Source: Detroit News

Detroit— Emergency Manager Kevyn Orr is ramping up pressure on suburban officials who are objecting to a deal to lease the city’s water department and help bankroll Detroit’s restructuring, The Detroit News has learned.

A water war is brewing with two weeks left for Orr to sway county officials and meet a self-imposed Dec. 20 deadline for initiating an agreement that would raise cash for the bankrupt city and be a pillar of a plan to restructure more than $18 billion in debt. Orr has said the plan likely will be submitted the first week of January.

Deputy Oakland County Executive Bob Daddow said the deadline is in jeopardy because of Orr’s unacceptable financial terms and a proposal for sharing control of the Detroit Water and Sewerage Department, a utility that provides services to more than 4 million customers across southeastern Michigan.

“It’s on life support,” Daddow told The News on Thursday, reflecting concerns raised by other suburban leaders familar with the plan.

In June, Orr said he wants to strip the name “Detroit” from the department, transfer assets to a regional group and refinance the utility’s debt — moves that could generate almost $1 billion in savings.

It is unclear whether Detroit can file a debt-cutting plan in bankruptcy court without resolving the water department issue. “That’s his problem,” Daddow said, “not ours.”

It also is unclear if Orr can simply try to force a deal by having U.S. Bankruptcy Judge Steven Rhodes sign off on an agreement. That scenario concerns state Rep. Kurt Heise, who said such a move would extend Detroit’s financial problems to more than 120 communities that have contracts with the water and sewer department.

“I think that would be an overstep of Kevyn Orr’s authority,” said Heise, R-Plymouth Township.

It is possible Detroit could break the contracts in bankruptcy court and sell the department to a private investor.

Orr spokesman Bill Nowling would not elaborate on the discussions or respond to Daddow’s concerns.

Nowling hinted that the city could find another suitor. Private equity firms have expressed interest in buying the utility, according to testimony during the city’s bankruptcy eligibility trial in October.

“There is always the possibility that there are other options before the city than only a deal with the counties,” Nowling said.

Macomb County Public Works Commissioner Anthony Marrocco on Thursday said he’s not been shown the city’s term sheet. Detroit officials have “pie in the sky” dreams of cashing in on the water department, he added.

“They’re just trying to create a revenue stream for the city of Detroit on the backs of suburban ratepayers,” Marrocco said.

Investment banker Ken Buckfire, who is leading negotiations for Orr, has threatened to sell to a private investor, Marrocco said. “Go ahead. I think it’s better for the counties that way.”

A private deal is “incredibly unlikely,” Daddow said. The department has $6 billion in debt and $800 million in bond costs that would have to be paid off in a sale.

Wayne County Commissioner Shannon Price doubts a deal could be finalized by the end of December.

“We have to come up with the lease agreement price that’s equitable for everyone,” said Price, R-Canton. “We haven’t got reports on anything close that’s acceptable.”

A delay in reaching a deal could affect the city’s debt-cutting plan. Orr has proposed having the suburbs pay approximately $9 billion for greater control of the utility.

Oakland officials are concerned about the deal’s financial structure and the proposed governance of a new regional water and sewer authority that, in Orr’s vision, would lease or buy the department.

Orr has proposed having the counties spread payments over 40 years. The money — eventually more than $200 million a year — would provide an unrestricted revenue stream for Detroit.

Daddow provided details about negotiations headed by Buckfire.

Last weekend, Buckfire sent a confidential term sheet to Oakland County summarizing a proposed agreement for the counties to lease the department, Daddow said.

The summary — stamped “Confidential” — outlined principal pieces of a deal that would spin off the department, share control with Wayne, Oakland and Macomb counties and reduce the cost of running one of the nation’s largest public utilities.

The summary detailed responsibility for operating and maintaining the utility’s aging infrastructure, Daddow said. It also spelled out default provisions and the fate of the department’s approximately 1,700 employees.

“It is very troubling,” Daddow said.

The summary from Orr’s team did not incorporate most of the concerns raised by Oakland County since early October. That’s when the city proposed having the counties pay $9 billion, Daddow said.

Daddow sent the city a 21-page critique but the concerns “never made it into the term sheet,” he said.

Instead, the city’s summary outlined terms more favorable to Detroit than the suburbs, Daddow said.

One key issue is the proposed power structure for the so-called Metropolitan Area Water and Sewer Authority.

Oakland County wants a nine-member governing board: two members each from Detroit and the three counties plus one appointed by the governor. The city wants three Detroit appointees and two each from the counties.

Under Oakland County’s suggestion, the board would need a supermajority — seven out of nine votes — to approve certain issues. And at least one member from the city and each county would have to vote to approve rates or issue debt, Daddow said.

The city’s proposal, however, does not include such a power structure, Daddow said. Instead, the city proposes a simple majority vote. “That’s unacceptable,” Daddow said, adding there are other problems. “I don’t think this deal will falter based on governance,” Daddow said. “It’ll be financial.”

Those financial details are confidential. Aside from the $9 billion figure, first reported by The News in October, no other financial information has emerged from negotiations.

Orr wants the counties to sign a letter of intent by Dec. 20, Daddow said. That deadline is in danger,he said. The proposed deal “is unacceptable to us,” he said.