HomeMy WebLinkAboutResolutions - 2014.09.18 - 21517MISCELLANEOUS RESOLUTION #14229
BY: Commissioner Michael J. Gingell, District #1
IN RE: BOARD OF COMMISSIONERS — ADOPTION OF ARTICLES OF INCORPORATION
ESTABLISHING THE GREAT LAKES WATER AUTHORITY
To the Oakland County Board of Commissioners
Chairperson, Ladies and Gentlemen:
WHEREAS on March 1, 2013 the City of Detroit was declared to be in a state of financial
emergency, on March 14, 2013 an emergency manager was appointed to oversee Detroit's
financial operations and on July 18, 2013, the City filed for bankruptcy protection under Chapter
9 of the Bankruptcy Code; and
WHEREAS as part of the bankruptcy process the City's Emergency Manager approached
Oakland, Wayne and Macomb County with a proposal to create a regional water and sewer
authority to lease the assets of the Detroit Water and Sewer Department (DWSD), a system
then serving some 4 million residents and thousands of businesses in southeast Michigan; and
WHEREAS 1955 PA 233 (Act 233) authorizes any 2 or more municipalities to incorporate an
authority for the purpose of acquiring, owning, improving, enlarging, extending, and operating a
sewage disposal system, a water supply system, or a combination of systems by the adoption of
articles of incorporation by the legislative bodies of each of the municipalities; and
WHEREAS after 15 months of negotiation, including five months of Federal Court-ordered
confidential mediation, the County Executives of Oakland, Wayne and Macomb Counties and
the Mayor of the City of Detroit, with the support of the Oakland County Water Resources
Commissioner, executed a Memorandum of Understanding (MOU) (incorporated herein as
Attachment 1) agreeing to submit to their respective legislative bodies the question of adopting
the Articles of Incorporation (incorporated herein as Attachment 2) to create a Great Lakes
Water Authority (GLWA) for the purpose of establishing a regional authority under Act 233 to
lease and operate the common-to-all and regional assets of the DWSD; and
WHEREAS the provision of clean water supplies and the safe and cost effective disposal of
sewage and storm water runoff is essential to the personal and economic health, safety and
welfare of our community; and
WHEREAS DWSD's water system currently serves approximately 837,044 residents from
340,262 households in 35 Oakland County communities; and
WHEREAS DWSD's sewer assets serve approximately 849,962 residents from 345,513
households in 36 Oakland County communities; and
WHEREAS the County Executive asserts that the opportunity to form a regional water and
sewer authority in a form consistent with the attached MOU and Articles of Incorporation is in
the best interest of the residents, ratepayers and taxpayers of Oakland County, the southeast
Michigan region and the State of Michigan; and
WHEREAS the GLWA as contemplated in the MOU contains the following essential elements
and protections in favor of Oakland County residents:
1. The GLWA has no taxing power.
2. There is no Oakland County General fund obligation for the creation or operation of
the GLWA.
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3. The City of Detroit maintains responsibility for its own, local (retail) water and sewer
system.
4. The GLWA will be operated by a regional 6 member Board, with 3 members
representing counties, one state appointee representing areas served by DWSD
outside of the City of Detroit and the Counties of Wayne, Oakland and Macomb and
2 members representing the City.
5. Ratepayers are protected by supermajority voting requirements meaning major
issues require 5 out of 6 votes for approval. Major issues include appointment of an
executive director, approval of rates, fees and charges and rate setting protocols,
issuance of debt which shall be revenue backed debt, approval of an annual
operating budget, annual approval of a rolling Five Year Capital Improvement Plan,
adoption of a procurement policy, approval of the lease of systems from the City,
removal of a board member for cause and the determination of any compensation for
Board Members which shall be consistent with practices for other large public
utilities.
6. The GLWA will lease regional assets from the City for a term of 40 years for $50
million per year. These assets include approximately 400 miles of regional water
mains, 360 miles of regional sewer pipe, 5 water filtration plants, the Jefferson
Avenue Sewage Treatment Plant and a number of retention basins and pump
stations.
