DALLAS -- Michigan is raising the pressure on a so-far resistant Flint city council to vote on a long-term water contract under which the city would lose rights to a bond financed pipeline.
Flint City council members on June 23 voted to extend the city’s water delivery contract with the Great Lakes Water Authority to September, but delayed voting on a longer term proposal by the city’s mayor that would extend the contract for 30-years.
Now the state is raising the pressure. Following the council’s vote on Monday, Michigan’s Department of Environmental Quality sued the city over the delay on a long term arrangement, alleging that the City Council's refusal to approve the long term water contract is endangering public health following the city’s lead contamination crisis.
The complaint, filed in the United States District Court for the Eastern District of Michigan, seeks a declaration that the city council's failure to act is a violation of the Safe Drinking Water Act and an order that Flint must enter into the long-term agreement with GLWA negotiated by Flint Mayor Karen Weaver.
The MDEQ has also suggested Flint would be wasting its money by sticking with the Karegnondi water pipeline plan.
"The MDEQ has determined that the City Council's failure to approve the agreement with GLWA and continued consideration of other options that may require operation of the water treatment plant places public health at risk," MDEQ Director Heidi Grether said.
Under the long term contract, the city would lose water rights to the Karegnondi Water Authority -- a new pipeline to Lake Huron that is under construction. As Flint awaited the completion of the Karegnondi pipeline, it drew water from the Flint River and improperly treated it at a city plant, corroding pipes and causing contamination from lead.
Flint was preparing to shift to KWA supplied, un-treated water in 2019 with plans to make much needed upgrades to its treatment plant to meet federal standards. In April Weaver dropped the plan to make the switch to the bond-financed pipeline and recommended the city continue to purchase water from GLWA.
Weaver said sticking with GLWA supplied and treated water is more affordable while avoiding the risk of another supply shift. The city remains scarred by the water contamination crisis that ensued after a state-appointed emergency manager allowed the city’s contract with Detroit for Lake Huron-treated water to expire.
“The recommendation I put forward months ago is the best option to protect public health and is supported by the public health community,” said Weaver. “[It] would also allow the City to avoid a projected 40 percent water rate increase and ensure the City of Flint gets millions of dollars to continue replacing lead tainted pipes and make much-needed repairs to our damaged infrastructure so we are able to deliver quality water to residents. The people of Flint have waited long enough for a reliable, permanent water source. Implementing my recommendation will provide that, and will allow us to move forward as a community and focus more on rebuilding our City."
Flint pledged to repay about 34% of the $220 million. The city’s bond commitment 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.
Under Weaver’s plan the city would recoup the roughly $7 million in annual debt service by transferring its KWA water rights to GLWA. The plan would see the city enter into “a rent to own scenario where the city would take their capacity in KWA then sell it to or give the right to be able to purchase that and in return KWA would essentially lower their water rate by $7 million so that money would be freed up to pay the bonds,” said Genesee County deputy drain commissioner Kevin Sylvester.
“Regardless of whether Weaver’s deal is done or not that responsibility to pay the bonds remains” said Sylvester.
Councilman Eric Mays said he wants to make sure Flint doesn't lose its rights to the KWA pipeline as it would under the Weaver recommendation. Instead Mays is recommending that the city hold onto the asset. He wants the state to be on the hook for the bond obligation payments. “My position is that the since the Governor won’t apologize and the state has the money they can pay the bond; and whether we ever use the KWA asset, I don’t want, at this juncture, to turn over that asset and lose those rights under the deal with GLWA,” he said. “I would be almost ready to vote for the GLWA deal if we could tweak it and get that bond off to the state and still retain the asset.”
Mays said that aside from the plan he’s suggested, no other council member has proposed an alternative to Weaver’s plan. “There’s been plenty of time since the Mayor recommended her proposal and the city council has done nothing," he said.
Mays believes the state should be on the hook for the bond payments because it allegedly used false pretenses to obtain the loan needed to finance Flint's share of the new pipeline.
“Since the MDEQ issued a suspicious administrative consent order for minor repairs and put it into the bond prospectus at the initial bond sale, my position is that Governor has the money and can pay the bond,” he said. The Michigan Treasury didn't provide comment on Mays suggestion that the state take over responsibility for the debt obligation.
That suspicious "administrative consent order," between the DEQ and Flint was filed to enable it to participate in the bond deal without the debt counting against its state law-imposed debt limits.
The city, then under emergency management, cited the need to clean up a troublesome lime sludge lagoon – holding by-products of water treatment -- as the reason Flint needed a debt waiver, even though the funds were to go to the city's participation in the pipeline.
Michigan’s attorney General, Bill Schuette has brought several criminal charges related to the city's water crisis both involving the KWA project and the city's former emergency managers. In December, the Michigan Attorney General's office charged two former state-appointed emergency managers and two former city officials, alleging they used "false pretenses" to borrow $87 million by claiming it was needed to address an environmental calamity involving a lime sludge lagoon at the Flint water treatment plant.
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. Fiscally distressed Flint joined the project in order to save on water costs over the long term. The city’s decision to let its water contract with Detroit expire in 2014, and to use Flint River water that was improperly treated at the city’s water plant until the new pipeline was ready, led to its water contamination crisis.
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.