• The 9th Plan of Adjustment: a draft is filed

    To reflect its settlement with bond insurer Financial Guaranty Insurance Co., the city of Detroit filed an updated Plan of Adjustment today. It’s a draft, so it will be updated before the confirmation hearing ends next week.

    Here is the city’s 8th Amended DRAFT Plan of Adjutsment

  • Council Member Mary Sheffield on her “no” vote on the water authority

    Calling it the “most challenging vote” during her time on the Detroit City Council, Mary Sheffield explains her opposition to the Great Lakes Water Authority in an op-ed piece in the Michigan Citizen. The newspaper is our partner in the Detroit Journalism Cooperative.

  • Bankruptcy Judge: No halt to water shutoffs

    Judge Steven Rhodes this morning denied a request to halt the water shutoffs to thousands of customers with past due bills.

    “The harm to the city would be significant,” he said.

    Following the two-day evidentiary hearing last week, Rhodes read his decision from the bench before the bankruptcy trial proceedings resumed. He said he would enter a written order.

    Rhodes called the city’s “10-Point Plan” that helps customers “a bold, commendable and necessarily aggressive plan” that appears to have “been generally successful.” But he also pointed out that it’s “less clear” that the plan will be of any assistance to those too poor to pay water bills.

    “This program has led to a significant number of service restorations,” Rhodes said. “There remain, however, thousands of customers whose service was terminated and not restored.”

    Rhodes agreed with the plaintiffs – a group of water customers, attorneys and welfare rights groups – that irreparable harm occurred when water service is halted. But he also said “significant harm” could occur to the city if the six-month stay was granted. “The last thing it needs is this hit to its revenue,” Rhodes said.

    Following the judge’s ruling, the Detroit Water Brigade issued a statement, condemned Rhodes’s decision and said members would “initiate a sustained and escalating campaign of nonviolent direct action with a simple demand: that water be restored to all the people of the City of Detroit.”

  • Water Shutoffs Hearing: Day Two

    The hearing to help Judge Steven Rhodes decide whether to place a six-month moratorium on residential water shutoffs in Detroit is stretching into a second day. A group of welfare rights advocates, lawyers and 10 customers are asking the judge to order a halt to service interruptions.

    Their witnesses testified yesterday about problems with customers getting on payment plans. A nurse described diseases that can thrive when people don’t have water, and a public utilities expert said Mayor Mike Duggan’s 10-point plan to help people pay water bills won’t work because it increases the amount of money customers owe if they miss a payment.

    But the city’s first witness says the deal for the new regional water authority will fall apart if the shutoffs are halted. Consultant Eric Rothstein was paid by the state to help form the new Great Lakes Water Authority as part of the bankruptcy negotiations. The Chicago-based Rothstein says if people won’t have their service shut off, some just won’t pay their water bills. And he says if those funds are not coming in, the financial projections for the new authority won’t be accurate and the deal will “essentially collapse.”

    We’ll have updates until the hearing ends.

    3:45 p.m.

    After an afternoon of law school-like discussions, Judge Steven Rhodes says he’ll issue his ruling at 8:30 a.m. Monday when the city’s bankruptcy trial resumes.

    11:57 a.m.

    From the testimony of Darryl Latimer,the deputy director and chief customer service officer at the Detroit Water and Sewerage Department.:

    *The number of water service shutoffs this year is about the same as last. What’s the difference? “One of the biggest things is publicity. We always, year after year, always execute shutoffs and never really talked about it,” Latimer said. “This year there was a concerted effort to publicize and get work out to the public before we started. … We wanted customers to be proactive with their accounts … You’re hoping customers come in (and pay) so it decreases shutoffs.

    *Latimer said there was an increase in bill collections after the publicity about the shutoffs began. “Once there was an awareness of what was actually going to take place and also customers started to get an understanding of if they receive a shutoff notice, now they’re actually coming out. In the past, they didn’t believe we would come,” he said.

    *Of the roughly 24,000 shutoffs this year, as many as 15,000 have been restored, according to Latimer. City attorney Sonal Mithani, of the Miller Canfield firm, asked him why the remaining customers did not have service restored.

    “It’s a combination of vacant homes, a combination of illegal usage. We have a high rate of illegal usage, and there’s possibly some folks that have chosen to not have their water restored. We don’t know exactly the numbers,” Latimer answered.

