COURT: Flint could enter receivership or bankruptcy if no approval on water contract - Debtwire

COURT: Flint could enter receivership or bankruptcy if no approval on water contract

25 October 2017 - 12:00 am

Flint could enter receivership or bankruptcy without action on a 30-year water contract, according to a court filing yesterday (24 October) by Mayor Karen Weaver’s (D) administration.


In its filing, the administration asked the US District Court to deny the Flint City Council’s emergency request to stay or toss a 17 October order that would force the council to make a move by 23 October on a proposed contract to comply with Environmental Protection Agency (EPA) directives.


The council asked for more time to review a proposed 30-year contract with the Great Lakes Water Authority (GLWA) in its emergency request.


The Weaver administration in its filing today claimed that, “Since April, it appears council has done nothing to obtain additional information … to make a decision regarding the master agreement,” which is the proposed GLWA contract.


The filing further charged the council with dereliction of duty.


“There are no other viable long-term water source options available right now,” said the Weaver administration. Council’s passage of a two-year GLWA contract extension this week was meant to give it time to move forward with connecting to the Karegnondi Water Authority (KWA) pipeline, which would take at least three years, rending the option unviable, the filing said.


The city council also wants to update its treatment facility to treat its own raw water from KWA and the Genesee County Drain Commission. GLWA will not allow itself to be strung along, the document said.


Paying for GLWA at the current, short-term rate, while servicing debt obligations for the KWA pipeline, will drive the city to bankruptcy, forcing the State of Michigan to appoint an emergency manager, the filing said. The proposed GLWA contract includes credits toward the KWA debt service.


Flint is already losing out on any retroactive debt service credits it could have received under the contract, the court filing said. Residents will likely pay higher interest to refinance the KWA bonds.


“Even if council’s expert is able to outline another viable alternative water source … Flint is not in a position financially, technically, or managerially to make that switch and still comply with the EPA order, which requires that a new water source be tested for three months prior to any switch over,” the filing said. “If council denied the [GLWA] contract, the EPA … would most likely move in and file an action.”


In addition to asking the judge to force the council’s hand in approving the contract, the administration asked the judge to determine that the city council is not a jurisdictional entity separate from the city. In the case of such a determination, Flint requested the court order the execution of the GLWA contract.


The case is Michigan Department of Environmental Quality v City of Flint. The case is number CV:17-12107 in the United States District Court, Eastern District of Michigan, Southern Division.


CLICK HERE to read the opinion


by Ada Kase