Both Crain’s Detroit Business and the Detroit Free Press published pieces about the solicitation for private bids for the Detroit Water and Sewerage Department by Emergency Manager Kevyn Orr.
With negotiations with suburban counties deadlocked, the City of Detroit has issued a request for offers from private companies to operate and manage the Detroit Water and Sewerage Department. … Orr, who is steering the city through the largest municipal bankruptcy in the nation’s history, said the city has a duty to its creditors to explore all options, especially since the city’s proposal for the creation of a regional authority with Oakland, Macomb and Wayne counties is stalled.
Meanwhile, in coverage of Orr’s speech at the University of Michigan Tuesday, Crain’s Amy Haimerl wrote:
…Orr also cautioned not to read too much into a recent request for proposals that the city put forward late last week with prospective private sector buyers to purchase or lease and manage the assets of the Detroit Water and Sewerage Department. The department, which has about $6 billion in debt of its own, comprises nearly 3,000 miles of pipes and connectors over more than 1,000 square miles, and talks about forming a regional authority to manage its assets after bankruptcy have recently stalled.
A 21-page request for information obtained Tuesday by Crain’s calls for interested bidders in a possible sale or lease of the department’s water and sewer network to submit bids by June 1, with a possible award to a bidder coming in August. But Orr characterized that request Tuesday as one option the city could pursue, among many.
“We would like to have the (surrounding) counties at the table, they account for 65 percent of (department) revenue,” Orr said, but went on to add that Detroit must also demonstrate to U.S. Bankruptcy Judge Steven Rhodes that it “looked at every available option…to raise revenue” for the city, before a confirmation hearing begins in late July.
Is Royal Oak Township next?
In the wake of Gov. Rick Snyder’s confirmation that a financial emergency exists in Royal Oak Township (not to be confused with the city of Royal Oak…), the Metro Times opined about the possibility that the .5-square-mile municipality could be the next Michigan locale to file for Chapter 9 bankruptcy. Under Public Act 436, the existing law that addresses local financial emergencies and emergency manager powers, the township may pick an emergency manager, petition for Chapter 9 bankruptcy, neutral mediation, or a consent agreement, the alternative newsweekly writes, continuing:
… the treasury had found the township failed to submit an annual budget, owes hundreds of thousands of dollars on police services, and overspent more than $500,000 than what it had in its coffers last year. Whichever solution is eventually pursued, the situation isn’t pretty.
Message to the unions
Many media reported about Emergency Manager Kevyn Orr’s speech Tuesday at his alma mater. Here’s what the Detroit News led with:
Detroit Emergency Manager Kevyn Orr on Tuesday amped up the pressure for a bankruptcy deal, warning unions that funds pledged toward pensions are at risk and proceeding with plans for a privately run water department. Orr … urged the city’s unions to reach an agreement on bankruptcy terms soon or risk the loss of more than $800 million in funding to shore up pension funds.
Thousands of homes, businesses, schools and commercial buildings in Detroit could be without water, as the city plans to shut off service for delinquent accounts, The Detroit News reports.
Nearly $270 million was overdue from water bills as of March 6, according to the Department of Water and Sewerage.
With more than half of the city’s customers behind on payments, the department is gearing up for an aggressive campaign to shut off service to 1,500-3,000 delinquent accounts weekly, said Darryl Latimer, the department’s deputy director.
Of the 323,900 businesses, schools and commercial buildings, 164,938 were overdue (that’s 51 percent), owing $175 million. Of the 296,115 residential accounts, 154,229 were overdue (that’s 52 percent), owing about $92 million.
So is this revenue collection part of the bankruptcy’s financial sweep in the city? The News’ sources say not necessarily:
Department officials say the initiative is unrelated to Detroit’s bankruptcy restructuring and is simply a renewed effort to remedy a longstanding problem. The fear of being stuck with Detroit’s delinquencies, however, has kept suburban leaders from embracing a regional water authority proposed by Emergency Manager Kevyn Orr.
Detroit’s Emergency Manager Kevyn Orr is ramping up the rhetoric about the Detroit Water and Sewerage Department, pushing the idea that it could be sold and privatized if the city doesn’t reach a regional agreement with suburban communities.
“I do think we’re at a crossroads now having had this discussion for decades about DWSD,” Orr told The Detroit News in an interview Tuesday. “We’re going to run on parallel tracks. We’re not walking away from the creation of an authority. We’re going to start looking at other alternatives as well.”
With Orr’s Plan of Adjustment calling for paying pennies on the dollars to creditors, including bond holders, and slashing pension benefits by almost 30 percent for some retirees, the governor-appointed EM needs to also find revenue generators for the cash-strapped city. DWSD is one of his few options with such potential.
Suburban leaders haven’t exactly been receptive. Some of them are telling the News that their counterproposals to Orr’s suggestions are rebuffed.
“By and large, this hasn’t been a negotiation,” said Robert Daddow, deputy county executive for Oakland County. “It’s been a stampede to an end point. We’ve been stuck in first gear for a long time because everything we put on the table gets rejected.”
