(Recasts with judge's comments on post-bankruptcy oversight,
need for support from mayor and city council, judge's ruling on
objections, action by city's police and fire retirement system,
appointment of additional mediators, background)
By Cherie Curry
DETROIT, April 17 The federal judge overseeing
Detroit's historic bankruptcy case has revived the idea of a
regional water authority and also suggested the city may need
court oversight after it emerges from bankruptcy.
U.S. Judge Steven Rhodes ordered the city and three counties
to work with a court-appointed mediator to create a regional
water authority. Detroit's emergency manager, Kevyn Orr, had
previously disclosed his intent to abandon efforts to form a
jointly controlled utility to serve Detroit and surrounding
The potential plan for a court-appointed supervisor comes on
top of existing oversight. Detroit already has a financial
advisory board, and Orr and Michigan Governor Rick Snyder are
mulling an oversight board similar to the one created after New
York City's fiscal crisis decades ago.
"We have to think about what an appropriate role is for the
U.S. Bankruptcy Court post confirmation," Rhodes said.
Rhodes also indicated he may select a single person who
would answer to the court even after Detroit emerges from
bankruptcy, saying it would be "efficient to have one person."
Rhodes said it would be important that the plan crafted by
Orr and his team to adjust $18 billion of debt and other
obligations and exit from the biggest municipal bankruptcy in
U.S. history has the support of Detroit's mayor and city
Orr's appointment as emergency manager is scheduled to end
At Thursday's court hearing, the judge dismissed most
objections raised by dozens of creditors who claimed
deficiencies and other problems in a key supporting document for
the city's plan.
Rhodes let stand objections that Detroit's attorneys said
the city would address on April 25 when it submits its next
draft of the so-called disclosure statement. City attorneys said
there had been progress in negotiations with key creditors.
On Thursday, the board of Detroit's Police and Fire
Retirement System accepted a deal that would result in no
pension cuts for public safety workers but would reduce cost of
living adjustments (COLAs) to 1 percent.
The General Retirement System board on Wednesday accepted a
deal for general city workers that calls for a 4.5 percent cut
in pensions as well as the elimination of COLAs. Those deals
would be on a ballot sent to Detroit's workers and retirees, who
will be asked to vote on the city's debt adjustment plan.
Federal court mediators said on Tuesday that Detroit had
reached its first settlement with a group representing retired
city workers. And last week, the city won court approval for a
crucial deal over interest rate swaps and reached a settlement
with three bond insurance companies over the treatment of
voter-approved general obligation bonds.
CITY AND COUNTIES TO MEDIATE WATER AGENCY
In directing Detroit and its neighboring counties to discuss
formation of a Great Lakes Water Authority, Rhodes indicated he
was seeking to take advantage of the bankruptcy process to bring
the parties together.
"The court finds that such negotiations are in the best
interest of the city and all of its customers, and that this
bankruptcy case offers the parties a unique opportunity to
negotiate a regional water authority," Rhodes stated in his
Orr's proposal to lease the city's water and sewer
departments to a regional authority for a hefty annual fee and
using that money for unrelated purposes had drawn objections by
officials in Macomb and Oakland counties, stalling previous
Oakland County Executive L. Brooks Patterson said the county
would participate in the newly ordered mediation and would
insist on protections for suburban Detroit rate-payers.
"Any solution that may be found in mediation cannot merely
divert funds from water and sewer customers to Detroit's general
fund so the city can meet its obligations," he said in a
statement. "Revenue from all rate-payers must remain in the
water and sewer system to pay for critical upkeep and
There was no immediate reaction to the judge's decision from
the two other county executives.
Detroit had solicited entities interested in bidding to
operate and manage the services and received 41 initial
responses earlier this month.
U.S. Judge Sean Cox, who had presided over previous
litigation involving the city's water and sewer department, was
tapped to mediate the regional authority matter. The court also
added U.S. Judge David Lawson to handle disputes involving U.S.
constitutional matters in mediation.
At Thursday's hearing, attorneys for bond insurer Syncora
Guarantee and the city's biggest labor union, and other
creditors raised concerns over the newly revised disclosure
statement Detroit filed with the court late on Wednesday, less
than 24 hours before the hearing started.
Ryan Blaine Bennett, an attorney at Kirkland and Ellis who is
representing bond insurer Syncora Guarantee Inc, cited due
process concerns, and said creditors did not have enough time to
review the revised document.
(Reporting by Cherie Curry; Additional reporting by Karen
Pierog in Chicago; Editing by Leslie Adler)