7. All lease payments must stay within the system to fix the City's failing infrastructure.
Detroit must use the $50 million annual lease payment only for capital improvements
to the system and may not use them to support payments to its general fund. The
Detroit local system has suffered more than 5,000 water main breaks the last three
years, and the rate of incidents is rising dramatically. The City must use these funds
for the repair and rebuilding of the City's local water system under DWSD, to build
more capacity for storm water events, or to contribute to the City's share of the costs
of GLWA's capital improvements.
8. The lease payments can support bond issues to speed up City water and sewer
system repair and rebuilding. If the City chooses to bond (rather than contract and
repair on an annual basis), the GLWA lease payments will fund the debt service
(principal and interest) associated with potentially $500-800 million in bond issues to
allow the City to move quickly to rebuild its deteriorating local water and sewer
system.
9. The City remains solely responsible for paying its local system operating costs.
Detroit retains and takes full responsibility for billing and collection for the Detroit
local system, including the inability to collect from its residents and businesses. Any
collection shortfalls will be the responsibility of Detroit only, and not any other
community.
10. A regional $4.5 million Water Resources Affordability Fund (WRAP) will be created to
assist those most in need throughout the entire GLWA area. The GLWA will create a
WRAP with a dedicated contribution of 0.5% of revenues (a figure consistent with
other water and sewer programs nationally). The first year's funding will be
approximately $4.5 million (based on FY-2015 operating budget), and is expected to
grow annually as revenues increase.
11. Revenue requirement rate increases to be limited to no more than 4% a year for 10
years. Based on an extensive analysis by several financial experts, the parties
believe that the savings resulting from actions taken in bankruptcy, lower financing
costs, better energy usage, and more efficient operations, will allow the GLWA to
make these payments within existing and already projected revenues and
operate on annual revenue increases of no more than 4% a year for the next 10
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years. Individual communities might have differing rates if they choose to make
additional improvements to their local systems, use water and sewer equity in lieu of
imposing rate increases, and for other causes specific to their local system. The
parties have retained a consultant, Veolia, to do an independent review to validate
the revenue assumption and perform other due diligence necessary to formulate a
strategic plan upon the launch of the Authority. The parties have the right to opt out
of the deal if the review shows that the 4% annual revenue requirement limit will not
be able to be achieved.
12. All current collective bargaining contracts will be honored. Of the approximately
1,400 current DWSD employees, it is expected that approximately 500 will stay at
the City's DWSD with no change in their employment status or collective bargaining
agreement. Approximately 900 workers are expected to transfer to GLWA. GLWA
will become a successor employer and, as is required by Michigan law, will assume
and honor all DWSD collective bargaining agreements.
13. All current customer contracts will be honored. Counties, cities, villages, townships
and authorities currently under contract with the DWSD will have their existing
contracts honored in full and will realize the benefits of the contracts as they
previously bargained for.
14. The GLWA to be up and running in 200 days. The formal start of the GLWA will
occur within 200 days of its legal formation (on or about April 27, 2015), subject to
the due diligence process, obtaining the necessary legal approvals, and execution of
the final documents; and
WHEREAS the MOU requires approval of the proposed GLWA Articles of Incorporation by
County Boards of Commissioners is by October 10, 2014; and
WHEREAS if the City and at least one other county have acted by October 10, 2014, 1955 PA
233 provides that the GLWA will be created and the Memorandum of Agreement will be in
effect. If any of the counties have not acted by October 10, or if they choose to reject the
Articles, the Governor will appoint the representative from that county and be subject to the
provision of Act 233 that provides that the charges or rates charged for services to a non-
constituent municipality may be greater than those to constituent municipalities; and
WHEREAS in order to secure the benefits provided in the MOU and Articles noted above, avoid
a forced resolution crafted solely by the City Emergency Manager, and avoid the application of
Section 290 of Act 233 allowing the imposition of greater rates on municipalities that do not
become incorporating municipalities, the County Executive and the Oakland County Water
Resources Commissioner recommend the Board of Commissioners approve the Articles of
Incorporation attached hereto as Attachment 2.
NOW THERFORE BE IT RESOLVED THE Oakland County Board of Commissioners hereby
adopt the Articles of Incorporation attached hereto as Exhibit 2 creating the Great Lakes Water
Authority.
BE IT FURTHER RESOLVED that the fact of adoption shall be endorsed on such articles of
incorporation by the chairperson of the Oakland County Board of Commissioners and the Clerk
of Oakland County in the manner provided in MCL 124.282.
