CHICAGO - The city of Flint is pulling out of the Detroit Water and Sewerage Department to join a group of governments that are part of a $1.9 billion project to build their own pipeline connected to Lake Huron.
The move means a $22 million annual loss to the Detroit water system, one of the largest in the nation and one of Detroit’s strongest assets.
The announcement comes as Detroit’s new emergency manager considers a proposal for a long-term lease of the water and sewer department. The proposal would generate $50 million a year for Detroit, a water department spokesman said.
Officials in Flint, which is under state-controlled emergency management, said this week they received approval from the state to leave the system to join the Karegnondi Water Authority project.
The KWA project calls for a new pipeline from Lake Huron to a treatment plant in Flint, which would then clean the water and sell it to surrounding municipalities.
Detroit had made Flint an offer that would have reduced water rates by 50% and saved the cash-strapped city $800 million over the next 30 years, a Detroit water spokesman said. “We don’t understand how they would have rejected a proposal that would have been a win-win,” spokesman Bill Johnson said. “We think it’s something other than the price of water.”
Detroit’s Johnson said he thinks the new pipeline is seen as a “jobs program” for Flint and the surrounding area.
“The construction of this new pipeline promises construction jobs that would aid the economy,” Johnson said. “The only issue is how much will Flint and Genesee County ratepayers have to pay.”
The loss of Flint will cost the authority $22 million a year, or 6% of its total water revenue. It will put more of a financial burden on the system’s remaining three million customers, including Detroit residents, and will mean that rates will have to be raised again, Johnson said. The system currently serves about 43% of the state’s population, with 70% of revenues coming from outside the city.
Detroit recently built connections to the Flint treatment system and will now try to recoup those costs, Johnson said.
In late March, a federal judge released the Detroit water and sewer department from federal oversight after 35 years. The move is expected to fuel a proposal for the city to enter into a long-term lease of the system with a newly created independent authority.
Detroit Mayor Dave Bing is in favor of the proposal, as are officials from Wayne, Macomb and Oakland Counties, according to Johnson. The new authority would pay the city $50 million a year in payments in lieu of taxes to operate the system. The city would continue to own the asset.
“If the emergency manager is looking for a revenue stream to reduce the city’s deficit, we project that we could generate as much as $50 million a year to the city’s general fund,” Johnson said.
He added that it will boost the credit quality of the water and sewer debt.
“Part of the problem with the bondholders is the water system’s connection to Detroit,” Johnson said. “If we could create some separation, that would give bondholders more comfort and give vendors more comfort and our regional partners.”
He admitted that Flint’s departure could make the long-term lease less attractive. “It does reduce the value of the asset,” he said.