    *Typically, Latimer said, about 60 percent of the city’s water and sewerage customers are paying bills on time and are not delinquent.

    *Typically DWSD turns off service to between 70 and 90 homes each week.

    * “The Mayor’s 10-Point Plan was designed to give a clear pathway and what you should if you’re having affordability issues, issues with contacting the department, and make a clear pathway for paying the department or getting assistance or getting your service restored,” Latimer said.

    11:45 a.m.

    Current Witness: Darryl Latimer is the deputy director and chief customer service officer at the Detroit Water and Sewerage Department. The latter position he began this year.

    Prior to the filing of this lawsuit to halt the shutoffs, Latimer said the policy was customers who were 60 days past due with bills of $150 or greater were given a 10-day warning prior to shutoff.

    But the city couldn’t turn off service to all customers in that category, Latimer testified. “We had so many customers who were in shutoff status, you couldn’t go after all the accounts,” he said.

    Since the lawsuit was filed, the city has implemented a payment plan: the 10-30-50 plan. “The plan today is to try to execute all shutoffs when any customer reaches shutoff status,” Latimer said. But customers are notified about the scheduled shutoff, including receiving a door hanger at their home.

    10:40 a.m.

    The next witness for the city was Nicolette Bateson, the chief financial officer of the Detroit Water and Sewerage Department. City attorney Tom O’Brien, of the Miller Canfield law firm, questioned her about how the department’s rates are set (they’re based on revenue needs) and how expenditures are projected.

    O’Brien asked Bateson about how customers who pay their water bills are funding those who aren’t.

    “For every $100 they pay in their bill, it means $11 is going to bad debt expenses,” Bateson said. “I would like to close that gap so that everybody who is paying their bill is not going to something that is inefficient in the system.”

    Bateson said she was familiar with the request for the six-month moratorium on shutoffs for past-due customers that Judge Rhodes is considering at this hearing.

    “The impact is trying to understand the extent to which it creates more uncertainty in the ability to collect revenues going forward,” Bateson said. “Shutoffs is a tool in the collection tool box.”

    O’Brien asked Bateson about what happened to bill paying during the roughly one-month halt on shutoffs last summer.

    “For the short time there was a moratorium, there was a reduction in cash flow,” Bateson said.

    10:23 a.m.

    When the attorneys finished questioning Detroit Chief of Staff Alexis Wiley, Judge Steven Rhodes had his own questions. Here are a few, with Wiley’s answers.

    Judge Rhodes: How many customers did you speak to about their difficulty in paying their water bills?

    Wiley: Me personally, probably about six or seven that I met at the centers.

    Judge Rhodes: Among those customers, what were the two or three most prevalent reasons why these customers told you they were having difficulty paying their water bills?

    Wiley: … I would say that they just, some hadn’t paid their bill, they maybe hadn’t received a bill. There were some who were like, “I’m on a tight budget and I wasn’t able to pay my bill.”

    Judge Rhodes: So some people for whatever reason had sufficient resources to pay but didn’t.

    Wiley: That’s absolutely true.

    Judge Rhodes: Some people just didn’t have other income or assets to pay the bills?

    Wiley: That’s true.

    Judge Rhodes: In that second group, were there some people for whom that inability was temporary and others for whom that inability was more long term?

    Wiley: When I spoke with people what they reflected to me things like, “I lost my job,” or “I’m going to start a new job really soon,” or “I was sick.” They all pointed to a temporary situation but they may have been more long term but the pointed to things like that.

    10:05 a.m.

    Attorney Alice Jennings cross examined Alexis Wiley, the chief of staff for Mayor Mike Duggan who helped craft the 10-point Plan to improve payment rates for the city’s water customers. Jennings represents the group asking for the six-month moratorium on shutoffs to past due customers.

    Here’s a portion of their exchange:

    Attorney Alice Jennings: How many people are living in Detroit without water in their homes, Ms. Wiley?

    Alexis Wiley: I couldn’t say exactly.

    Jennings: You don’t know do you?

    Wiley: I don’t know the number

    Jennings: And you don’t know how many people are children, do you, that are living in homes without water?

    Wiley: No.

    Jennings: There’s been no assessment by the mayor or DWSD to make that determination has there?

    Wiley: Not directly.

    Jennings: Or indirectly?