BELT FURTHER RESOLVED that the Oakland County Clerk shall cause the Articles of
Incorporation shall be published at least once in the Detroit News, a Detroit Media Partnership
newspaper of general circulation, and the Clerk shall cause one printed copy of the Articles of
Incorporation certified as a true copy with the date and place of the publication to be filed with
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the secretary of state and with the Clerk of Oakland County, Wayne County and Macomb
County.
Mr. Chairperson, I hereby move adoption of this resolution.
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EXHIBIT 2
ARTICLES OF INCORPORATION
OF
GREAT LAKES WATER AUTHORITY
These Articles of Incorporation are adopted by the incorporating municipalities identified in
Article 2 hereof to create an authority under the provisions of 1955 PA 233, as amended, MCL
124.281 et seq. (the "Act).
ARTICLE I- NAME
The name of the Authority is the "Great Lakes Water Authority." The principal office of the
Great Lakes Water Authority ("Authority") will initially be located at Detroit, Michigan, the
mailing address of which is 735 Randolph Street, Suite 501, Detroit, MI 48226, or at such other
location(s) as the Board (as defined herein) shall determine from time to time.
ARTICLE 2- INCORPORATING MUNICIPALITIES
The incorporating municipalities creating this Authority are the City of Detroit, Michigan (the
"City"), and any overlapping or contiguous Charter or 1973 PA 139 County whose legislative
body adopts these Articles of Incorporation pursuant to section 2 of the Act (individually a
"County" and collectively the "Counties"), which are designated as the "Incorporating
Municipalities."
ARTICLE 3- PURPOSE
The Authority is incorporated for the purpose of acquiring, owning, leasing, improving,
enlarging, extending, financing, refinancing and operating a water supply system and a sewage
disposal system, including a storm water collection and treatment system, or a combination of
such systems, and for exercising any of the powers of the Authority under these Articles and for
purposes authorized under Article 7, Section 28 of the Michigan Constitution, the Act and other
Michigan law. The terms "water supply system" and "sewage disposal system", as used in these
Articles of Incorporation shall be as now or later defined in Section 1 of the Act.
ARTICLE 4- POWERS
A. The Authority shall be a public body corporate with the power to sue and be sued in any court
of this State. The Authority shall be comprised of all of the territory within the corporate
boundaries of the Incorporating Municipalities. The Authority shall possess all of the powers
now or later granted by the Act, the State of Michigan Constitution of 1963, as may be amended,
or by any other applicable statute or law and by these Articles and all other powers incident
thereto, including all powers necessary to carry out its purposes and all powers incident thereto,
except that the Authority shall not exercise any of the powers set forth in Section 7 of the Act
without the consent of the applicable Incorporating Municipality or constituent municipality.
The Authority may acquire property by purchase, construction, lease, grant, gift, devise or
condemnation, either within or without its corporate limits, and may hold, manage, control, sell,
GLWA 090814 Page 1
exchange or lease such property. For the purpose of condemnation it may proceed under any
statute which grants any municipality or public body the authority to acquire private property for
public use. The enumeration of any powers in these Articles shall not be construed as a limitation
upon the Authority's general powers unless the context shall clearly indicate otherwise. The
Authority shall have a corporate seal.
B. Except as otherwise provided in the Act or these Articles, and without limiting the
generality of the foregoing paragraph (A), the Authority may do all things necessary or
convenient to implement the purposes, objectives, and provisions of the Act and the purposes,
objectives, and jurisdictions vested in the Authority or the Board by the Act or other law,
including, but not limited to, all of the following:
(1) Borrow money and issue bonds and notes according to the provisions of the Act and
these Articles.
(2) Make and enter into contracts, agreements, or instruments necessary, incidental, or
convenient to the performance of its duties and execution of its powers, duties, and jurisdictions
under the Act with any federal, state, local, or intergovernmental governmental agency or with
any other person or entity, public or private, upon terms and conditions acceptable to the
Authority. No contract shall be for a period exceeding 40 years.
(3) Engage in collective negotiation or collective bargaining and enter into agreements
with a bargaining representative as provided by 1947 PA 336, MCL 423.201 to 423.217.
