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untanglingwebs
El Supremo
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Originally Published: September 14, 2014 8:00 AM Modified: September 17, 2014 12:18 PM
Water authority's question: How much does Detroit pay?
By Chad Halcom
New water authority should bring change
Regional water authority outlook: Debt load, pension funding to test new agency's power
Regional leaders have a lot to say about how much a regional authority must pay Detroit to manage its water and sewer assets for 40 years. But it remains to be seen how much Detroit will pay into the authority in return.
Detroit Mayor Mike Duggan, Detroit Emergency Manager Kevyn Orr, Wayne County Executive Robert Ficano, Oakland County Executive L. Brooks Patterson and Macomb County Executive Mark Hackel signed a memorandum of understanding Sept. 9 to recommend approval of a regional authority to lease the DWSD's assets for 40 years, at $50 million per year.
But the new Great Lakes Water Authority captures all of the suburban "wholesale" budget of the DWSD, or about $560 million of the current city department's $930 million-plus total revenue, according to its 2014-15 budget.
This means the lion's share of the water-sewer bill that suburban customers pay to their own local governments today will be passed along to the new authority instead of the city. A smaller share of suburban water-sewer bills that cover their local governments' costs is unaffected by the change.
Detroit itself is expected to be a new wholesale customer of the authority — meaning, just like suburbanites, city businesses and residents will see one portion of their payment stay with their own city while the other passes through to the authority to maintain the regional system.
Regional leaders said details such as the rate of the city's wholesale payment and the share it will continue to pay on its $5.2 billion of legacy DWSD bond debt that the authority inherits have yet to be determined.
Detroit and at least one of the county boards must approve the deal by Oct. 10. The authority will lease and operate 400 miles of water lines and 360 miles of sewer pipe inside and outside the city, as well as five filtration plants and the Jefferson Avenue Sewage Treatment Plant.
Detroit retains control of about 3,400 miles of water mains and 3,000 miles of sewer lines within the city, and can use all or part of the lease payment to support $500 million to $800 million in new bonds to improve the regional system. The deal also caps rate increases at 4 percent per year, for 10 years.
Detroit will have two board representatives, each of the three counties will have one and one will be an appointee of Gov. Rick Snyder. The state can also appoint a representative for any county that does not back the authority deal. All major decisions, including rate increases, require a five-vote supermajority to pass, meaning Detroit can essentially veto any such decision but so can two or more suburban leaders.
In addition to the lease payment, the authority also must deposit $4.2 million this fiscal year and 0.5 percent of operating revenue each year afterward into an independent Water Residential Assistance Program to help customers across the system who cannot afford water service.
The authority must also pay a share of the annual required contribution toward a frozen defined benefit General Retirement System pension plan, any year that the plan comes up underfunded while the authority is leasing the system. The authority will also make a modest contribution to the new hybrid defined benefit plan created during the bankruptcy to manage future retiree benefits.
Oakland County Deputy Executive Robert Daddow estimates the new plan contribution will be about $3.2 million per year for the authority.
Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom |
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Thu Sep 25, 2014 11:25 am |
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untanglingwebs
El Supremo
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Originally Published: September 11, 2014 2:00 PM Modified: September 24, 2014 4:48 PM
Regional water deal promising, but more political will needed to invest what's necessary in infrastructure
Detroit, suburbs agree to 40-year deal for regional water authority
"You and I come by road or rail, but economists travel on infrastructure." Margaret Thatcher
I watched with great interest the news conference that announced the formation of the Great Lakes Water Authority (GLWA) and regionalization of Detroit's water system. By now, anyone with an interest in the Detroit Water and Sewerage Department (DWSD) has spoken about the deal, mostly with favorable reviews. What interests me most about the creation of a regional water system is whether it will be able to address the serious problem of our crumbling infrastructure.
Over the last decade, numerous commentators have discussed the slow decay of our infrastructure (which includes roads, airports, power grid, water and sewer, among other items), which was never intended to operate as long as it has. In addition to the failure to replace many of the outdated systems, there has also been a pattern of deferred maintenance, as local, state and federal governments have continually cut budgets for such things.
According to the city of Detroit: "The majority of the city's water mains are between 70 and 90 years old and failing at a rapid rate.Detroiters have suffered through more than 5,000 water main breaks in just the last three years. Rebuilding 1 percent (30 miles) of its system each year at a cost of about $25 million would have put the city on par with the national average. However, DWSD has spent no more than $3.4 million in each of the last three years to rebuild its mains."
In 2013, the American Society of Civil Engineers (ASCE) prepared a report entitled, "Report Card for America's Infrastructure." Citing the lack of funding for modernizing our infrastructure and deferred maintenance, the ASCE gave our infrastructure a "D" grade and reached the following conclusion:
"Our infrastructure is the foundation of our economy and our quality of life, and repairing and modernizing it has exponential benefits, including: increasing our gross domestic product, growing household income, protecting jobs and maintaining a strong U.S. position in international markets. Unless we address the backlog of projects and deferred maintenance throughout the country, the cost to each American family will reach $3,100 per year in personal disposable income."
As the focus of this entry is water infrastructure, the ASCE estimated there were 240,000 water main breaks in the United States annually and the cost of replacing all the water pipes (some more than 100 years old) would be more than $1 trillion. With respect to wastewater and stormwater, capital investments were estimated at $298 billion over the next 20 years. It is quite expensive, it seems, to maintain the amenities and lifestyles to which we have become accustomed.
How does this translate to Michigan? Michigan's drinking water needs require $11.8 billion over the next 20 years. Wastewater investments will require $3.7 billion over the next 20 years. Add to that the well-documented case of our crumbling roads and bridges, which many have decided is our No. 1 infrastructure issue, there are significant needs that remain underfunded.
Looking at all of America's infrastructure needs, the ASCE estimated there is an annual investment gap of more than $200 billion annually. Welcome to Third World America.
The task ahead seems daunting, if not prohibitively expensive. The political will to invest what is necessary also seems lacking. But, one bright spot appears to be the regional cooperation exemplified by the deal cut by the city of Detroit and the counties of Macomb, Wayne and Oakland. The $50 million annual lease payment to Detroit is earmarked for infrastructure development, including repairing and rebuilding Detroit's local system, increasing capacity for stormwater events and providing a share of costs to the GLWA's overall infrastructure improvements.
The American economic engine that fueled our prosperity existed in large part because of our advanced infrastructure. As that infrastructure aged, we have neglected to maintain and improve it. Other countries have invested heavily in their infrastructures and are competing with us on our level. While they continue to invest, we fail to invest and divert assets to other priorities.
We can hope that Detroit and the surrounding counties can break out of this bad habit and the regional cooperation exhibited by the Detroit mayor and executives of Macomb, Wayne and Oakland counties will serve as an example of how to do that.
Saulius Mikalonis is an attorney at the Bloomfield Hills office of Plunkett Cooney, practicing environmental law for over 25 years.
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Thu Sep 25, 2014 11:29 am |
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