    Wiley: We rely on our partners who do their own analysis of the community who are social service agencies.

    Jennings: How many future shutoffs are planned in the next year?

    Wiley: That’s all based on how many people pay their bills and how many homes are vacated.

    Jennings also asked about the proposed six-month moratorium on shutoffs for past-due customers, beyond the roughly one-month halt to the shutoffs last summer.

    Wiley: We would not consider an extension. Considering Detroiters are the ones who have to pay for the ones who are not paying their bills, we can’t saddle them with that.

    9:52 a.m.

    After receiving about 1,000 calls in August, a United Way assistance telephone line has had about 300 calls this month, according to Alexis Wiley, chief of staff for Mayor Mike Duggan.

    “That means that we’re reaching people, that they understand that there’s assistance and that we changed our model so that we have system in place to really help our citizens. … and keep their water on. That’s all we’ve wanted to do since the beginning,” Wiley said.

    She also testified that after the city developed, unveiled and promoted its “10-point” plan to assist customers enter payment plans for their water bills, about 30,000 customers enrolled. More than 300 people have received assistance through the Detroit Water Fund, according to Wiley.

    In a meeting with the People’s Water Board, Wiley asked that a group of people come to the water fair in August to get assistance and she offered to organize “enough staff” at a customer service center to assist a group the Board would bring.

    “I never got anything,” Wiley said. “We need our customers to come forward: tell us that you have a situation. Tell us that you have a problem. We need our advocacy groups to actually bring people.”

    9:37 a.m.

    City attorneys are questioning Alexis Wiley, Mayor Mike Duggan’s chief of staff, who helped design the Detroit Water and Sewerage Department’s new “10-point plan” to address payment problems and assist customers. The plan has been posted online, distributed at customer service centers and sent to customers, Wiley said.

    In developing the plan, Wiley described how the city team first did some research, talking to customers about what problems they were having getting bills paid.

    Some said they were trying to pay and couldn’t. “You often need more than just an ID. You needed more documentation,” Wiley said, adding sometimes family members wanted to make payments for elderly relatives and couldn’t because of the rules.

    “We took everything that we learned and used that to formulate a plan,” Wiley said. “We built the 10-point plan. We said if you want to come in and pay responsibility for a bill, all you need to do is bring in a valid ID. Then we said we were really cutting red tape and we expanded hours at our service centers.”

    The department hired staff as clerks and put more experienced DWSD staff in position to deal directly with the customers.

    “We knew there were complicated situations,” Wiley said. “And people didn’t have a clear understanding of what it took to enter into a payment plan.”

    The city was asking for 30 percent down, but found that was too much for many people, Wiley testified, so the plan dropped it to 10 percent.

    “We really did some analysis in terms of the financial data and we figured out the average arrearage is about $550. We knew that 10 percent was more approachable for people,” Wiley said. Staff talked with customers in the services centers and heard 10 percent was do-able.

    The city also worked with social service agencies and Wayne County to inform the plan and build the Detroit Water Fund, which currently has about $1.7 million available, funded by multiple sources including the United Way, the General Motors Foundation and the Michigan Health Endowment Fund.

    “The end goal is to really help the customer,” Wiley said.

    9:27 a.m.

    Under cross examination by attorney Kurt Thornbladh, Rothstein continued his assertions that a moratorium on shutoffs for past due customers “would cause more problems than it would solve.”

    Here is one of his responses to a question about halting service.

    “In some cases a pause or deferral is one option to look at. I think there are others. While you’re still providing for shutoffs that are to customers that are demonstrably in a position to pay and thereby don’t have a systemwide moratorium, I think you could look toward trying to address some of those logistical challenges and making it easier for those custom who do face affordability concerns to be able to enroll and access assistance without necessary declaring a systemwide moratorium on shutoffs,” Thornbladh said.

    By in Bankruptcy Court, DWSD, Feature
  • Water Shutoffs Hearing: Day One

    Bankruptcy Judge Steven Rhodes is holding an evidentiary hearing today to help him decide whether he should order a six-month halt to the water shutoffs in the city for people with unpaid bills with the Detroit Water and Sewerage Department. Ten individuals and a handful of welfare rights and legal advocacy groups have requested the moratorium.

