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 The deal with Oakland, Wayne and Macomb counties creates a regional
water and sewer authority, but allows Detroit to maintain control of
its local system, Mayor Mike Duggan said at a news conference. It
has the support of Michigan Governor Rick Snyder and the city's
state-appointed emergency manager Kevyn Orr, he added.
"There has been 40 years of conflict between the city and the
suburbs over the Detroit water and sewer system, and what you have
today is a pretty remarkable accomplishment," Duggan said.
The future of Detroit's Water and Sewerage Department has been a big
hole in the city's plan to adjust $18 billion of debt and exit the
biggest-ever municipal bankruptcy.
U.S. Bankruptcy Judge Steven Rhodes, who is presiding over the
second week of a trial on the plan expected to last until
mid-October, had pushed the city and counties into mediation, hoping
for a resolution that would include a regional authority.
When no agreement was reached, Detroit proposed draining $428
million over nine years from the water and sewerage department to
cover "catch up" pension payments owed by the department to the
city's general retirement system and other fees - a move opposed by
the counties.
Tuesday's deal would create the Great Lakes Water Authority, giving
the three counties greater control over water and sewer services for
their residents.
The water system covers 1,079 square miles and serves about 40
percent of Michigan's residents, while the sewer system covers 946
square miles.
The new authority would make a one-time lump-sum pension payment,
funded possibly through a bond sale, in a yet-to-be-determined
amount that would represent the net present value of the $386
million owed, said Bob Daddow, Oakland County's deputy chief
executive.
It was unclear how the deal and the prospect of new bond issuance
would affect the city's $5.2 billion of outstanding water and sewer
bonds, including nearly $1.8 billion of refunding and new revenue
bonds sold in August.
Spokesmen for Orr and Duggan did not immediately respond to a
request for comment. Heather Lennox, a Jones Day attorney
representing Detroit, told Rhodes in court that owners of the
outstanding bonds and companies that insured those bonds would have
to consent to the water authority deal.
Attorneys for Wayne and Oakland counties told Rhodes they were
withdrawing objections to Detroit's debt adjustment plan, but a
dispute over who signed the memorandum prohibited Macomb County from
following suit.
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Duggan said that the city and county governing bodies have until
Oct. 10 to ratify the deal. Then, the new authority would have to be
"up and running" in 200 days.
Oakland County Executive L. Brooks Patterson said the trial had
become a "Sword of Damocles" hanging over the heads of parties in
mediation. If Rhodes deems the plan is fair and feasible, he can
impose its terms on objecting creditors in what is known as a "cram
down."
Patterson and Duggan said they were concerned that would lead to
privatizing water and sewer services.
Duggan said he believes Rhodes will support the settlement, but
would not say if it would speed up the trial or impact Syncora
Guarantee Inc, one of the remaining major objectors to Detroit's
debt adjustment plan, which claims the city is proposing to pay it
far less than other creditors.
Under the deal, the new water authority would have a 40-year lease
for the water and sewer systems, paying Detroit $50 million a year,
to be used by the city to back up to $800 million of bonds to
rebuild the system, Duggan said.
"We are going to go through the city and rebuild our water system
the way it should have been rebuilt years ago," he said.
Detroit cut off water to thousands of residents this summer in an
effort to collect on $90 million in unpaid bills, fueling national
outrage that the city's poorest people went days without access to
fresh water.
(Additional reporting by Karen Pierog in Chicago; editing by Chizu
Nomiyama and Matthew Lewis)
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