DWSD: Cooking the Books?

Or trashing the books?  Maybe it's no longer a question of cooking the books.  Maybe the books are beyond cooking.  Cooking the books means dissembling, hiding something under a false appearance, deceiving.  Maybe DWSD hasn't kept  records accurate enough to support an audit.

The Detroit Water and Sewerage Department (DWSD) didn’t publish its annual audit report last year and now refuses to furnish its wholesale customers in the suburbs with the financial information they need to assess a pending proposal for a regional water authority.  Omitting an annual audit is shirking a duty, dereliction of duty.  

Who's responsible?  DWSD's director is Sue McCormick.  But she may be no more than a puppet for Kevyn Orr, Detroit's emergency manager.

I googled "DWSD annual audit."  What appeared to be the most pertinent result was Detroit Water and Sewerage Department - Financials 

Didn't see any mention of a 2013 annual audit report.  It said, "The Financials page is a listing of annual report, bond and financial statements. This information is provided to show DWSD's overall performance. For a copy of DWSD's Annual Reports or other documents not listed below, please email your request to public.affairs@dwsd.org. "

So I sent an email request.  I'll update this post if and when I get a response.

In the meantime, those reading this post may want to make inquiries of their own.

UPDATE:  Received the following response from DWSD, "Thank you for your email.  The Water and Sewerage Department welcomes your comments and requests.  Please be advised the 2013 Annual Report has not been released by the City of Detroit. Unfortunately, a time frame is not available."

 

Bankruptcy Receiver Covets Suburban Money Machine

 

I’m rebooting my argument about the relationship between Detroit and its suburbs concerning water services.

The suburbs are the source of 80 percent of DWSD’s revenue stream, which amounts to the better part of $1 billion every year.  It’s the only foreseeable security for the financing needed to rebuild dilapidated infrastructure.

It’s possible that the bankruptcy court has the authority to nullify any present equitable interest of the suburbs in DWSD or its successor, but where is the authority of either the court or Kevyn Orr (in either of his roles) to require future lease payments by the suburbs to the City of Detroit for the use of water facilities?

Consider the analogy of a corporate reorganization in bankruptcy.  The bankruptcy court can wipe out the stockholders’ equity, but it would be ludicrous to suggest that the court could then order the former stockholders to begin purchasing stock in the reinvigorated entity coming out of bankruptcy.  

If suburbanites want water and sewer service from Detroit, they can continue to pay the costs of such services, deferred to the following year, same as they do now.  But if they so chose, any of the suburban communities (or combination of them) could acquire those services elsewhere or build their own, more efficient facilities utilizing the latest technology.  It’s their choice, not Orr’s or the court’s.

The billion dollar money machine in the suburbs doesn’t belong to DWSD, Kevyn Orr or the bankruptcy court.  A 700k Detroit tail doesn’t wag a 3000k suburban dog.

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.