Mapping a Plan of a Post-Chapter 9 Skyline

eBlog

December 13, 2018

Good Morning! In this morning’s eBlog, we report on the physical and fiscal challenges to Michigan Gov. Rick Snyder’s lead replacement and drinking water regulations in the wake of the Flint drinking water crisis, and then we peer south to Detroit, where the recovery has now reached a point when leaders are battling over the future character of Detroit’s downtown. 

Out Like Flint? A coalition of municipal water agencies have sued in state court in Michigan: they are seeking to invalidate what they deem Governor Rick Snyder’s “incomplete and arbitrary rules” with regard to lead pipe replacement and lead drinking water regulations prompted by the Flint water crisis. Many consider the state’s lead rules to be the strictest in the nation: they would drop the “action level” for lead in drinking water from the current federal limit of 15 parts per billion to 12 ppb by 2025. The administrative rules also give municipalities two decades in which to replace an estimated 500,000-plus lead service lines in a state, the third highest number in the country. That has raised two issues: how to finance the cost, and who will pay? But before there, there is a legal challenge from a coalition of Detroit area water agencies, who, earlier this week, filed suit in the Michigan Court of Claims, asserting that the proposed rules “impermissibly compromise water suppliers’ ability to remove lead lines to protect the public from exposure to a wide range of other contaminants in drinking water.,” and that the rules would also violate the Michigan Constitution by mandating that local governments bear the fiscal responsibility to replace private service lines. 

The coalition, composed of the Detroit Water and Sewerage Department (DSW), the Oakland County Water Resources, Commissioner Jim Nash, the Great Lakes Water Authority, and the City of Livonia, is seeking to halt the revised lead and copper water rules which the Michigan Department of Environmental Quality (MDEQ) began implementing last June. The suit charges: “MDEQ launched the stakeholder engagement process in July 2017 accompanied by an announcement that the Rules would have to be finalized by the end of the year…This abbreviated timeline limited plaintiffs’ ability to work through the numerous practical and legal complexities involved in implementing the rules which require the digging up of infrastructure on an estimated 500,000 residential properties.”

It was not as if the issuance came as a surprise, so, unsurprisingly, defenders had already attacked, arguing it is wrong to oppose the state as it seeks to prevent another Flint water situation, or as HopCat and Grand Rapids Brewing Company founder Mark Sellers put it: “My business relies on fresh clean water as the main ingredient in our product. Without clean water, we can’t serve beer, and without beer—we have no business.” But the cost, estimated at $2.5 billion to replace both the public and private portions of lead service lines by local agencies, and, as the suit notes: “Without any known funding from the State,’ will necessitate the digging up of service lines on private property, which could well lead to lawsuits by ratepayers against local agencies, with defenders arguing there would be violations of the Constitution and Michigan laws. In addition, local agencies have accused the Snyder administration of acting before EPA completed a study of whether lowering the lead action standard to 12 parts per billion or the originally proposed 10 parts per billion would actually benefit the health of residents: “MDEQ has not provided an explanation for why it changed the lead action level before the EPA completed its study; what information it studied and considered in doing so; and why it abandoned its initial proposed action level of 10 ppb for 12 ppb?” Detroit Water & Sewer Director Gary Brown said his agency is a “leader in our state in replacing lead service lines to reduce the risk of lead in drinking water;” now, however, he is concerned the new rules will drive up costs too much for consumers—0mayhap especially in a city where 34.5% of the citizens fall below the federal poverty level—and where there are an estimated 125,000 lead service lines, the court filing states. Thus, unsurprisingly, DWS Director Brown notes: “We support what the revised Michigan Lead and Copper Rule intends to accomplish. Our concern is the unfunded mandate as written violates the Michigan Constitution: Not only that, but it also may make Detroit residents face double-digit rate increases, puts other public health projects at risk by diverting an estimated $40 million annually from water and sewer main infrastructure repairs, and requires an unrealistic time frame.”

The coalition of local governments and water utilities deem the water regulations an overreaction to the lead contamination in Flint. Officials with the Southeast Michigan Council of Governments, which represents municipalities across seven Detroit-area counties, question the necessity and cost effectiveness of a plan to mandate each system to replace, on average, 5% of its lead service pipes per year over 20 years starting no later than 2021. Engineer Kelly Karll of the COG notes the replacements would be done even if lead were “not an issue, even when the sampling says it’s not an issue.” Even though the Great Lake authority’s system has no lead service lines, officials said its member communities do; thus they have joined the lawsuit to ensure its member communities “have a seat at the table in the discussion of amendments to the rules: One of GLWA’s top priorities is the protection of public health and safety. As such, it supports aggressive action against exposure to lead, as well as other emerging contaminants of concern…However, the Authority believes that any changes to rules and regulations governing these contaminants must be done in a manner that is thoughtful and consistent with the law.”