Some of the obstacles, they say, are DWSD’s roughly “$1.5 billion in operating losses over the past seven years; more than $500 million in abandoned projects, and more than $500 million to terminate bad debt; $142.5 million in unpaid water bills; and fears that an authority’s dismal credit rating would make it difficult to issue bonds.” There are also the potential $60 million annual payments that Crain’s Detroit Business reported could be owed by the suburbs for DWSD pensions if a regional deal isn’t worked out.
With an April 18 deadline set by Bankruptcy Judge Steven Rhodes for the city’s final disclosure statement “resolving any objections that the Court has sustained,” the parties continue to meet. But there are no public indications that a deal is anywhere near done.
Among Emergency Manager Kevyn Orr’s talking points on the city’s Plan of Adjustment and Disclosure Statement, filed Feb. 21, are a few messages about the future of the Detroit Water and Sewerage Department:
*A proposed regional authority would be called the Great Lakes Water and Sewer Authority;
*Discussions have taken place for decades about regionalizing the water system;
*City and suburban leaders met Tuesday, Feb. 18 and made progress in their talks, which are continuing.
Which leads to the reasonable conclusion that Orr can’t be too happy about an article in today’s Macomb Daily based on a two-week-old memo leaked to a reporter. “Portions of the detailed, 11-page memo indicate that Oakland and Macomb leaders fear that they are being scammed,” Chad Selweski writes. (Incidentally, he doesn’t post the memo.)
The article trots out the predictable, nearly sensationalized suburban suspicions that seem to surround many things Detroit. In this case, they’re focused on the negotiations and proposals for what to do about DWSD. Have negotiations been perfect? Of course not. Environmental groups, for example, have called for more transparency and openness, and suburban leaders should be diligent about understanding a regional deal.
But Selweski quotes Macomb County Commissioner Jim Carabelli, a Shelby Township Republican, as saying “I’m a little appalled with the deal that’s on the table. It’s such a bad deal … (this) is some scary stuff.”
Scary? Yes, the bankruptcy is scary. The pensioners facing a 30 percent cut to their retirement payments would likely agree.
The memo, according to the Macomb Daily, reads, in part, “The DWSD … needs continuing, widespread reform – in financing, in operation and maintenance, in purchasing, in capital improvement, in technology, in personnel and labor optimization, and in service delivery.”
How about suburban leaders offer some constructive options for those goals instead of quips that rely on anti-Detroit sentiment?
-By WDET’s Sandra Svoboda
@WDETSandra and firstname.lastname@example.org
From pensioners and poverty to municipal bond markets and the mighty backlash, national and local media offered up some thought-provoking reading over the weekend after Detroit filed its Plan of Adjustment and Disclosure Statement Feb. 21.
Here are five readings we thought worth sharing:
Detroit residents who work outside the city limits could find themselves paying income tax they owe to the city under a measure Emergency Manager Kevyn Orr slipped into Friday’s filings. The Detroit News reports on what it would take at the state level to collect the estimated $140 million that’s missing from the city’s coffers.
Religion and Ethics Newsweekly weighed in focusing on the effects on pensioners and the role the religious community has (hasn’t?) played in the bankruptcy’s aftermath. “Detroit is a city where people desperately need hope.”
Bloomberg reported “The filing opens a new, potentially more contentious phase of the biggest U.S. municipal bankruptcy” in its article examining how the Plan of Adjustment relies on creditor settlements.
CNBC focused on bond insurers and the backlash to the Plan of Adjustment, finding “investors directly in the line of fire made clear Friday they were braced for a legal battle.”
The New York Times looked to post-Katrina New Orleans for lessons Detroit could learn from, writing “The scale of the two cities and the nature of their calamities differ, but Detroit can learn from New Orleans, where a fix that appeared rational to some experts and civic leaders was thrown aside for a way forward that has been slower and messier but politically more palatable and, many here believe, fairer.”
Detroit Emergency Manager Kevyn Orr’s office has released a statement about the city’s Plan of Adjustment and Disclosure Statement filed today in U.S. Bankruptcy Court.
Here’s what the city considers the highlights of the plan:
* Devotes $1.5 billion over 10 years to capital improvements, blight removal and equipment and technology upgrades.
* During the next five years, up to $500 million of the $1.5 billion will go toward blight removal.
* Proposes 20 percent payment to unsecured, non-retiree creditors in the form of new securities from the city and a pledge to increase that if the city’s finances improve.
* Assumes $465 million from third-party donors and the Detroit Institute of Arts toward the pension funds over two decades, subject to city and pension fund agreement and conditions.
* Includes Gov. Rick Snyder’s proposal to send $350 million of state money to Detroit over 20 years.
* Allows that if police and fire pensioners agree to the plan and there is some settlement with the state, they could receive more than 90 percent of their pensions with the elimination of cost-of-living allowances. General retirees cold receive in excess of 70 percent of their pensions after elimination of cost of living allowances.
* Moves current city employees into defined benefit plans.
In other development, mediations continue toward agreements with key creditors in the process overseen by Chief U.S. District Judge Gerald Rosen. Talks are ongoing for the interest-rate, pension debt swaps agreement as well as the future of the Detroit Water and Sewerage Department.