    City attorneys, in asking Rhodes to dismiss the request, say such an order from the bench would be unprecedented in a bankruptcy case as it interferes with the daily operations of the water department. They also object to a blanket ban on shutoffs because some water hook ups are illegal.

    Here’s some background on the issue and an explanation of how the issue reached the judge overseeing the city’s bankruptcy trial. Here’s what’s happening in the courtroom.

    4:30 p.m.

    As the state chair of the Michigan Welfare Rights Organization, Maureen Taylor said she has visited hundreds of homes where there’s been no water. “It’s beyond sad. There are empty bottles of water, empty containers of water. It’s sad. People are scared. It’s a horrible thing to see,” she said.

    Taylor was one of the witnesses for the group that’s asking Judge Rhodes to authorize a six-month postponement of shutoffs for residential water service customers with past due bills. Taylor said she doesn’t like Mayor Mike Duggan’s 10-point plan to assist Detroit residents who are having trouble paying their water bills.

    “If you miss one payment, there’s a larger amount of money you have to come forward with and it does not relate to any households who had service cut off and they restored it without permission,” Taylor said during her testimony. “We begged the city of Detroit to let us draft a payment program because we really know how to do it. My organization has been involved with water disputes for over a decade.”

    3:15 p.m.

    Hydration, hygiene, sanitation are the three functions of water, said John Armelagos, who works as a nurse at the University of Michigan Health System and is the president of the Michigan Nurses Association. He testified for the group requesting the six-month postponement of any shutoffs to Detroit’s water customers who have past due bills.

    Like Gaines earlier (see below), Armelagos detailed some of the individual and community health effects of living without water: greater vulnerability to hepatitis A and other diseases, head lice, scabies.

    But under cross examination by a city attorney, Gaines admitted he was not aware of any increase in communicable diseases in Detroit in the last two years while the shutoffs have increased.

    3 p.m.

    George Gaines was the city’s deputy director of health during Mayor Coleman Young’s tenure. Gaines, who has master’s degree in public health, testified about how the water shutoffs could lead to the spread of hepatitis, salmonella, or giardia.

    “When water is shut off, that means you do not have a toilet that you can flush which means you have to get some provisions to safely get rid of human waste. That also means you don’t have any water to wash your hands and you begin to think immediately about what are the diseases that would result from an unsanitary way of defecating,” Gaines said.

    He repeatedly called it a “campaign” to shut off water to residencies.

    “When you start talking about thousands of people without the ability to flush their toilets or wash their hands, I think you put the community at risk of communicable diseases that are passed fecal or oral and can get into the water and into the food that people consume,” Gaines said.

    2:37 p.m.

    Stopping water service because people can not afford to pay their bills only makes problems worse citywide, according to Roger Colton, a public utilities expert testifying for a coalition of individuals, welfare rights groups and lawyers who want to stop the shutoffs to customers with past due bills. Colton says Mayor Mike Duggan’s new 10-point plan to help people pay water bills won’t work because it won’t help people catch up once they get behind  because it increases the amount customers owe if they miss a payment.Instead, Colton recommends low-income residents be allowed to set aside a percentage of their income for their current and future bills. But on cross examination, city attorney Sonal Mithani asked Colton if he knew such a plan would be illegal under Michigan law. He said he did not.

    10:40 a.m.

    But Detroit’s water and sewerage department director, Sue McCormick, says the city can’t afford to ignore payments for service. She says the department needs the funds to operate and to maintain its bond rating so it can borrow money for infrastructure improvements. DWSD director Sue McCormick testified that the number of shutoffs this year has totaled about 20,000 and last year was 24,000. Under questioning by Alice Jennings, an attorney for the plaintiffs, McCormick said she didn’t know how many of the dwellings were vacant or had children or people with disabilities living in them. As of July 31, the city had $86 million in overdue water and sewerage bills. About $42 million of that was for residential services. McCormick is paid $190,000 annually.

    10:15 a.m.

    The first witness was Tracy Peasant, who lives near Marygrove College. She said a large portion of her outstanding bill was due to a faulty sprinkler system at a home she had rented prior to living at her current place. Her water was turned off a year ago and restored in June.

