Sunday, February 2, 2014

Suburban Lease Payments Not Justified in Detroit Water Deal

As owner of the Detroit Water and Sewerage Department (DWSD), the City of Detroit is responsible for capital investments, including major improvements and replacements.  If that responsibility were being met, then the city would be justified in requiring lease payments from ratepayers as part of the conversion of DWSD to a regional authority.

But the city doesn’t have the cash or credit to rebuild DWSD, the city’s (purported) capital asset.

It appears to me that Emergency Manager Kevyn Orr wants to rely on the ratepayers’ credit worthiness to pay for capital improvements and replacements (as if the ratepayers were the owners), as well as requiring ratepayers to make lease payments to the city (as if they were renters).  Bear in mind that the system was never intended to be a cash cow for the City of Detroit. Rates were not supposed to include a profit margin.

Let’s face it.  DWSD is basically a pile of junk with negative or negligible value.  No sooner is one cluster of belt presses, incinerators or water mains replaced than another breaks down.  The only value in this whole scenario is the revenue stream flowing from city (20%) and suburban (80%) ratepayers.  Nick Carey of Reuters wrote on December 16, 2013, ”[An Oakland County official] said preliminary financials he had seen estimated it would cost $20 billion to upgrade the system over two decades.”

It’s one thing to require that ratepayers take over the responsibility to rebuild DWSD.  It’s something entirely different to also require that they make lease payments to the city for the “privilege” of assuming ownership responsibilities.

If conversion to a regional authority goes through, the savings realized by refinancing debt and cutting costs should accrue to the ratepayers without being offset by so-called lease payments to the city.

No comments:

Post a Comment