Michigan lawmakers agree to Flint settlement borrowing plan

Register now

Michigan lawmakers signed off on legislation that authorizes $600 million of borrowing to settle litigation over the Flint water contamination crisis.

The Senate signed off last week on the legislation and the House followed on Wednesday, both in bipartisan votes. Gov. Gretchen Whitmer is expected to sign the legislation as the borrowing plan was part of a preliminary settlement agreement previously announced by Whitmer and Attorney General Dana Nessel.

The two bills passed “would authorize the Michigan Strategic Fund to issue bonds for a loan to cover the state’s $600 million dollar share of a settlement agreement” for Flint litigation and “would express the intent of the legislature to repay that loan through an annual appropriation of $35 million for fiscal years 2021-22 through 2050-51,” reads a legislative analysis of the bills. The $35 million annual repayment would be subject to annual appropriation, which the analysis warned would likely result in negative state rating action if future lawmakers failed to approve. The bonds are an obligation of the fund and won't carry a state general obligation pledge.

The settlement was submitted to a federal judge last month. If finalized and approved, the Michigan Strategic Fund would borrow to fund a lump sum payment into a special claims fund under the preliminary pact that resolves litigation over the state’s role in the crisis.

Blame for the crisis fell on local, state and federal authorities, including the city’s state-appointed emergency managers.

The pact, which now totals $641.2 million, outlines payment terms and additional defendants who have agreed to participate. The city of Flint will contribute $20 million, McLaren Regional Medical Center will pay $20 million, and Rowe Professional Services Co. will provide $1.2 million.

“Resolving these legal disputes against the state, and now the other defendants who have joined the settlement, is the best possible outcome for Flint’s future,” Nessel said.

The crisis occurred after the city's contract with Detroit to receive Lake Huron water ended and the city shifted to Flint River water in April 2014 while awaiting the completion of a $285 million bond-financed pipeline carrying Lake Huron water to Flint and other Genesee County communities.

The city, which was under a state-appointed emergency manager, failed to properly treat the Flint River water, triggering lead contamination because of pipe corrosion, and it was not resolved until after the city in the fall of 2015 shifted back to Detroit-supplied water.

The defendants will make payments into a special purpose, trust-like entity being created, known as the FWC Qualified Settlement Entity, which will apply to the Michigan Strategic Fund for a loan to pay out claims.

The Michigan Strategic Fund is expected to issue bonds to fund the loan amount so that proceeds can be sent to the FWC Settlement Entity by March 1 or 180 calendar days after the court enters the preliminary approval order. The MSF is an economic development arm of the state.

The state will make annual appropriated payments over 30 years to the Special Purpose FWC Settlement Entity, and that entity will use those annual funds to pay the loan to the Michigan Strategic Fund.

The governor, who took office last year, inherited the Flint debacle from predecessor Rick Snyder, whose administration came under attack for failing to prevent or move quickly to correct the contamination.

The seeds of the crisis were planted when the city's state emergency managers agreed to participate with Genesee County in financing the construction of a water pipeline to trim water costs. In addition to the toxic lead poisoning of household water that is especially damaging to children’s developing brains, a 2014-15 Legionnaires’ disease outbreak in the Flint region led to the deaths of at least 12 and sickened another 79 individuals.

Flint reverted back to Detroit water in October 2015 and it signed a long-term contract to continue receiving water through the Great Lakes Water Authority, a regional agency that is the successor agency to Detroit’s system.

Fifteen government officials were criminally charged. Seven struck plea agreements. Nessel, a Democrat who took office last year, dismissed all pending criminal cases related to the crisis, two of which were against former state-appointed city emergency managers. The office launched a new case citing the development of new evidence and criticisms of the original investigation under her Republican predecessor, Bill Schuette.

For reprint and licensing requests for this article, click here.
City of Flint, MI Michigan Primary bond market
MORE FROM BOND BUYER