Retiree documents: Detroit should go solo with water authority...

**Vic01** · May-17-14, 04:32 AM

The City of Detroit should create a water authority on its own and without the consent of its neighboring counties, an investment banking adviser for retirees suggested in a confidential document obtained by the Free Press.

The document, authored by investment banking firm Lazard on behalf of the U.S. government-appointed Official Committee of Retirees in Detroit’s bankruptcy last fall, said the water deal proposed by emergency manager Kevyn Orr last fall favored suburban county residents over city services.

Orr has publicly proposed to transfer the water department to an independent authority governed by Detroit officials and county leaders. The authority would pay $47 million per year for 40 years to the City of Detroit in a offer designed by investment banker Kenneth Buckfire.

Lazard said the city should force a deal that’s more lucrative for creditors and city residents on to Oakland, Macomb and Wayne counties

http://www.freep.com/article/2014051...Macomb-Detroit

**Wesley Mouch** · May-17-14, 10:57 AM

Originally Posted by Vic01

The City of Detroit should create a water authority on its own and without the consent of its neighboring counties, an investment banking adviser for retirees suggested in a confidential document obtained by the Free Press.

The document, authored by investment banking firm Lazard on behalf of the U.S. government-appointed Official Committee of Retirees in Detroit’s bankruptcy last fall, said the water deal proposed by emergency manager Kevyn Orr last fall favored suburban county residents over city services.

Orr has publicly proposed to transfer the water department to an independent authority governed by Detroit officials and county leaders. The authority would pay $47 million per year for 40 years to the City of Detroit in a offer designed by investment banker Kenneth Buckfire.

Lazard said the city should force a deal that’s more lucrative for creditors and city residents on to Oakland, Macomb and Wayne counties

http://www.freep.com/article/2014051...Macomb-Detroit

The amount of money created by the water board seems to me to simply be the results of operating revenue less operating costs. Who controls or owns the system seems irrelevant to me. The debate is how to distribute the profits made by the system.

I don't think we should be distributing profits. The water board should run as a public utility. It should charge enough to pay for the actual costs of efficiently delivering the service. It should not be a revenue generator. Then the debate about who profits goes away.

Detroit has an argument that they should benefit because they 'own' the asset. That they should benefit from that ownership. Like Exxon benefits by owning an oil field. I'm sympathetic to this idea. If Detroiters contributed capital to create the system, then they should not have to pay for that capital a second time. It would be fair to charge the suburbs for the capital costs of the system, since they didn't pay for it in the first place, right?

The problem with this logic is that being a citizens of Detroit or a suburbanite isn't a permanent condition. The very suburbanites who we argue should pay for the value of the water system were the same families who once were Detroit residents. Why should they pay twice? First when their grandparents lived in Detroit, and then again when the grandchildren lived in Livonia?

**mwilbert** · May-17-14, 11:42 AM

Originally Posted by Wesley Mouch

The problem with this logic is that being a citizens of Detroit or a suburbanite isn't a permanent condition. The very suburbanites who we argue should pay for the value of the water system were the same families who once were Detroit residents. Why should they pay twice? First when their grandparents lived in Detroit, and then again when the grandchildren lived in Livonia?

When they left, they didn't take along their piece of Detroit's outstanding debt, did they? It would actually be interesting if there were a way to do that; it would probably keep sprawl down if people had to keep paying their old bills even after they left. But they don't. And they aren't entitled to a share in the ownership of Detroit's assets after they leave either.

**Wesley Mouch** · May-17-14, 04:37 PM

Originally Posted by mwilbert

When they left, they didn't take along their piece of Detroit's outstanding debt, did they? It would actually be interesting if there were a way to do that; it would probably keep sprawl down if people had to keep paying their old bills even after they left. But they don't. And they aren't entitled to a share in the ownership of Detroit's assets after they leave either.

Good points. I like the ideas you present -- but I'm not sure there was debt to take. The debt was mostly in the form of pension promises. The water board debt was carried by evil Wall Street bankers who then sold it to pensions, widows, and rich Connecticut residents.