Shaping a City’s Future. While Detroit, under its municipal bankruptcy chapter 9 plan of debt adjustment has constructed a remarkable fiscal recovery from the largest municipal bankruptcy in the nation’s history, the physical part of building a new future has been more trying: now the old Detroit Saturday Night building has emerged as the latest flash point in what has been shaping up as a battle over the future character of Motor City’s downtown. With building owner Emmett Moten Jr. initiating plans to demolish the building and create a parking structure in order to pay back a loan from the Detroit pension fund, historic preservationists are pressing for the city to intervene to halt the demolition—with the parties set to confront each other next week when the Historic District Commission discusses the possible demolition: because the building is adjacent to the Fort Shelby Hotel, which has been designated—and which Mr. Moten also owns, the Commission must give its opinion with regard to any proposed alterations, albeit the governing process in the wake of any such assessment is unclear.

Last August, in the wake of news that a demolition company contracted by Mr. Moten had attempted to pull a demolition permit—a request denied and flagged because of the proximity to the Fort Shelby, activists wrote to Detroit City Clerk Janice Winfrey and the City Council requesting a historic review of the building and a temporary historic designation to stop a possible demolition—a request which has been awaiting next month’s return from the Yuletide Council recess; ergo the building remains unprotected. Once Mr. Moten fulfills the requirement of presenting his plan before the HDC, a demo can likely be pulled.  

A statement issued by the City notes: “The Commission’s recommendation is strictly advisory and speaks only to the demolition’s potential to affect the adjacent designated local historic district (the Fort Shelby hotel).”

Here, preservationists contend the 1914 building is an important marker of the Motor City’s history—a kind of Aretha Franklin; moreover, they believe Detroit does not need more parking lots. However, Mr. Moten, served as former Mayor Coleman Young’s so called “development czar” from 1979 to 1988 and  who purchased the building in 2007 (mayhap, ironically, the same year he purchased and rehabbed the neighboring Fort Shelby with a loan from the Detroit Pension Fund), maintains that parking has always been his plan for the Fort Shelby development. It was just that the recession undercut his ability to act earlier, so that, now, he describes the current demolition efforts as “punishment…This is using historic preservation to punish people.” Eleven years ago, Mr. Moten took on the Fort Shelby project with the purchase of three neighboring properties: the hotel, which has been an “historic district” since 2004; the old Detroit Saturday Night building, and a surface parking lot: all three properties were purchased with a loan from the Detroit Pension Fund. Now he believes that the need for parking has become more urgent as there has been more a struggle to pay back the pension fund. Indeed, two years ago, with approval from the board of trustees of the pension board, Mr. Moten and his partners began to sell some of the units within the Fort Shelby as condos to recoup funds. However, he asserts that selling the condos has become more difficult without corresponding parking, adding: “It’s not like we’re putting the lot in there for hockey and football fans,” adding that city officials had sought to offer a compromise, offering a parking lot option two blocks away. But he believes this would be unreasonable for condo purchasers and would bring down the value of the units: “This takes care of the customers…I was supposed to be doing this a while back. We need parking for our customers. The value of the property would go down (with parking two blocks away), and the lender, the General Retirement Pension Fund, does not get its needed payoff. They’ve been fair, so I want to be fair to them,” adding that the pushback from preservationists is, in his view, unreasonable, specifically since he has done so much work to maintain and rehab the Fort Shelby hotel—or, as he put it: “I don’t go around knocking down buildings; we save buildings. Don’t we get credit?” He added that if historic preservationists want the Detroit Saturday Night building, they could purchase it from him. Then Rachel Partain, a spokesperson for the retirement fund, stated, referring to the building: “It was the General Retirement System of City of Detroit’s understanding that the building at 550 would become parking,” adding that the current principal balance on the Fort Shelby Residential LLC loan, on Sept. 30, was $5,875,548, noting the “lender is current on its terms…As each condo is sold, the borrower is making a significant payment toward the principal.”

A municipal bankruptcy’s plan of debt adjustment focuses on a step-by-step plan to restoring fiscal balances, as opposed to physical balances that will define a city’s skyline for the future—one which, in Detroit—many hope will not be composed of “unattractive surface parking.” But for a city, nearly deserted and empty when I walked to the Governor’s Detroit office on the first day of the city’s historic chapter 9 bankruptcy, the challenge now is how vibrant should a rebuilt downtown be, and, as Mr. Grunow puts it: “There are more parking spaces downtown today than at any other point in the history of the city…It only underscores the need for us to adopt some clearheaded policies around managing parking downtown.”

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