(4) Solicit, receive, and accept gifts, grants, labor, loans, contributions of money,
property, or other things of value, and other aid or payment from any federal, state, local, or
intergovernmental government agency or from any other person or entity, public or private, upon
terms and conditions acceptable to the Authority, or participate in any other way in a federal,
state, local, or intergovernmental government program.
(5) Make application for and receive loans, grants, guarantees, or other financial
assistance in aid of a water supply system or a sewage disposal system, including a storm water
collection and treatment system, or a combination of such systems, from any state, federal, local,
or intergovernmental government or agency or from any other source, public or private,
including, but not limited to, financial assistance for purposes of developing, planning,
constructing, improving, and operating a water supply system or a sewage disposal system,
including a storm water collection and treatment system, or a combination of such systems.
(6) Procure insurance or become a self-funded insurer against loss in connection with the
property, assets, or activities of the Authority.
(7) Indemnify and procure insurance indemnifying Board members from personal loss or
accountability for liability asserted by a person with regard to bonds or other obligations of the
Authority, or from any personal liability or accountability by reason of the issuance of the bonds
or other obligations or by reason of any other action taken or the failure to act by the Authority.
(8) Invest money of the Authority, at the discretion of the Board, in instruments,
obligations, securities, or property determined proper by the Board and name and use
depositories for Authority money. Investments shall be made consistent with an investment
policy adopted by the Board that complies with the Act and 1943 PA 20, MCL 129.91 to 129.96.
GLWA Art 090814 Page 2
(9) Contract for goods and services as necessary and as provided under the Act. The
Authority may contract with a management firm, either corporate or otherwise, to operate a
water supply system or a sewage disposal system, including a storm water collection and
treatment system, or a combination of such systems, under the supervision of the Authority.
(10) Employ legal and technical experts, other officers, agents, employees, or other
personnel, permanent or temporary, as considered necessary by the Board as provided under the
Act.
(11) Contract for the services of persons or entities for rendering professional or technical
assistance, including, but not limited to, consultants, managers, legal counsel, engineers,
accountants, and auditors, as provided under the Act.
(12) Establish and maintain an office.
(13) Acquire by gift, devise, transfer, exchange, purchase, lease, or otherwise on terms
and conditions and in a manner the Authority considers proper property or rights or interests in
property. Property or rights or interests in property acquired by the Authority may be by
purchase contract, lease purchase, agreement, installment sales contract, land contract, or
otherwise. The acquisition of any property by the Authority for a water supply system or a
sewage disposal system, including a storm water collection and treatment system, or a
combination of such systems, in furtherance of the purposes of the Authority is for a public use,
and the exercise of any other powers granted to the Authority is declared to be public,
governmental, and municipal functions, purposes, and uses exercised for a public purpose and
matters of public necessity.
(14) Hold, clear, retnediate, improve, maintain, manage, protect, control, sell, exchange,
lease, or grant easements and licenses on property or rights or interests in property that the
Authority acquires, holds, or controls.
(15) Except as may be provided under state or federal law, convey, sell, transfer,
exchange, lease, or otherwise dispose of property or rights or interest in property, to any person
or entity on terms and conditions, and in a manner and for consideration the Authority considers
proper, fair, and valuable.
(16) Develop a water supply system or a sewage disposal system, including a storm water
collection and treatment system, or a combination of such systems.
(17) Assume and perform the obligations and covenants, including the debt obligations,
of a local government, including without limitation the City, related to a water supply system or
sewage disposal system, including a storm water collection and treatment system, or a
combination of such systems.
(18) Enter into contracts or other arrangements with persons or entities, for granting the
privilege of naming or placing advertising on or in all or any portion of a water supply system or
sewage disposal system, including a storm water collection and treatment system, or a
combination of such systems.
(19) Establish and fix a schedule of rates, fees, or other charges for use of or services
provided with respect to, any water supply system or sewage disposal system, including a storm
GLWA Art 090814 Page 3
water collection and treatment system, or a combination of such systems, operated by the
Authority and provide for the collection and enforcement of those rates, fees, or other charges.
(20) Do all other acts and things necessary or convenient to exercise the powers, duties,
and jurisdictions of the Authority under the Act or other laws that relate to the purposes, powers,
duties, and jurisdictions of the Authority.
