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Water shock: Business leaders study sale or privatization of Detroit Water/Sewer

June 22, 2011

(This article by Diane Bukowski is re-posted from Michigan Citizen.)

With no input from community members or city workers, a group of Detroit’s top business barons, appointed by U.S. District Court Judge John Feikens, is studying the possible sale, regionalization, or private management of the city’s water department.

The panel, which includes executives from GM, Ford, DTE and Detroit Renaissance, is also studying the possibility of a costly 50-year refinancing of the department’s $5.4 billion debt. Its final report is due in the spring, with Feikens set to act on it afterwards.

Feikens has said that he wants to end the ongoing war between Detroit and its suburbs over control of the department, which serves 4.3 million people in an eight-county area, employs nearly 3,000 workers, and has an annual budget of $1.48 billion. Detroit built the system over the past century, financing it with billions in bond issues.

Ford Motor Company executive Tim O’Brien, the panel’s co-chair, denied that Feikens will necessarily actualize the options being studied, but community and union leaders say they are alarmed.

“It’s just an outrage,” said Maureen Taylor of the Michigan Welfare Rights Organization. “Feikens should retire. He doesn’t have the right to steal ownership of the water department from us. We are certainly not above picketing outside his residence.”

Taylor said the water department has budgeted 45,000 water shut-offs to Detroit residents who can no longer afford rising rates this year, and the problem will only worsen if the city loses control.

John Riehl, president of Local 207 of the American Federation of State, County and Municipal Employees (AFSCME), has long protested internal privatization at the department. He has said costly private contracts have already resulted in the loss of thousands of jobs for city workers, and severe reductions in the quality of service, including failure to properly maintain the system.

“Such a takeover would be terrible for Detroit’s citizens and workers,” he said. “It means increased water rates and service cutbacks while private companies profit and Detroiters have no control.”

He said his union has asked for a public hearing in front of Detroit’s city council on the matter, but no date has yet been set.

The city’s charter forbids the sale or wholesale privatization of water department assets without a general vote of its residents. Detroit Mayor Kwame Kilpatrick has additionally said, “The City of Detroit will NEVER give up control of the Water Department.”

Feikens, who is 88, has supervised the Detroit Water and Sewerage Department (DWSD) under a federal consent decree related to pollution control since 1977. As a federal judge, he has the power to override state constitutional guarantees of the city’s ownership of DWSD, including its home rule provisions. But he has said he prefers that the city voluntarily concede some of those protections.

At an April meeting of the Southeast Michigan Consortium for Water Quality in Dearborn, Feikens summarized his stance.

“DWSD’s system, vital as it is to the health and quality of life in southeastern Michigan, has faced repeated challenges from some suburban communities who are prevented by the state’s constitution from having any say in the ownership or operation of DWSD,” he intoned.

“At the same time, the people of Detroit who provide this valuable service are barred by state law from receiving any financial benefit or profit for doing so. This dilemma will not be resolved by legislation or litigation. It demands cooperation on the part of the southeast Michigan communities and the agreement by DWSD to modify the protection given to it by the state’s Constitution as part of a regional settlement.”

He designated F. Thomas Lewand, of the law firm of Bodman, Longley and Dahling, LLP, as “Special Master” to oversee the study group, which he appointed last year. To date, Lewand has submitted $233,547.46 in itemized bills to DWSD under Feikens’ orders.

Those bills refer to extensive research on the possible sale of the water system, with assets first being transferred from the City of Detroit to the water department itself; the possible creation of a regional authority to oversee DWSD and the make-up of its board of directors; and the possible engagement of a private management group.

The bills also refer to research on the impact such alternative structures would have on the department’s eligibility for state and federal funds, and the possible assumption of the department’s bonded debt.

In an Oct. 17 ruling, Feikens ordered DWSD Director Victor Mercado to procure the services of banking firms to examine the department’s current bond structure, and options for restructuring its debt.

The department is not in deficit, and currently has AAA bond ratings on Wall Street. But Feikens told Crain’s Detroit Business, “. . .preliminary figures point to possible savings of up to $60 million a year if bond terms are pushed out to 50 years while keeping rates where they are at.”

Feikens said Detroit would perhaps retain about $40 million of that, while the suburbs would get $20 million. He said he is also looking at the possibility of Detroit charging user fees to the suburbs.

Serving on Feikens’ panel are former Michigan governor William Milliken, Ford Motor executive Tim O’Brien, DTE Vice-President Paul Hillegonds, General Motors executive Doug Rothwell, PVS Chemicals CEO Jim Nicholson, attorney David Lewis, businessman and former Piston Dave Bing, and S. Martin Taylor to the panel.

Many of those individuals are key figures in the recent formation of One D, a supergroup including New Detroit, The Detroit Regional Chamber, and Detroit Renaissance along with the United Way for Southeastern Michigan. They also head committees of Kilpatrick’s Next Detroit Transformation Team, which has recommended privatization and sale of city assets among other options.

O’Brien said the panel has only been doing its “homework.”

“It is premature for anyone to say that because we are studying options, that we have reached a conclusion that the system ought to be privatized or sold,” he opined. “That is not the direction we’re heading in. But it would be inappropriate to pre-empt our conclusions, which are due in the spring, by discussing them now.”

He continued, “The judge’s purpose is to allow this region in its totality to benefit from a system that has some of the highest water quality in the world and some of the lowest rates. But the region also has massive infrastructure problems that will require significant capital investment in the future.”

He said the panel is contemplating the restructuring of the department’s debt “not to make the banks wealthy, but because it makes sense for Southeast Michigan.”

O’Brien said community members and other stakeholders will be brought into discussions after the panel issues its final report.

2 Comments leave one →
  1. Kate Wheeler permalink
    June 22, 2011 3:38 pm

    Oh. My. God.

    On June 15, it came out that the mayor of Detroit, David Bing, had been making under-the-table plans with Snyder and Lansing to have himself named an EFM and take over the City of Detroit in that position. This came via a top aide who had resigned. He planned to immediately dissolve the city council and wanted to also become a sort of uber-EFM of the Detroit Public schools as well (currently under EFM administration and being turned into a charter-school system as we speak).

    Looks like they’re not even waiting for an appointment before going forward with the privatization plans. It seems probable that Snyder is empowering these people to essentially ransack the state and overturn our votes, or they wouldn’t be jumping the gun like this.

    For more info on Bing’s takeover plan, see: http://www.eclectablog.com/2011/06/detroit-mayor-bing-planned-to-become.html

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  1. Water shock: Business leaders study sale or privatization of Detroit Water/Sewer (via Grand Rapids Institute for Information Democracy) « The Wobbly Goblin

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