CHICAGO — Detroit bankruptcy Judge Steven Rhodes, who is overseeing the city's bankruptcy case, ordered the city into mediation with three neighboring counties to jumpstart stalled talks over leasing the Detroit Water and Sewerage Department.
Rhodes' order came on April 17, at the beginning of a hearing on the city's latest plan of debt adjustment.
Wayne County had asked for the mediation. Oakland and Macomb Counties had both said they would participate if ordered, but felt that negotiations had run their course. The city also said in a recent court filing that it believed the deal was dead.
But Rhodes said the Chapter 9 case offer a the "unique opportunity for the creation of that regional authority," according to local reports from the courtroom. "And if we do not take advantage of this unique opportunity, the opportunity will in all likelihood be lost forever."
The privatization of the city's massive water and sewer department, which serves 40% of Michigan's population, is a key part of the city's recovery plan. Emergency manager Kevyn Orr wants to create a new authority operated by the three counties, which would then pay the city $47 million a year for the lease.
Oakland and Macomb County officials say the city has not provided enough financial information and that ratepayers should not be forced to subsidize Detroit's general fund.
Oakland Executive L. Brooks Patterson, who has been one of the most vocal opponents of the deal, issued a statement after the hearing, saying he would comply, but that tough issues remain.
"While we remain open to the possibility that a reasonable solution to forming a regional water and sewer authority may be reached, we strongly believe it will require the assistance and participation of the state of Michigan and the federal government," Patterson said. "Any solution that may be found in mediation cannot merely divert funds from water and sewer customers to Detroit's general fund so the city can meet its obligations."
After talks with the counties stalled last month, Detroit issued a request for proposals from private companies interested in taking over the system. Parties had until April 7 to respond.
The city has not yet reached a settlement with holders of $5.9 billion of water and sewer revenue debt. Orr wants to repay full principal, but refinance the debt with lower interest rates, among other structural changes.
Chief Judge Gerald Rosen, of the U.S. District Court for the Eastern District of Michigan in Detroit, who oversees all mediation with the city's creditors, announced he'd brought in two additional mediators to his team. The new additions are U.S. District Judges Sean Cox and David Lawson. Cox will be primarily responsible for overseeing the DWSD talks. Lawson will be responsible for mediating cases brought against Detroit from creditors fighting the city's eligibility on constitutional grounds.
At the end of the all-day hearing, which centered on court approval of the city's bankruptcy disclosure statement, Rhodes said he wants to be sure that Mayor Mike Duggan and the Detroit City Council will be committed to the restructuring plan before he approves it.
"We absolutely do not want to get to a place where we have a plan that's confirmed that obligates the city to make certain payments and Mr. Orr is no longer in office and whoever's running the city at that point in time doesn't support the plan," Rhodes was quoted as saying in the Detroit Free Press.
Rhodes also said he'd like someone to provide regular updates to the court on the status of the plan.
Also Thursday, the Detroit Police and Fire Retirement System formally approved a settlement with the city that calls for no pension cuts but a reduction in cost-of-living increases to 1% from 2.25%. The General Retirement System approved the deal a day earlier.