CHICAGO — Michigan lawmakers are considering a package of bills to provide relief for local governments struggling to make debt-service payments on special assessment debt issued for failing developments.
The House Committee of Local, Intergovernmental, and Regional Affairs is in the midst of holding hearings and studying House bills 4148-4150 and 4538. Introduced by Rep. Cindy Denby, R-Handy Township, the measures would divert a chunk of water-pollution control fund dollars into a new fund that local units would tap to help cover debt-service payments on water and sewer bonds.
Troubled special assessment debt is a growing problem for many local governments, particularly in southeast Michigan. During the housing boom, many counties and townships in the area issued water and sewer bonds to finance infrastructure for large-scale developments that have failed to generate expected revenue amid a market that went from “red hot to gone,” in the words of one local official.
Most of the bonds carry a general obligation pledge, forcing townships to make cuts or raise taxes to cover payments. Much of the debt was issued by counties, and also carries their full faith and credit pledge, with the agreement that the local township would pay debt service.
A recent report by Michigan State University estimated that local governments in Michigan have issued $175 million of direct special assessment debt, but that indirect special assessment debt — where a county, for example, issues on behalf of a township — amounts to double or even triple that. Overall, there is about $1 billion of outstanding water, sewer, and road debt, the report estimates.
Denby represents part of Livingston County, ground zero for the problem. More than half the townships in the county issued bonds to finance new development infrastructure during the housing boom.
Many of those developments now look like big empty cornfields dotted with new water and sewer lines, said Brian Jonckheere, director of Livingston County’s Department of Public Works as well as the county drain commissioner.
“There’s some perception that this is a Livingston County issue,” Jonckheere said. “But now we’re starting to see this more and more become a reality for more townships throughout the state. We expect that the state is probably going to see a bigger spike in defaults and it will take a lot of people by surprise.”
Jonckheere said the county has appointed a group to work with township officials to deal with the problem.
“The county is not going to miss a bond payment — that’s not an option,” he said. “We’ve been working with the townships, encouraging them to do whatever is necessary to make sure there is no default and trying to get a handle on their internal money situation.”
Backers like Jonckheere say the House bill is one of several tools needed to relieve the pressured townships.
The legislation would allow the state to divert $10 million from the state water pollution control revolving fund — which currently totals $710 million — to establish a delinquent special assessment loan fund. Local units could tap the fund to help cover interest and principal payments on troubled water and sewer bonds.
The revolving fund is currently used to finance updates to aging sewer systems. Opponents of the bills have noted that the move would mean less money to meet environmental needs.
Denby introduced similar measures last year that died for lack of support, partly because they proposed using general fund money to set up the delinquent special assessment account.
Jonckheere said he knows of two or three townships that are in danger of defaulting on their bond payments, but that most have done whatever is necessary to meet the obligations. Tyrone Township told residents they would either have to lay off the fire department or raise the millage to cover the debt payments. Voters approved the millage increase.
