hopes the two can get to a handshake on the deal. Patterson says he won't do it.

"I'm not going in there without my team," says Patterson, referring to his deputies, Bob Daddow and Jerry Poisson, who have taken the lead in vetting the agreement.

Duggan sidestepped a question Wednesday after a speech to the Mackinac conference when asked to respond to Hackel's public comments about the water authority.

"He's not as afraid of the federal judges as I am," the mayor quipped, referring to the gag order.