DALLAS – Flint, Michigan won't walk away from its participation in the $285 million bond-financed pipeline the Karegnondi Water Authority is building to deliver water to the city, a decision aided by state help and other concessions, Mayor Karen Weaver said Tuesday.
Weaver formally re-committed the city to the project after negotiations with Genesee County and the state. The county will pay for the pre-construction engineering of a three-mile pipeline that the city now needs under a state mandate in order to connect to the system. The city also reached a cost-sharing and financial arrangement with the state of Michigan.
Weaver also is seeking additional city representation on the KWA board going forward.
"I am not excited about this but I think working toward these changes gives us greater influence than what we had before and it will allow us to move forward knowing that we have people at the table making decisions who are truly invested in the city and who want what is best for the citizens of Flint," Weaver said at a press conference Tuesday alongside Gov. Rick Snyder.
For weeks, the mayor delayed re-committing her city to KWA pipeline saying she had reservations over the original deal and worried it was not in the city's best interest. "None of us here today representing the city of Flint were at the table when these decisions and deals were made," said Weaver, who took office last fall. "I have always said I didn't think it was a good deal for the city of Flint but that is where we are."
But the contracts struck when the city was under a state appointed emergency management would make it hard for the city to back out. Weaver said the city must "make the best of the situation whether we agree or not."
The city is currently grappling with the aftermath of a water contamination crisis triggered by its switch in 2014 from Detroit's water system that draws from Lake Huron to the Flint River. The switch was made once the city's contract with Detroit water ended to save money as it awaited completion of the KWA pipeline.
The city originally intended to use the Flint River Water until later this year when it was scheduled to begin pulling water from the new pipeline. The Flint River water wasn't properly treated and corroded pipes throughout the system. The city -- with state financial help -- reconnected to Detroit's system last year but it did not solve the city's problems because the pipes were contaminated with lead.
Snyder said it's critical that the city connect to the KWA pipeline in order to provide Flint citizens safe and reliable drinking water. The state has agreed to provide the city financial resources and favorable financing.
The state will help the city with financing needed to cover the $7 million price tag for an additional stretch of the line needed to connect to the system. The additional line is needed to meet a January 2016 order from the Environmental Protection Agency that requires the city to treat and test any new water supply before sending it to city homes.
Snyder committed to providing $4.2 million in grant funds and will work on a "preferential financial arrangement" for the rest of the funds that doesn't add any near term cost burden to the city.
Snyder said the state also plans to help the city plan for a back-up water source. "That is still only under discussion and the city needs to ultimately make these decisions," he said.
Flint and Genesee County sold $220 million of bonds to finance their break away from the Detroit Water and Sewerage Department and build their own 63-mile pipeline to Lake Huron in March 2014. The fiscally distressed Flint joined the project in order to save on water costs over the long term.
In light of Flint's severe fiscal distress at the time, the bonds featured a back-up pledge from Genesee County. The project participants expected to make their payments from the system's revenues, but the debt carried the limited-tax general obligation pledge of both credits. Genesee further pledged to cover Flint's payments within 15 days if the struggling city was unable to make its share of payments.
Flint is responsible for about 35% of the debt related to the $285-million KWA project. If the city had pulled out of the deal, it would still be on the hook for repaying its commitment, which is estimated at $7 million per year, for the next 28 years. If Flint doesn't make its bond payment, Genesee County — the other primary partner in the KWA — is on the hook to take over the city's debt because the county pledged its full faith and credit to the project.
The city's commitment means the county can lower the cost of borrowing on a recent loan. Jeff Wright, Genesee County Drain Commissioner said KWA was able to finalize on June 10, $74 million in financing to complete construction of the pipeline on schedule and under budget. The financing carries a higher initial rate of 4.3%.
The interest rate, Wright said, would be reduced to 3.15% once Flint's administration signed a standard disclosure document reaffirming basic facts that were agreed to in the original financing agreement of 2013. "The increased bond interest rate is a direct result of Flint's refusal to acknowledge these basic facts," he said.
In April 2015, Michigan Attorney General Bill Schuette said he was launching a probe into the development and approval of the KWA bonds. S&P Global Ratings rates the bonds A, with a stable outlook. In March, Moody's Investors Service affirmed the KWA bonds' rating at A2.
Michigan Lawmakers have approved $234 million of funds to be appropriated to Flint in the wake of its water contamination crisis.
