CHICAGO - The Detroit City Council agreed this week to reconsider its rejection of water and sewer rate increases, after the state treasurer warned the vote could trigger increased state oversight.

The city council had voted on June 30 to reject a 7.5% water and sewer rate increase. After the move, city and state officials said the increases were built into the Detroit Water and Sewerage Department's 2016 budget and failing to implement them would mean the loss of $27 million.

That shortfall could trigger action by the state-appointed review board that oversees the recently bankrupt city's finances, according to a letter Michigan Treasurer Nick Khouri sent to the council and Mayor Mike Duggan on July 2.

"Unless the June 30th vote is reversed, the contemplated rate increases will not occur and this will result in the DWSD Enterprise Fund being in a deficit position for fiscal year 2016," Khouri wrote. "The purpose of this letter is to ask the mayor and the council to provide the Financial Review Commission with either the necessary information to demonstrate the city's plan to comply with the approved budget for fiscal year 2016, or the basis upon which the city will seek an amendment to the fiscal year 2016 budget."

Khouri said the city also needs to prove that it can continue to meet debt-service obligations, including existing coverage requirements, through the end of fiscal 2016 without the rate increases.

Detroit Chief Operating Officer Gary Brown also told the council it should reverse its position.

"You are putting at risk an extension of state oversight if you have a $27 million hole in the budget," Detroit Chief Operating Officer Gary Brown was quoted as saying in local media reports. "There aren't many ways to generate $27 million in additional revenue other than raising rates and making the operation more efficient." The rejection could also impair negotiations over the formation of a new regional authority to take over the Detroit Water and Sewerage Department, officials said. Detroit is in the midst of finalizing a deal with Wayne, Macomb and Oakland Counties that would shift operation of the massive water and sewer department to the Great Lakes Water Authority. Negotiations have dragged on for years, with uncollected debt and power over rate increases among the sticking points.

The council agreed July 7 by a vote of 8 to 1 to reconsider the vote.

The Public Health and Safety Committee is expected to take the measure up again on July 13. The full council could vote again on the rate hike on July 14.

Council President Brenda Jones said the water department did not provide the council with enough information on the rate increases. She said the council is not a rubber stamp, and that she would still vote against the increases.

The rate increases are needed in part because the city of Flint last year pulled out of the DWSD, opting instead to join a new regional water authority, according to a legislative analysis of the council measure.



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