The Detroit Water and Sewerage Department is promising a five-year, $500 million capital program to upgrade water and sewer pipes that have not seen a massive infrastructure upgrade since 1930.
The program will be supported through the department's $50 million annual lease payment from the Great Lakes Water Authority and revolving fund loans from the state of Michigan, the department said at a press conference Thursday.
Bryan Peckinpaugh, public affairs manager for the Detroit department, said it will bond against the lease payments and use loans from the state revolving fund on a yearly basis over the next five years.
“We leverage Great Lakes Water Authority’s bond rating to go out to the bond market for our Capital Improvement Program funding,” Peckinpaugh said. S&P Global Ratings rates GLWA’s senior lien water system revenue bonds AA and second lien bonds A-plus. Moody’s Investors Service rates the senior bonds A2 and the second lien bonds A3. Fitch ratings rates the senior bonds A and the second lien bonds A-minus.
Peckinpaugh said this calendar year the department is spending $120 million of the $500 million capital plan.
Detroit Water and Sewerage has also made improvements to collection rates which have increased to 94% from 77% since 2015 and created an additional $60 million a year in revenue to support the plan.
The city plans to start with replacing or improving 29 miles of water mains and meters for $38.6 million and 19 miles of sewer lining for $18.8 million in fiscal 2020. Work will also include replacing lead service lines with copper pipe when found.
Gary Brown, who was appointed by Detroit Mayor Mike Duggan in 2015 to lead the department after GLWA assumed much of its territory outside Detroit city limits, said at the press conference that the department last week approved $25.6 million of borrowing through the state’s revolving fund.
He said the revolving fund debt gets the city $11.2 million of savings because the city is able to get a 2.25% interest rate, where on its own Detroit Water would have paid 4.5%. Brown said the bond market has recognized that Detroit Water is a much more efficient organization today both in collecting revenue and rebuilding its systems.
The state’s new lead and copper rule requires that all utilities must replace 5% of its lines a year over the next 20 years. The rule came in the aftermath of the Flint water contamination crisis.
“If we were forced to go at that speed we are definitely going to need the state’s assistance because we cannot pass this rate increase into rates to our customers, it has to come from somewhere else,” Brown said.
Peckinpaugh said that additional funds would be raised through loans from the state’s revolving fund.
A supplemental budget approved by lawmakers earlier this month includes $3 million to help residents and local communities prepare for the new lead rules. Gov. Gretchen Whitmer’s budget proposal for the next fiscal year includes $120 million for lead service line replacement and $60 million for hydration stations in schools.
The Michigan Senate only proposed an additional $25 million for lead and copper rule implementation in fiscal year 2020. The House did not include any of the funding in its budget. Whitmer is a Democrat and Republicans control both houses of the legislature.
The city’s plan of adjustment set in motion the establishment of the regional water authority to take control of the city's Water and Sewerage Department in exchange for lease payments.
Under the 40-year lease agreements struck with the city, GLWA assumed responsibility for regional water and sewer infrastructure while the city maintained responsibility for local water and sewer infrastructure serving city residents.
The lease calls for the GLWA to make an annual $50 million revenue-financed capital contribution to finance capital improvements and debt service and to fund assistance programs. GLWA absorbed Detroit Water and Sewerage Department debt that had been cut to junk.
