Detroit Today looks at the financial challenges facing the new regional water authority with Crain’s Detroit Business reporter Chad Halcom. Halcom’s recent article in Crain’s Detroit Business lays out the financial issues facing the Great Lakes Water Authority, the new regional authority formed as part of the Detroit bankruptcy proceedings and negotiations.
Detroit’s bankruptcy process has produced a tentative agreement for a new regional water authority. While there are political, economic and practical matters to work out, one local lawyer and environmental advocate hopes the deal leads to cleaner and greener operations. WDET’s Sandra Svoboda spoke with Nick Schroeck. He’s the director of the Transnational Environmental Law Clinic at Wayne State University Law School.
Nick Schroeck: With our environmental law clinic we’ve been working for the past several years on the pollution discharge permit from the Detroit Water and Sewage District where they discharge into the Rouge and Detroit rivers. So we’ve been working on making sure that they’re meeting their compliance. and that process has actually been ongoing for about 30 years where the city of Detroit was under federal oversight from federal courts because of this combined sewage overflow problem that we had. That means that our storm drains are connected to our sanitary sewers so when you have big rain events we would have these discharges: untreated sewage going into the Detroit and Rouge rivers. That’s really the focus. We’ve been working on trying to clean up those combined sewer overflows and through that we’ve gotten involved in the bigger picture of what’s happening with the Detroit Water and Sewer District.
Sandra Svoboda: And what’s happening with it has certainly been in the headlines in the last week with the new agreement for the Great Lakes Water Authority as part of the bankruptcy settlement.
NS: What we’re, I guess, hopeful about through this Great Lakes Water Authority is the idea we’re going to be investing $45 million a year into infrastructure. So that means we’re going to be doing work on fixing leaky pipes. We’re going to be doing work on making sure the sewage treatment plant is running at its optimal level. There is a lot of equipment there that is way past its expected life span and so hopefully those investments will make sure the plant operates at an optimal level which means fewer discharges, fewer problems, fewer amounts of pollution going into the Great Lakes.
SS: What do you think the priorities should be for the department?
NS: Well the main thing is providing good quality, safe drinking water to the region, and I think so far we’ve done a pretty good job, the collective we, of making sure that happens and really we do provide a good product. The water that we get is actually a pretty quality thing that we get but the No. 1 priority is making sure the systems are in place and the investments are made to ensure that we limit the amount of leakage where we have broken leaking pipes and we’re just wasting treated drinking water that’s going into the ground or going where it shouldn’t be. Fixing those leaks, making sure the system operates at an optimal level. As well as investments in the wastewater treatment plant where we still are having these combined sewer overflows when we have significant rain events.
SS: And how they can best do that keeping an eye on the green-ness of it all?
NS: Green infrastructure is something that we’ve seen adopted in other states. Philadelphia has a massive green infrastructure program that they’re working on. Other cities in Michigan like Lansing and Grand Rapids have invested a lot of money in green infrastructure, and when I say that it means things like diverting storm water. Instead of going into a pipe, we’re going to put it onto a parkland or open green space. We do have a significant amount of vacant property in the city of Detroit and there’s ways to utilize that property in an attractive way where the community has buy in and they look at it and say it looks like a park most of the time but occasionally it will be flooded when you divert stormwater there during a rain event. Those kinds of projects. Things like disconnecting downspouts from storm drains on people’s homes, even vacant homes. A lot of vacant homes still have downspouts that are connected to the storm drain, and that water just runs in there and causes problems at the wastewater treatment plants. Rain gardens: encouraging people to handle stormwater differently on their properties as well as we have a lot of surface parking lots in the city of Detroit, maybe transitioning those to the type of payment that allows water to seep into the ground instead of just running off into the storm drains. All those kinds of green practices are ways to keep stormwater from going to the treatment plant and save some money because it’s much less expensive that putting a big pipe under the ground.
SS: You sound fairly hopeful about the opportunities this deal might bring for infrastructure. Do you have reservations about anything?
NS: As you remember from your work with NextChapterDetroit.com, we actually sent a letter in several months ago asking for some transparency in the negotiations and discussions over the future of the water department. There’s a lot of concerns about staffing, whether or not jobs are going to be eliminated and cut. There’s been discussions going back for a couple of years about how they can kind of resize or rethink the wastewater treatment plan. But that means you’re talking about people’s jobs and their livelihoods, and so we want some transparency about that. We want discussions about who’s ultimately going to be responsible for making decisions about green infrastructure investment versus the old traditional grey infrastructure. Are these going to be public and open discussions? The new Great Lakes Water Authority. Are they going to have open meetings? Are they going to be discussing contracts, purchase agreements, that type of thing in public or is that going to be done behind closed doors? We really want transparency. We pay rates that support the system. There are user fees that are going to go into funding this infrastructure. That’s public money, public dollars and we should have a seat at the table and at least have openness and transparency so we all know these decisions are being made in the best possible light.