**Mikeg** · May-17-14, 06:22 PM

Originally Posted by Wesley Mouch

Detroit has an argument that they should benefit because they 'own' the asset. That they should benefit from that ownership..... If Detroiters contributed capital to create the system, then they should not have to pay for that capital a second time. It would be fair to charge the suburbs for the capital costs of the system, since they didn't pay for it in the first place, right?

The DWSD "owns" the assets [[water and sewage treatment plants, pumping stations, lift stations, etc), not the city of Detroit. Those assets were built using funding from two main sources: Federal grants and borrowed funds [[bonds). Interest and principal payments on those bonds were and are made from the DWSD revenue and not from the City of Detroit's General Fund. Therefore, capital costs are paid for using the revenue from DWSD customers who pay their water and sewer bills [[retail customers billed within the city and the municipalities who purchase wholesale and add on their system maintenance costs when they bill the retail customers in their suburbs). Only those DWSD customers in the city and suburbs who have ever paid Federal Income Taxes can truly say they have helped pay a second time for the capital costs of the DWSD.

Keep in mind that the expansion costs to extend DWSD service to suburban customers is paid for by those municipalities, not the DWSD. Likewise, the water mains and sewers within those municipalities are owned by them, not the DWSD.

**Hermod** · May-17-14, 06:50 PM

Lake St Clair isn't that far away. Push the counties enough and they will run an intake pipe out there. DWSD will then be left with the revenue from the Detroit city residents that actually pay their water bills.

**BankruptcyGuy** · May-17-14, 08:14 PM

I haven't see the Lazard report, but it is my understanding that state law prohibits the distribution of a "profit" to the CoD or anyone else. The DWSD, by law, must invest 100% of the receipts less expenditures in capital improvements.

Also, keep in mind that, while the bankruptcy court cannot force the sale of the CoD assets, the state sure can.

Lazard may have a creative structure to get there, but it's likely to run afoul of state law. Run afoul too far, and the state may make it clear by taking it away.

**ABetterDetroit** · May-17-14, 09:34 PM

Originally Posted by Vic01

The City of Detroit should create a water authority on its own and without the consent of its neighboring counties, an investment banking adviser for retirees suggested in a confidential document obtained by the Free Press.

The document, authored by investment banking firm Lazard on behalf of the U.S. government-appointed Official Committee of Retirees in Detroit’s bankruptcy last fall, said the water deal proposed by emergency manager Kevyn Orr last fall favored suburban county residents over city services.

Orr has publicly proposed to transfer the water department to an independent authority governed by Detroit officials and county leaders. The authority would pay $47 million per year for 40 years to the City of Detroit in a offer designed by investment banker Kenneth Buckfire.

Lazard said the city should force a deal that’s more lucrative for creditors and city residents on to Oakland, Macomb and Wayne counties

http://www.freep.com/article/2014051...Macomb-Detroit

It has little to do with who owns it and everything to do with utility company type jobs. Do you ever need to solve a problem that is generated from the product DTE delievers? If you haven't it is something that everyone who sends them money every month should experience. Union or college educated electrical engineers, it makes no deference, it's a serious uphill battle.

**mwilbert** · May-18-14, 08:30 AM

Originally Posted by Wesley Mouch

Good points. I like the ideas you present -- but I'm not sure there was debt to take. The debt was mostly in the form of pension promises. The water board debt was carried by evil Wall Street bankers who then sold it to pensions, widows, and rich Connecticut residents.

Well, first, under this theory of the world, ex-residents would presumably also be liable for their share of pension costs incurred while they were in the city. Second, why don't you think the city had any other debt? I can't see how it matters who bought the water board debt, the city still owed it.

**Wesley Mouch** · May-18-14, 09:52 AM

Originally Posted by mwilbert

Well, first, under this theory of the world, ex-residents would presumably also be liable for their share of pension costs incurred while they were in the city. Second, why don't you think the city had any other debt? I can't see how it matters who bought the water board debt, the city still owed it.

Oh, no real theory here. But so long as we're counting angels on pins, I think residents should be responsible for all pension costs their city council agreed to pay in the future. And I suppose the residents also should get credited for all federal funding paid to their city while they were residents. About 4,532,120 angels, by the way.