Politics & Government
1:35 pm
Wed June 4, 2014

No "grand bargain" for Detroit's water department, as Orr considers private bids

As “grand bargain” legislation sails through Lansing, the fate of Detroit’s water department could become the biggest issue holding up a speedy exit from bankruptcy.

Detroit emergency manager Kevyn Orr maintains the city needs to find some way to generate revenue from the system, which serves more than 4 million people in southeast Michigan.

Orr is still pursuing two different possibilities: spinning the department off to a regional water authority, or leasing it to a private operator.

Talks to create a regional authority broke down earlier this year, when suburban county leaders balked at Orr’s proposal – which involves the authority making annual lease payments of around $50 million to bolster the city’s general fund.

Orr is also reviewing bids from private operators to run the system. For now, his office will only say the city has received “several” bids from unidentified companies, and will release more details in the coming weeks.

Some experts and DWSD-watchers are skeptical that any serious private entity would want to run the system under current conditions.

Donald Cohen heads the group In the Public Interest, which researches government contracting and privatization.

Cohen says big private water companies tend to be cautious about such deals, especially when they involve long-troubled systems like Detroit’s. In many cases, the finances just don’t work out.

“Because there is concern – all over the country – about systems that are out of compliance with the Clean Water Act, systems that have not maintained themselves, (and) systems where the water rates are too low,” Cohen says.

Jim Lang, a retired lawyer who writes the Detroit Water and Sewer blog, says he’ll be skeptical until we see details of the bids.

Lang says that any bid is likely “highly conditional,” in part because bankruptcy-related time pressure has rushed the process along.

“I think it’s highly unlikely that any company that might be a prospective operator has had time to crunch the numbers, and make a decision,” Lang says.

“It would take at a minimum many months for evaluation, and to make a realistic bid.”

City and suburban county officials are still trying to revive the regional authority option in court-ordered mediation.

There has been some discussion of decoupling the water department issue from the whole bankruptcy process – an idea both Gov. Rick Snyder and Detroit Mayor Mike Duggan have expressed support for recently.

That would leave more time for the parties to work out their issues. But it would also leave Orr without any immediate way to monetize the system.