C. Notwithstanding any other provision of law to the contrary, the Authority shall not have
the power to impose or levy a tax.
D. Any further limitation of powers granted under these Articles must be accomplished by rule
or regulation adopted by the Authority in accordance with the procedure therefor set forth in the
Act. All other aspects of the operation of the Authority shall be through policies adopted by the
Board, unless otherwise provided by law.
ARTICLE 5- TERM OF EXISTENCE
A. The Authority shall continue in existence until dissolved by unanimous act of the Board or
by law, but in no event before all existing and future indebtedness of the Authority has been paid
or provision for payment thereof has been made in accordance with the terms of such
indebtedness. The Authority shall not be dissolved if such dissolution could operate as an
impairment of any of its contracts or the terms of any of its indebtedness. After the affirmative
unanimous vote of the Board to dissolve the Authority, the Board shall determine how assets of
the Authority are to be distributed by vote of the Board as set forth in Article 9.
B. Notwithstanding any other provision of these Articles, an Incorporating Municipality may be
released from membership in the Authority if all of the following conditions are met:
(1) Adoption of a resolution by a 2/3 majority vote of the members elected to and serving
on the legislative body of the Incorporating Municipality requesting release from membership.
(2) Acceptance of the request by a unanimous vote of the members serving on the Board
of the Authority, excluding the member representing the Incorporating Municipality requesting
release.
(3) Payment or the provision for is made regarding all obligations of the Incorporating
Municipality to the Authority or its creditors.
(4) An Incorporating Municipality that withdraws from the Authority may continue to
receive services from the Authority pursuant to contract upon such terms and conditions are
otherwise authorized or permitted by law and mutually agreed upon by the Authority and the
Incorporating Municipality.
C. Automatic Dissolution. The Authority shall immediately dissolve upon the occurrence of
any of the following:
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(1) If at any time before the issuance of debt in the name of the Authority a
Bankruptcy Court or other court of competent jurisdiction rejects, modifies, revokes, suspends,
severs or otherwise alters, with a material adverse impact on any of the City's water supply or
sewage disposal system or the Authority, any material provision of these Articles or the
provisions in the City's Sixth Amended Plan of Adjustment addressing the Detroit Water and
Sewerage Department ("DWSD") component of the City's General Retirement System pension
liabilities.
(2) If, within 200 days of the effective date of the establishment of the Authority, the
Board fails to approve and execute separate leases with the City (collectively, the "DWSD
Lease") for the City's water supply system and sewage disposal system, respectively, which have
been under the control of DWSD. The 200-day time period shall be tolled during any period
where the Board's authority to act is enjoined or restrained by a court of competent jurisdiction.
(3) The DWSD Lease differs in any material respect from the Memorandum of
Understanding, executed as of September 9, 2014, by the Emergency Manager and Mayor of the
City, the County Executive of each County and the Governor of the State of Michigan (the
"MOU").
D. In approving these Articles, the City agrees to execute and enter into a lease for each of its
water supply and sewage disposal systems and to transfer or lease of related personal property
with terms which conform to the parameters for such lease set forth in the MOU and these
Articles, and the Mayor of the City is hereby empowered to negotiate and enter into such lease
with the Authority.
ARTICLE 6- FISCAL YEAR
The fiscal year of the Authority shall commence on July 1 and end on June 30.
ARTICLE 7- BOARD OF DIRECTORS AND OFFICERS
The governing body of the Authority shall be a Board of Directors (the "Board") composed of
six voting members selected in the following manner:
A. Two members of the Board shall be residents of the City of Detroit, shall be appointed by
the Mayor of the City and shall serve at the appointing authority's pleasure. The initial term for
the members appointed under this paragraph shall be three (3) years and all subsequent terms
shall be for four (4) years.
B. Each Charter or 1973 PA 139 County that adopts these articles of incorporation shall
appoint one member who shall be a resident of the County from which appointed. The
appointments shall be made by the Executive or Administrative authority designated under the
respective Charters or 1973 PA 139 and the appointees shall serve at the appointing authority's
pleasure. The initial term for the appointees from the Counties with the highest and second
highest population shall be two (2) years and all subsequent terms shall be for four (4) years.