    “Someone came out to my home driving a DWSD truck. I thought that she was coming to turn the water back on. … She said I’m here to make sure your water is still cut off,” Peasant testified. But when the worker saw Peasant’s family members, “She said I can’t do this with these kids and when she left she said you have water now,” Peasant said. The second witness was Maurikia Lyda, who is one of the 10 plaintiffs seeking a halt to the shutoffs. She testified that she tried to talk to someone at DWSD and get into a payment plan for her bill that had topped $1,000. “I called them several times. I could never get through. I was calling and no one would ever pick up the phone. There were days I would call and stay on the phone two and three hours at a time,” Lyda said. “When I finally got to talk to someone about my bill they was telling me there was so much I had to put down. …  I didn’t want to put it in my name because I was a renter. … they was telling me I had to put it in my name.” Lyda, who lives on the east side, said a DWSD representative told her it would cost $100 to transfer the water service to her name and $500 to have service restored. But the day the lawsuit was filed, her water was restored.

  • Bankruptcy Court: A preview of the water shutoff hearing

    Detroit’s bankruptcy trial is postponed for a week but Judge Steven Rhodes is holding a hearing Monday on the issue of water shut offs.

    Here’s why:

    In July, he heard from several people objecting to the city’s Plan of Adjustment. Some of them complained about the cancellation of water service to customers with unpaid bills, and following their testimony, the judge raised questions about the shut-off procedure.

    Now, a coalition of individuals, welfare rights groups and lawyers are asking the judge to issue a restraining order … and prevent the city from shutting off water service. They argued the written motion in court hours before the bankruptcy trial started, and the judge ordered both sides to file more documents before he would decide.

    Since then, both sides have complied, and Rhodes scheduled Monday’s hearing for oral arguments. The coalition asking for the halt to shutofs has  34 witnesses listed for the hearing.

    City attorneys say such an order from the bench would be unprecedented in a bankruptcy case as it interferes with the daily operations of the water department. They also object to a blanket ban on shutoffs because some water hook ups are illegal.

    The city is asking the Judge Rhodes to dismiss the request. Here’s that motion. But, assuming the hearing continues, the city also has several witnesses and exhibits ready to present at Monday’s hearing.

    Last week the judge said he would hold an evidentiary hearing on Monday. NextChapterDetroit.com will be there.


    By in Bankruptcy Court, DWSD, WDET
  • The Water Deal: How it is coming together

    As part of the bankruptcy mediation, the city, Macomb, Oakland and Wayne counties and the state reached an agreement for a regional water system: The Great Lakes Water Authority.

    Today, the Detroit City Council approved the deal in a 7-2 vote. Council President Brenda Jones and Member Mary Sheffield voted against the arrangement, citing the lack of citizen input and participation in the process.

    Here’s Mayor Mike Duggan’s statement about the vote.

    The terms of the Great Lakes Water Authority deal require the County Commissions and the Detroit City Council to sign off by Oct. 10. Macomb County commissioners plan an Oct. 9 vote. The Oakland County Board of Commissioners is expected to vote on Oct. 8. The Wayne County board scheduled an Oct. 2 decision.

    Before the Detroit City Council voted today, members shared their opinions about the deal. Gabe Leland said he didn’t know the “end game,” but that as elected leaders, the council should solve problems for residents and the city.

    “We have infrastructure problems throughout every one of our utilities,” Leland said. “There are real concerns here. This issue does not solve all those problem but were getting to a point, we’re looking in the mirror and we’re trying to solve the issue.”

    Sheffield said she did an informal poll in her district and found residents were opposed by a 3 to 1 margin. “A lot were undecided. That goes back to the public not having the information,” Sheffield said. “I understand the need for improvement in the infrastructure but I think we have to think long term as well and I don’t believe this is the best deal.”


    By in Bankruptcy Court, DWSD
  • Day 10: Detroit’s Bankruptcy Trial

    The lineup today includes witnesses Ron Bloom, Sue McCormick, Suzanne Taranto and Michael Plummer.

    Bloom, who works for the investment banking firm Lazard Ltd., was the lead adviser to the Official Committee of Retirees in the Detroit bankruptcy case. He served as  “auto czar” on the White House Auto Task Force that constructed the General Motors and Chrysler bailouts four years ago.

    McCormick is the director of the Detroit Water and Sewerage Department. Taranto is an actuarial consultant who worked on retiree health care costs for the city. Plummer works at Artvest Partners and assessed the Detroit Institute of Arts collection earlier this year. More on that here.

