Fate of Detroit's water department a big question mark in city's plan to shed debts

Feb 18, 2014

Credit Kate Boicourt / IAN

What does the future hold for Detroit’s water and sewerage department?

We should have a better idea later this week, when the city’s emergency manager, Kevyn Orr, submits a landmark plan in bankruptcy court this week.

Orr must submit a plan of adjustment for how to deal with Detroit’s estimated $18 billion in long-term debt, and one major sticking point has been what to do with the water department.

Orr has been pushing a plan to lease Detroit’s facilities to a regional authority, giving Detroit’s suburban water customers the added political control they’ve long wanted.

But suburban leaders have balked at the city’s proposals so far. They’ve called the initial price tag ridiculous; accused Orr’s office of withholding crucial information during negotiations; and called the whole scheme a way of passing off the system’s long-deferred maintenance costs onto suburban ratepayers.

Oakland County Executive L. Brooks Patterson hasn’t been shy about badmouthing the process. In his State of the County address last week, he shared his instructions to his negotiators.

“My directive to them from the beginning was incredibly simple, given the complexity of the challenge: no deal is better than a bad deal,” Patterson said. “Pretty simple, but damn effective.”

Patterson said he’s instructed his officials to consider alternatives to being part of Detroit’s system, including what he calls the “nuclear option:” building the county’s own water and sewer system, rather than paying to be part of what he calls Detroit’s “monopolistic web.”

Macomb County Executive Mark Hackel has suggested privatizing the water department under the control of a regional board might be a better option than a regional authority.

If Orr and regional leaders can’t reach a deal, the water department could be sold off to private investors.

Officials with the emergency manager’s office have said some private equity firms have expressed interest in the department — if they could raise customer rates. Private equity has increasingly moved into municipal water systems as cash-strapped local governments look for a way to pay for needed upgrades.

Orr’s plan of adjustment could contain some “placeholder language” regarding the water department, if negotiations are to continue beyond this week. State officials jumped in last week to try and jumpstart the stalled talks.

Cate Long, a municipal finance blogger for Reuters, says the water department and the “political viability” of the regional authority idea are likely to be the biggest question marks in the plan of adjustment.

And Long says that unlike other players in Detroit’s bankruptcy, regional leaders can’t be forced into a deal: “Orr and the bankruptcy judge cannot force them to accept that.”