Finley: Detroit-suburb feud emerges on water contract

Nolan Finley
The Detroit News

Mackinac Island — The new authority that five months ago took over regional water and sewerage services is locked in a bitter Detroit-suburbs standoff over its first major decision.

Detroit Water & Sewerage Department Director Gary Brown

At risk is $200 million in savings the Great Lakes Water Authority hopes to gain from refinancing debt. It has brought to the surface some old, deep and familiar resentments, with both sides leveling accusations that the other is side-stepping transparent contracting procedures.

“I’m disgusted,” says Oakland County Executive L. Brooks Patterson. “It’s the same old bull that got Detroit in trouble. I want to help Detroit, but I don’t want to become Detroit in that way of doing business.”

Two years ago on Mackinac Island, the priority was getting the water authority formed. This year’s Detroit Regional Chamber policy conference will have to devote some energy to keeping it from coming apart.

The issue is the selection of an underwriting firm for a bond sale to refinance up to $1.2 billion in debt accrued when the system was operated by the Detroit Water and Sewerage Department.

The contract was put out to bid, and 14 firms offered proposals. Four were tossed out as unsuitable, and the other 10 were evaluated by a team put together by authority staff. That evaluation team recommended giving the work to Citigroup as the senior manager and Goldman Sachs as the co-manager.

But instead of approving the committee’s picks at last week’s meeting, Detroit’s representatives to the six-member board raised objections to the evaluation process. Specifically, they challenged the objectivity of the bid scoring and the makeup of the evaluating team.

‘Cronyism’ and ‘red flags’

Detroit representative Gary Brown contends the team should not have been appointed by the authority’s chief financial officer, Nicolette Bateson, who also prepared the request for proposals, something he says violates the authority’s contracting rules and presents a conflict.

“I’m not saying they got it wrong, but we have a procurement process, and it wasn’t followed,” Brown says. “This is our inaugural deal, and we need to start out by following policy and making sure everything is done properly. We don’t want to go back to the old way of doing things.”

Robert Daddow, Oakland County’s representative and Patterson’s deputy executive, contends what really is at work is Detroit’s desire to cut a firm with local ties, Siebert Brandford Shank, in on the work. Siebert was ranked ninth by the evaluating team.

“Normally, the ninth-ranked bidder wouldn’t even get an interview,” Daddow says.

If the name sounds familiar, it’s because Siebert was involved in the controversial debt swap deal that helped bring on Detroit’s bankruptcy. After the swaps were complete, Siebert hired Sean Werdlow, the city’s former chief financial officer, who married the firm’s CEO, Suzanne Shank.

Daddow says he smells cronyism, “and I want no part of it.

“There’s Big C and Little C corruption — the ‘I’ll scratch your back, you scratch mine’ type. Once you start down that path, you only have to look at Kwame Kilpatrick to see where it leads.”

Freman Hendrix, Detroit’s other authority member, says Siebert was not treated objectively by the evaluating team, which he says did not weigh the firm’s extensive local experience.

“I have some issues with the technical aspect of the scoring,” Hendrix says. “It raised some red flags.”

Hendrix and Brown also objected that there were no Detroiters on the evaluation team.

“A fair and balanced process would have benefited from a set of eyes from Detroit,” Hendrix says. “Had there been a Detroit person on the team, you would not have heard a peep out of me.”

Daddow says the formation of the committee followed “standard operating procedure” and says he’s shocked Detroit “would put at risk $200 million in savings, $80 million of which would go to its residents, at the same time they’re complaining about rates.”

Wayne County sided with Detroit in the dispute, and Macomb with Oakland. Each of the counties gets one spot on the board, Detroit gets two and the sixth is appointed by the governor. The state’s member supported the evaluation team’s picks, but has since resigned, leaving a vacancy.

Chairman Robert Daddow

Escalating tensions

This fight is the culmination of resentments that have been building since even before the authority was finalized. Oakland and Macomb accuse Detroit of trying to manipulate the authority to save its residents money at the expense of suburban customers.

“Detroit is serving its own interest and not that of the region,” says Brian Baker, chief financial officer of Sterling Heights and Macomb’s representative to the authority.

Baker cites as an example the refusal of Detroit to support renewing the contract of longtime rate-setting consultant Bart Foster. He accuses the city of wanting an adviser more friendly to the city.

“They’re looking for a lot of analysis that would support shifting costs away from Detroit and to the suburbs,” Baker says.

Brown says he wants the work competitively bid to determine whether Foster’s $600,000 annual fee is appropriate and says the consultant has been in place far longer than the industry norm of three to five years.

The two sides are also at odds over who pays how much for the federal court-ordered separation of sewage and storm water. Daddow says Detroit is trying to unload $9 million in costs it had previously been ordered to pay on to the suburbs.

Daddow is pressing to exploit a favorable bond market. Hendrix and Brown say trying to time the market is pointless, and it’s more important to get this first decision right.

The Detroiters describe the stand-off as “no big deal” and argue it can be resolved before the next authority meeting June 8.

But Patterson says the break is severe and evidence of what he calls the one-sided nature of regionalism.

“I knew this would happen, and I let myself get drawn into it anyway,” Patterson says of the authority. “I’m so tempted to walk away.”

Nolan Finley’s “Little Red Hen: A Collection of Columns from Detroit’s Conservative Voice” is available from Amazon, iBooks and Barnes & Noble Nook.