A judge last week approved a restructuring plan for the troubled Detroit Water and Sewerage Department that allows the city to maintain ownership but gives the seven-member board more authority over certain matters, including labor negotiations.
The system, which has $4.6 billion of outstanding debt, has been under federal oversight since 1977. With the new agreement, federal control could end within the year, local officials said.
U.S. District Judge Sean Cox last week approved a plan that gives more control to the department’s seven-member board and imbues the director with more power. But it stops short of establishing a new regional authority to take over the system, as some regional officials wanted.
The new plan would allow the board to outsource or privatize water department functions and will change collective bargaining agreements after the current contract expires.
The judge’s ruling “paves the way for the city of Detroit to establish and maintain long-term compliance with the Clean Water Act and put an end to more than 30 years of federal oversight of the water department,” Mayor Dave Bing said in a statement.
He said the changes would make the department a more attractive credit to bond buyers, according to local reports.
The water system serves 45% of Michigan’s population and the sewer system about 30%.
Moody’s Investors Service downgraded the city’s water and sewer debt last December, cutting the senior-lien bonds to A1 from Aa3 and the second-lien bonds to A2 from A1.
In April, Fitch Ratings lowered the rating to A from AA-minus for $1.4 billion of outstanding senior-lien sewer bonds and $1.5 billion of senior-lien water bonds. It also downgraded to A-minus from A-plus $1 billion of second-lien sewer bonds and $660 million of second-lien water bonds.