    The hearing is scheduled to begin at 8:30 a.m. and run until 5 p.m. We’ll have updates of the testimony throughout the day.

    5:05 p.m.

    Michael Plummer described the dynamics of the Detroit Institute of Arts in the bankruptcy case as unique in the art world.

    City attorney Geoff Irwin questioned him about whether a large museum’s collection has ever been sold or auctioned. “I had never heard of anything remotely close to this ever happening,” he said.

    Irwin also asked him about his report, evaluating and valuing the entire collection’s worth.

    “Such an evaluation has never been done before of this magnitude,” Plummer said.

    Plummer did not finish his testimony today, but he’ll be back on the stand tomorrow. Also scheduled, Annmarie Erickson, the chief operating officer of the museum.

    3:48 p.m.

    The next witness of the afternoon is Michael Plummer, the founder of Artvest Partners. The New York firm was hired by the city and the Detroit Institute of Arts to “assess the viability and practicality of selling art or otherwise monetizing the collection,” as described last summer by Bill Nowling, spokesperson for Detroit Emergency Manager Kevyn Orr.

    Here is the report Plummer authored for the Detroit Institute of Arts.

    Plummer is being questioned by city attorney Geoff Irwin, of the Jones Day firm. So far, they’re covering Plummer’s resume.

    2:25 p.m.

    After the lunch break, Detroit Water and Sewerage Director Sue McCormick answered a few more questions from attorneys about financial projections, the 4 percent maximum annual rate increases and plans to upgrade the system.

    Judge Steven Rhodes asked his own questions as well. He asked her about the new Great Lakes Water Authority and its impact on the department’s operation “especially as it relates to continued feasibility to provide water service for our area.”

    She replied, “I generally see it as a positive. …. It would allay many of our concerns about access to affordable capital. I also believe based on the structure of the memo of understanding that the ability to help support some of the infrastructure renewals that are required in the city of Detroit without that being an impact on the customers.”

    The new authority, for example, will use part of the planned rate increases to pay for capital improvements. Currently, the department borrows money for the entire cost of such projects.

    When he asked her about the biggest challenges for DWSD, she said, “Unknowns. The things we don’t know.”

    And , she admitted the new Great Lakes Water Authority is going to be a culture change for the department.

    McCormick said it will be a “big shift” …with different metro area communities working together for the benefit of one system. The new authority will require what she calls regional planning terms … and she says there is a significant amount of work to be done regarding permits, the system, people and financial planning.

    The new authority, for example, will use part of the planned rate increases to pay for capital improvements. Currently, the department borrows money for the entrie cost of such projects.

    McCormick also admitted the department has an “undeniable history” but says “substantial progress and trust” has emerged. The new authority, she says is in the best interest of the system, the city and the region.

    11:45 a.m.

    The current witness is Suzanne Taranto, an actuarial consultant for Milliman who analyzed health care costs for the city’s retirees (and dependents.) Milliman began working for the city in June 2012.

    Taranto will be back on the stand after lunch and will continue her testimony. But here’s a bit of what she said this morning, while questioned by city attorney Evan Miller, of Jones Day:

    *In 2012, the city had about 17,000 retirees. Of those, about 11,000 were Medicare eligible. The city also covered 8,500 spouses and dependents.

    *The city had 24 different health plans for retirees: 10 for Medicare eligible beneficiaries and 14 for those who were not.

    *The current liability for retiree health care is about $7.1 billion: about $3.5 billion for general service retirees and about $4.1 billion for police and fire.

    11:28 a.m.

    The director of the Detroit water department, Sue McCormick spend more than an hour on the witness stand. But there was no discussion of the controversial shut offs. No questions from the city attorney who questioned her, Robert Hamilton, of Jones Day. No questions from any of the creditor attorneys.

    A few things of interest from her testimony:

    * The City of Detroit and Detroit Public Schools owe millions of dollars in overdue water and sewerage bills. “The city made little to no payment of their utility bills for the year preceding bankruptcy, and they had made, until recently little to no payment on their bill during bankruptcy,” McCormick said. “The school system has been struggling for a couple of years. A year ago, they were $10  million behind…They did enter into a payment. … We still have a bad debt remaining of over $5 million.”

    * DWSD’s total budget is about $405 million.

