Deal reached to overhaul Detroit water agency

AP News
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Posted: Sep 09, 2014 2:02 PM
Deal reached to overhaul Detroit water agency

DETROIT (AP) — The Detroit water department would be turned into a regional agency with a 10-year limit on annual rate increases and an infusion of millions of dollars from the suburbs, under a deal the mayor and other officials announced Tuesday.

Only two of the governing board's six members would be appointed by Detroit, but rate increases would need approval from five. The Water and Sewerage Department provides water from the Detroit River and Lake Huron to people in eight counties, approximately 40 percent of Michigan's population. It would be renamed the Great Lakes Water Authority.

As part of the deal, Wayne, Oakland and Macomb counties would drop their opposition to the city's long-term restructuring plan in bankruptcy court.

The agreement was announced at the federal courthouse, several floors below Detroit's bankruptcy trial, after 15 months of negotiations. Judge Steven Rhodes had encouraged city and suburban leaders to use the bankruptcy as an opportunity to overhaul the agency.

All sides must approve the plan by Oct. 10. It goes into effect if Detroit and at least one county vote in favor of the authority. An approved water authority is expected to be recognized in the city's final bankruptcy restructuring plan.

"This is an agreement that I would not have hesitated to make even if we weren't under the pressure of the bankruptcy," Mayor Mike Duggan told reporters. He took office in January.

In exchange for the use of pipes, the suburbs would pay $50 million a year to Detroit for the next 40 years, money that would be used to rebuild the creaky water and sewer system. The majority of water mains are at least 70 years old. More than 5,000 water main breaks have occurred in Detroit over the past three years.

Rate increases would be capped at 4 percent a year for the next 10 years. The agreement includes a $4.5 million fund to help people living below the poverty level pay their bills.

Detroit received international criticism this year after shutting off service to thousands of customers in the city who were behind on their water bills. Several groups also appealed to the United Nations for support.

"The extraordinary bipartisan cooperation is aimed at creating a sustainable, regional water system that also provides necessary and crucial updates to the aging infrastructure, brings relief to residents and taxpayers by capping future rate increases and creates a fund to help customers in need throughout the region," Gov. Rick Snyder said in a release.

If the city and counties don't act, Detroit emergency manager Kevyn Orr could turn the department over to a third party.

"I was a doubting Thomas going in. I didn't think it would get to this point," said Oakland County Executive L. Brooks Patterson, who for months had pledged that he wouldn't be strong-armed into a bad deal.

"As we move into the future we will have a water system which is fair, affordable, accountable and transparent. That was our goal."

Detroit's water system serves about 700,000 city residents and 4 million people in southeastern Michigan. The city's control of the system and rates has — for decades — evoked criticism and complaints from the suburbs. The department's reputation took a hit during the 2012-13 corruption trial of former Mayor Kwame Kilpatrick, who was convicted of ensuring that a pal got millions of dollars in construction contracts.

The deal helps the city and suburbs get past their divisiveness, said Mark Hackel, Macomb County executive.

"If we want to be competitive, we need to start coming together and acting as a region," he said.

Still, the water agreement may not have happened if not for the largest municipal bankruptcy in U.S. history. Detroit is trying to cut its unsecured debt from $12 billion to $5 billion in a plan that most creditors, including more than 30,000 retirees and city employees, have endorsed.

Bond insurers, who stand to lose millions of dollars, are the primary opposition. The counties also opposed the city's restructuring plan over how much it would put into improving the water department's infrastructure.

"In bankruptcy, the money would not be going into the infrastructure. It would be going to the creditors," Hackel said.