Relevant Documents:Highland Park Press Release (April 18)GLWA Press Release (April 17)Highland Park Press Release (April 12)Highland Park Press Release (April 11)Highland Park Press Release (April 6)
The city of Highland Park, Mich., has requested authority from Gov. Gretchen Whitmer to initiate a proceeding under chapter 9 of the Bankruptcy Code, according to a city press release on Tuesday. The request follows the Michigan Supreme Court’s early April denial of the city’s appeal of a $19.8 million judgment in favor of the Great Lakes Water Authority, according to an April 11 press release from Highland Park.
The city previously provided notice to the state under Act 436 of 2012 to initiate “a preliminary review to determine the existence of probable financial stress within [the] local government due to a court ordering an additional tax levy without the prior approval of its governing body,” according to the April 11 release, which states that the City Council’s resolution “is the first step necessary to gain assistance from the State of Michigan Department of Treasury in resolving this problem and avoiding a threat to the public health, wealth, and safety of the City of Highland Park and the rest of the citizens of Michigan.”
The April 18 release cites the authority’s opposition to the city’s request to stay “any turn-off of potable water” and the imposition of a tax levy, scheduled for hearing tomorrow, Thursday, April 20, and fear that the authority will turn off the city’s drinking water “as [it] threatened in 2015” as grounds for the city’s request for authority to proceed under chapter 9.
The authority, for its part, called statements that the authority wants to shut off water service to Highland Park “speculative” and “untrue and counterproductive” in an April 17 press release, adding that it “hopes, for the entire region, that an amicable solution can be achieved in the near future.”
A separate press release from Highland Park on April 6 highlights “major infrastructure needs for water and sewer,” pointing to a “water and sewer system [that] is over 120 years old,” the “ever-rising cost of water and sewer rates, extremely limited financial resources, and new compliance requirements,” numerous leaks and a need to move to a metered system where water usage “can be accurately measured.”Other Water System Developments
The developments in Highland Park are a high-profile example of recent and ongoing water system issues throughout the country.
On Friday, April 14, Mississippi enacted legislation
requiring water rates in the state to be based on consumption, which may frustrate an initiative by the federally appointed manager of the water system in Jackson, Miss., Edward “Ted” Henifin, to tie water rates to property tax valuations. Henifin’s initiative for Jackson’s troubled water system
calls for the eventual elimination of water consumption metering and the implementation of a “property attribute-based” rate for water and sewer services that is projected to generate $70 million annually.
In enacting Mississippi’s consumption-oriented legislation, Gov. Tate Reeves stated that water bills “based on property values squeeze the middle class,” calling rates based on property values “an unproven billing model that would financially penalize individuals based on factors unrelated to how much water they choose to use.” Reeves did not mention the Henefin proposal expressly.
In Alabama, the Water Works & Sewer Board of the city of Prichard, borrower of $55.8 million in Series 2019 bonds, received a going-concern warning
from its auditors in its audited financial statements for the fiscal year ended Sept. 30, 2021, posted to EMMA on Monday, April 10. Recent reports from the Alabama Department of Environmental Management, or ADEM
, and the Waggoner engineering firm identify significant water system issues for the city and the board, which ADEM states “does not produce or treat its own drinking water” and functions instead “solely as a water distribution system” for water purchased from the Mobile Area Water and Sewer System.
Noting that the board “has been subject to unusually high water loss,” allegations of “water service reliability concerns” and a public call to dissolve due to “crumbling infrastructure,” ADEM estimates that the board suffers $2.7 million per year in economic losses due to water loss from leaks, meter issues and other causes.
ADEM’s report was reinforced by Waggoner, which estimates that the board’s total system water loss “is currently averaging greater than 60%” per month, compared with an industry best management practice goal of 10%, and has “a financial impact of $3.2 million annually.”
The California-based Western Hills Water District’s Diablo Grande Community Facilities District No. 1 missed
a March 1 interest payment on its $45.8 million in series 2014 and 2015 special tax refunding bonds, continuing a pattern of missed and late principal and interest payments dating back to September 2019, following an earlier series of debt service reserve draws attributed to delinquencies in the payment of a special tax levied on properties within the district. The delinquencies led Western Hills to obtain three foreclosure judgments on Diablo Grande’s behalf in November 2022 covering “the majority of the undeveloped land within [Diablo Grande] that is delinquent in payment of the special tax.”
Water system issues also play a central role in the chapter 9 bankruptcy case of Chester, Pa., whose court-appointed receiver, Michael Doweary, recently warned
of potential disincorporation if the city does not find a “comprehensive solution” to address pension issues and other debts and ensure recurring revenue is sufficient to cover recurring costs. Judge Ashely Chan of the U.S. Bankruptcy Court for the Eastern District of Pennsylvania in March held the city, which hopes to monetize
its water system assets, to be eligible for relief under chapter 9, though the city’s officials have appealed