Because of the deal announced earlier today for a new regional water authority, attorneys for Oakland and Wayne counties said they would withdraw their objections to the Plan of Adjustment this afternoon. Macomb County will not.
That’s because it’s actually the Public Works Commissioner, Anthony Marrocco, who is objecting to the Plan of Adjustment…and it was County Executive Mark Hackel who signed off on the water deal.
“We are not prepared to waive our objections to the plan. We are having talks with the city,” said Allan Brilliant, an attorney for Macomb County. “We’re trying to resolve our remaining DWSD objections and we’re hopeful that will lead to a resolution of our issues. In the meantime we’re evaluating the Memo of Understanding which as (city attorney Heather) Lennox says has a lot of contingency that have to be resolved before it goes into effect and what effect it might have on our objections.”
Judge Steven Rhodes was clearly not happy.
“I’m not going to resolve any turf battles between the county commissioner and the county executive. I’ve got enough to do in this case,” Rhodes says.
Meanwhile, he lauded both Oakland and Wayne counties for agreeing to the formation of the Great Lakes Water Authority.
Wayne County’s attorney, Max Newman, of the Butzel Long law firm, thanked Judge Rhodes for sending the issue to mediation.
“It was extremely beneficial in bringing about this historical settlement,” Newman said. “We truly appreciate it.”
The judge was complimentary back.
“Let me take this opportunity to thank you and especially your client for the hard work that went into reaching this settlement and for bring the motion that led to the order for mediation,” Rhodes said.
Jaye Quadrozzi, attorney for Oakland County, extended her gratitude to the judge and his team.
“You and your staff have devoted and enormous amount of resources and it’s impressive to watch how hard and how diligent everyone in this courtroom has worked,” she said.
Lennox said while the “framework” for the authority is in place, “there is still a lot of work to be done” including some documentation, governmental consents, permits and getting the consent of creditors and bondholders.
“While this is really a momentous step, there is still an amount of work to be done,” she said.
Here is what the city filed with the court today about the deal, including the Memo of Understanding.
UPDATE: Late Tuesday Judge Steven Rhodes issued an order related to this issue. He sent the parties in the dispute to mediation and said he would rule on the request for a temporary restraining order on Sept. 17.
From Sept. 2: Prior to the start of the bankruptcy trial today, attorney Alice Jennings argued for a temporary restraining order on water shut offs in the city..
“Not only is it a potential immediate threat to those who don’t have water, but because of the possibility of a pandemic medical condition that could sweep through the city, it could affect any and all of us,” Jennings said. “You need water to survive, to live, to thrive and to clean our homes. The first thing that goes when the wager is cut off is sanitation, the ability to not be able to flush a toilet, your Honor, causes severe sanitation issues.”
Jennings said it is a myth that people are choosing not to pay their bills, and she said the city should halt prosecutions of residents who re-attach their water services without paying bills because often it is landlords who are doing that.
Jennings is the founder of the Detroit firm Edwards & Jennings, which specializes in civil rights and employment law. The ACLU of Michigan and NAACP Legal Defense Fund are serving as expert consultants in the water shutoffs case, and the National Action Network, People’s Water Board, Michigan Welfare Rights Organization and Moratorium Now are supporting the request to stop shut offs. The National Lawyers Guild and Sugar Law Center also have local attorneys representing plaintiffs in the case.
Arguing for the city, Miller Canfield attorney Tim Fusco told Judge Steven Rhodes he would be issuing the “most far-reaching order” ever made in a municipal bankruptcy case related to city services if he granted the request for a temporary restraining order. “This court would be issuing an injunction prohibiting the enforcement of local law,” he said.
At an earlier hearing in the bankruptcy case, Judge Rhodes said he’s “reasonably sure (the issue of water shut offs is) probably not within my jurisdiction.” Today he said he would wait for more court filings before deciding when — or if — he would hold another hearing on this issue.
Judge Steven Rhodes today approved the city’s plan to refinance $1.5 billion of its water department debt.
Earlier this month, the city announced a tentative agreement with creditors for the Detroit Water and Sewerage Department. The deal would allow for the refinancing of long-term debt because the city would buy back and then re-issue bonds. Since then, several bondholders have accepted the new terms. About $1.5 billion worth of water department debt will be re-financed at a lower interest rate under the plan.
Emergency Manager Kevyn Orr testified today that the deal saves the water department more than $ 11 million annually on debt service for about two decades. It also means several creditors will no longer object to the city’s financial restructuring plan because their bonds are not impaired as part of the settlement, which will help confirmation of the city’s Plan of Adjustment when the trial begins Sept. 2.
