Detroit council approves regional water authority deal

Reuters News
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Posted: Sep 19, 2014 1:15 PM

DETROIT (Reuters) - The Detroit City Council on Friday approved in a 7-2 vote the creation of a regional water authority, moving forward an integral part of the city's plan to exit the biggest-ever municipal bankruptcy.

A deal Detroit reached last week with the heads of Oakland, Wayne and Macomb counties creates a regional water and sewer authority, but allows Detroit to maintain control of its local system. The plan must now be approved by at least one of the counties.

The city's water and sewerage department had become a sticking point in the plan to restructure Detroit's $18 billion of debt and other obligations.

The city had initially proposed draining $428 million over nine years from the department for "catch up" pension payments that were owed to the city's general retirement system and other fees, but the counties, which receive services from the department, had opposed the proposal.

The new Great Lakes Water Authority would make a one-time pension payment, funded possibly through a bond sale, in a yet-to-be-determined amount representing the net present value of $386 million.

Detroit will continue to own the system and lease it to the authority for $50 million a year for 40 years. That money would allow for the issuance of up to $800 million of bonds to fix aging pipes and other city infrastructure.

The authority will also have an affordability fund to help customers who cannot pay their bills. The water and sewerage department sparked citywide protests this summer when it shut off access to water for delinquent customers in an effort to pare down a $90 million backlog of unpaid bills.

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.

(Reporting by Lisa Lambert, additional reporting by Karen Pierog in Chicago; editing by Chizu Nomiyama and G Crosse)