03.12.14

Another Lap. With the clock ticking towards putting together its final exit plan, Detroit is increasingly focusing on key, unresolved issues that are critical components of its proposed plan of adjustment, of which the main issues are: the multi-county negotiations to create an expanded regional water authority, the Detroit Institute of Art, and Gov. Rick Snyder’s bipartisan appropriations package. Detroit has been in discussions with Wayne, Oakland, and Macomb counties, seeking annual lease payments of $47 million over 40 years, with ownership retained by the city. But with the negotiations with its surrounding jurisdictions on a regional water and sewer authority at least temporarily dammed up, Emergency Manager Kevyn Orr is, consequently, focusing on the options of either privatizing the operations of the Detroit Water and Sewer Department or selling it, telling the Detroit News yesterday: “I do think we’re at a crossroads now having had this discussion for decades about DWSD…We’re going to run on parallel tracks. We’re not walking away from the creation of an authority. We’re going to start looking at other alternatives as well.” The Motor City’s preferred option remains reaching agreement on a regional Great Lakes Water Authority; however, the inability to provide adequate accounting information to Oakland and Macomb counties, combined with the $1.5 billion in operating losses over the past seven years, $142.5 million in unpaid water bills, more than $500 million in abandoned projects, over $500 million to terminate bad debt; and apprehension about the cost of such a new, regional authority to issue debt, have—at least to date—proved insuperable hurdles. With the system in need of billions in capital improvements, moreover, the counties are concerned their ratepayers would be stuck with higher taxes and fees to finance upgrades to a system owned by the City of Detroit, apprehensive that, consequently, there would be a steady drip-drip of rate increases to further to bolster revenue for the cash-strapped Motor City. They fear that their ratepayers would be expected to subsidize — or “backstop” those who do not pay their bills. County negotiators are also worried that the post-bankrupt Motor City could move to levy Payments in Lieu of Taxes on the suburban counties to raise revenue that otherwise would come from negotiated lease payments.

Election Planning. At a hearing before Judge Rhodes in downtown Detroit yesterday, the judge heard brief arguments (yes, a pun) about proposed voting procedures over Detroit’s final plan of adjustment.  Under the current plan, the Motor City will be mailing packages to about 170,000 individual creditors eligible to vote on acceptance of the plan. In addition, retirees and creditors of record as of April 14 will be entitled to vote. Judge Rhodes has scheduled a hearing for June 26th on any disputes. Under the schedule, individual bondholders and retirees will have until June 30 to object to the plan—with a hearing on accepting the plan scheduled to commence on July 16th. The hearing was important in confirming some of the deadlines in order to facilitate the complex job for ballot counters, who already face the daunting task of counting votes from almost 400 classes of claims in this bankruptcy case—as outlined in the city’s plan filed with Judge Rhodes’ court at the end of last month setting forth the outlines with regard to who is eligible to vote and how that will be done in an effort to streamline the process as much as possible.

Protecting Retirees. Detroit’s and its retiree committee’s lawyers yesterday informed U.S. Bankruptcy Judge Steven Rhodes they have reached an agreement to protect members of a retiree committee from lawsuits associated with Detroit’s bankruptcy case—which they testified would soon be filed. Under the terms of the proposal, a legal injunction would protect members of the committee, specifically created to represent Detroit retirees and beneficiaries who might otherwise have been without competent legal representation during the city’s municipal bankruptcy process. The agreement came in the wake of Judge Rhodes’ patent discomfiture last week at the proposed $602,250 insurance retainer to protect retiree committee members from any liability for their volunteer services. Their request was opposed by the city and received a harsh riposte from Judge Rhodes, who had responded such funds could better be spent paying police officers, EMS workers, or firefighters in the “service delivery insolvent” city, noting the more than half a million dollars appeared to be “grossly disproportionate” to what would actually be needed.

R-o-l-a-i-d-s. Michigan Governor Rick Snyder officially announced on Monday that Benton Harbor, a city of 10,000, has officially exited its financial emergency. The Governor’s announcement came in the wake of the city’s state-appointed Emergency Manager Tony Saunders’ imposition of general fund cuts of up to 30% and other measures, including new labor contracts, as well as transfer of Benton Harbor’s pension system to the Michigan Municipal Employees’ Retirement System. The announcement marked the city’s fourth year under state control and the beginning of a transition period, under which the state has set up a four-member transition board to oversee the city in the wake of the departure of Mr. Saunders. The transition board is part of the Michigan’s updated regime for distressed local governments, which is supposed to facilitate the transition back to local control. Gov. Snyder, in his statement, noted:  “With authority being returned to local control, this transition advisory board will work cooperatively with local leaders to ensure continued financial stability and growth in the city and ensure the essential services that citizens need and rely on.” The board members are: Cary Vaughn, an audit manager at the Michigan Department of Treasury; Bret Witkowski, the Berrien County Treasurer; Sharon Hunt, a former executive at Whirlpool; and Marvin Raglon, also a retired Whirlpool executive. While under state control, voters had approved a pair of operating millage renewals that were previously rejected, in order to help restore the general fund, according to the state.

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