Here’s a timeline of how the DWSD deal unfolded:
Aug. 6: The Detroit Water and Sewerage Department approved a deal to allow the re-financing of about $5.2 billion in debt. After weeks of confidential mediation sessions, the city and its water department bond holders and insurers reached the agreement. It allows the city to buy back existing bonds and then re-sell them at a lower rate to pay off old debt. Commissioners for the Detroit Water and Sewerage Department say the deal will save customers money and reduce some operating costs for the department.
More on that announcement here.
Aug. 12: The Michigan Finance Authority passed a resolution approving financing for the bonds if the tender went through.
Aug. 13: The Detroit Board of Water Commissioners authorized the terms of the new funding for bonds.
Aug. 14: Detroit’s Emergency Manager Kevyn Orr issued an order that ratified the Board of Water Commissioners resolutions. The Detroit City Council approved the re-financing deal.
Aug. 19: The Michigan Department of Treasury authorized the bonds.
Aug. 22: The Detroit Board of Water Commissioners accepted the bonds that had been tendered. The Emergency Manager approved and ratified the board’s order.
Late last night, the city filed its seventh version of its Plan of Adjustment, the blueprint of how it wants to restructure debt and city services as part of its bankruptcy case. Here it is with this correction:
Judge Steven Rhodes decided the largest municipal bankruptcy trial in history should not start until the debtor — the city of Detroit — files another Plan of Adjustment. So he moved the start date from next week to Aug. 29.
(We discussed this possibility on WDET’s Detroit Today program. Listen here.)
The city has filed six previous Plans of Adjustment, “blueprints” it will use to restructure debt and city services. But city attorneys told the judge in court earlier this week that they plan to file yet another plan that will reflect a deal announced last week to potentially refinance $5 billion worth of Detroit Water and Sewerage Department bonds. Some creditors’ attorneys objected, saying they could not adequately represent their clients in the trial, also called a “confirmation hearing,” without seeing the city’s overall plan.
Judge Rhodes in his order today that “the Court concludes that this constitutes extraordinary cause to adjourn the dates and deadlines that it previously established.”
Under questioning from Judge Rhodes earlier this week, city attorney Heather Lennox, of the Jones Day law firm, admitted one reason the city did not want to delay the confirmation hearing was because the current Plan of Adjustment requires Detroit Emergency Manager Kevyn Orr to execute some of its provisions by order, a power granted to him by state law. When Orr’s term is up at the end of September, elected leaders won’t have the same ability. Lennox said those orders related to settlements on the Unlimited Tax General Obligation bonds and Limited Tax General Obligation bonds.
Here’s part of the exchange in court between Judge Rhodes and city attorneys on Tuesday.
Judge: It’s a question I’ve asked before, but I feel the need … To what extent is the urgency that the city feels about beginning and ending this trial motivated by the prospect of Mr. Orr’s leaving his emergency manager position? And if so, why?
City attorney Gregg Shumaker, of Jones Day: I know we’ve gone back and forth on this in the past, but a lot of it has to do with the implementation of the plan. …
Lennox: … The point of the proceeding is it does really impact more about what the plan does and the settlements we have and the timeframe for getting them done … if the plan is going to be confirmed, there are some critical things that need to be happening in the near term. … For example, retiree health care. The settlement that we reached with the Retirees’ Committee on retiree health care back in April is that at the end of this year, the city will exit the retiree health care business and it will be taken up by two VEBAs. They have to appoint trustees, contract with providers and administrators, develop programs, notify retirees, all before Jan. 1, 2015. That process takes a few months. We are coming dangerously close on being very tight on time for that. … We’re not sitting around waiting. There is a lot of work that is being done. But we don’t have VEBAs officially and we don’t have trust officers, and we can’t until the plan has an effective date. … there are some real world issues based on settlement that we accomplished months ago. …
Judge Rhodes: That’s an urgency that’s unrelated to Mr. Orr’s transfer out of his current position?
Lennox: There’s not much Mr. Orr can do about that state statute. … With respect to the plan, there are settlements and agreements in the plan that require powers and orders under PA 436 (Michigan’s emergency manager law). … For example, the LTGO and UTGO settlements, those require emergency manager orders. Those are orders that can’t be ordered until after confirmation.
Here’s the judge’s full order delaying the trial and setting new dates and deadlines for other happenings in the case:
Detroit Free Press reporters Nathan Bomey and Matt Helms discuss the latest with WDET’s Bankruptcy Reporter and Next Chapter Detroit Blogger Sandra Svoboda. They cover the Detroit Water and Sewerage Department bond exchange deal, what questions Judge Steven Rhodes is asking based on his expert witness’s report, and what to watch for in advance of the city’s trial, now just two weeks away.