    * The Plan of Adjustment provide “adequate levels of funding” to protect the system from a “material risk of failure,” McCormick testified. “Like any system, I think we will almost certainly have failures. We will have water mains break. We will have sanitary sewers fail in very specific areas impacting customers. But a fail for the system overall and its ability to service customers? No, I don’t think so.”

    10:36 a.m.

    Also related to the bankruptcy case, Judge Steven Rhodes will hold an evidentiary hearing on Monday about whether he will temporarily halt the shutoffs of water service for Detroit residents with unpaid bills. He previously ordered parties to mediation in the dispute.

    In March, the Detroit Water and Sewerage Department began shutting off service to customers — eventually about 15,000. The shutoffs were halted for a month during the summer while the department informed customers about payment plan options.

    Other than the water-related hearing, bankruptcy court will be postponed next week so creditors can respond to the new Plan of Adjustment, filed this week, the Syncora settlement and the formation of the Great Lakes Water Authority as part of the restructuring of the water department.

    9:50 a.m.

    Early in the negotiations, Bloom testified, the Official Committee of Retirees (OCR) determined that pensions would be the priority over health care, partly because of legal arguments, partly because of the emotion attached, Bloom said. “Our initial position as the pension should remain untouched in its entirety but pretty early on we signaled that we could see compromise in the OPEB (other post-employment benefits), the health care,” Bloom said.

    Barnowski also asked Bloom about how interested the OCR was in the overall revitalization of the city.

    “We were relying on the city of Detroit to be there to honor these promises out into the future,” Bloom said. “The reality is as we observed, when you get yourself in bankruptcy, bad things happen. So we were, whether we liked it or not, betting on the city. The revised promises the city would make, whatever they would be, would pay out very time. We had to have belief that revitalization would occur.”

    Bloom also said the political dimension of the bankruptcy has been apparent throughout his work with the case, and all parties have been keenly interested in the city’s long-term revitalization.

    “This is a political environment. The city is a political entity. There are many stakeholders who are political entities who were involved in this case, whether that being the other counties, the state of Michigan itself and our perception, the committee’s perception, was that they had a keen interest in revitalization as well,” Bloom said.

    9:30 a.m.

    As the first witness on Day 10 of the city’s bankruptcy trial, Bloom is being questioned by Dan Barnowski, an attorney for the Official Committee of Retirees (OCR), a bankruptcy court group, separate from other employee or retiree associations, labor unions or pensions systems.

    Bloom described his work on the auto task force as involving a high ratio of retirees to active workers. For General Motors, Bloom said, there were roughly 10 retirees for each active member while at Chrysler it was 6 or 8 to one. The City of Detroit currently has about double the number of retirees for each active worker.

    The OCR, Bloom testified, took its role very seriously as it members and their claims for pensions and lifetime health care costs represented a large amount of the city’ $18 billion debt.

    “We viewed ourselves as representing by far and away the largest creditor interest … roughly 80 percent of the claim amount of the total unsecured claims amount in the city,” Bloom said. “We viewed ourself as a very significant stakeholder in the matter and an important creditor and we believed that we have very valid and important claims. Relative to our claims, I think in general our relationship with the city was professional.”

    Before the bankruptcy petition was filed in July 2013, Bloom said the committee representatives objected to what the city had in its early plans for the case.

    “The plan was not something we thought was remotely fair to the retirees, and so we had a pretty vigorous disagreement about how we thought the case should go. We took the position that the city didn’t belong in the bankruptcy court at all. We took the position that the pensions were constitutionally protected. We took the position that when the city tried to manipulate .. the retiree health care, that that was inappropriate and not consistent with the law.  … We had a pretty serious disagreement at least from where the city started and from where we started.”

    But the months of negotiations and Judge Rhodes’s ruling that the pensions are not constitutionally protected in bankruptcy led to movement on both sides, Bloom said.

    Barnowski asked Bloom if he thought the city had shown favoritism to the retirees as compared to other creditors. Bloom replied no.

    “We felt like we had very significant claims her both legal and political. We felt we were 80 percent of the claim amount and that justified a significant, some tension to our concerns,” Bloom testified. “We felt we had very strong legal arguments as the other protection of our position. We had been ruled against on that but we were appealing. We felt like we got the best we could get but in no sense did we view that as favoritism.”

    By in Bankruptcy Trial, DWSD, Feature