The initial term for the appointees from any other county shall be one (1) year and all subsequent
terms shall be four (4) years.
GLWA Art 090814 Page 5
C. One member of the Board who shall be a resident of an area served by the Authority
outside of the City of Detroit and the Counties of Wayne, Oakland and Macomb shall be
appointed by the Governor of the State of Michigan. Such member and shall serve at the pleasure
of the Governor. The initial term for the member appointed under this paragraph shall be four
(4) years and all subsequent terms shall be for four (4) years.
D. If an Authority is incorporated under Section 2 of Act 233 but the legislative body of any
of Wayne County, Oakland County or Macomb County fails or refuses to adopt these Articles of
Incorporation on or before October 10, 2014, then the Governor of the State of Michigan shall
appoint a board member for that County who shall be a resident of the area to be served by the
Authority located within the County failing or refusing to adopt these Articles and such member
shall serve at the pleasure of the Governor. The initial term for a member appointed under this
paragraph shall, on the basis of population, be as set forth in paragraph B above. If any County
that failed to adopt these Articles on or before October 10, 2014 subsequently adopts these
Articles prior to the execution and delivery of the DWSD Lease, then such County shall appoint
a member to the Board and such member shall replace the member appointed by the Governor as
provided in this paragraph D.
E. All members of the Board appointed under this Article 7 shall have at least seven years of
experience in a regulated industry, a utility, engineering, finance, accounting or law. Members
may be compensated within the limits set by the affirmative vote of at least 5 members of the
Board and approved by the Mayor of the City and the County Executives of each County,
consistent with practices for other large public utilities. Board members may be reimbursed for
actual and necessary expenses incurred while attending Board meetings or performing other
authorized official business of the Authority.
F. No later than 30 days after the date on which the Authority becomes effective as provided
in Article 17, members of the Board shall be appointed. Upon appointment to the Board and
upon taking and filing the oath of office required by section 1 of article XI of the state
constitution of 1963, a Board member shall enter office and exercise the duties of the office of
Board member.
G. Within not more than 30 days following the appointment of at least 4 of the members of
the Board, the Board shall meet for the purpose of organizing the Board. The time and place for
such initial meeting shall be fixed by the Mayor of the City, and notice of that meeting shall be
served upon all members in the manner provided in these Articles and the Open Meetings Act
(OMA), 1976 PA 267, as amended, MCL 15.261 to 15.275. No appointment to the Board and
no selection of an officer of the Board shall be deemed to be invalid because it was not made
within or at the time specified in these Articles. The Authority shall, at its organizational
meeting, enter into an interlocal agreement to permit the appointment of any gubernatorial
appointee.
H. The Board shall elect from among its members a Chairperson, a Vice-Chairperson and a
Secretary. The Board shall also elect or appoint a Treasurer, who shall not be a member of the
Board and who shall serve as the chief financial officer of the Authority. The Board may elect
other officers as the Board considers necessary. All officers shall be elected annually by the
Board.
GLWA Art 090814 Page 6
I. An individual who has been convicted of, pled guilty or no contest to, or forfeited bail
concerning a felony under the laws of this state, any other state, or the United States shall not be
appointed or remain as a member of the Board. A member of the Board to whom this paragraph
applies may be removed at the pleasure of the appointing authority or shall be removed for cause
by the Board as provided herein.
J. The Board shall appoint an audit committee consisting of 3 members of the Board. The
audit committee shall hold its first meeting within 60 days after the effective date of the
Authority. A majority of members appointed and designated as audit committee members by the
Board under this paragraph may conduct the business of the committee. The audit committee
shall meet not less than 4 times each year with the chief financial officer and the chief executive
officer of the Authority; and the Authority's independent public auditors to review the reports
related to the financial condition, operations, performance, and management of the Authority,
including, but not limited to, all contractors and subcontractors, and may also order special
investigations or audits, the cost of which shall be paid by the Authority. The audit committee
shall also review the activities and reports of the internal auditor of the Authority who shall be
appointed by the chief executive officer of the Authority. The audit committee shall, once every
3 years, recommend 3 independent certified public accounting firms that, in the judgment of the
audit committee, possess sufficient resources and qualifications to conduct annual financial
audits of the accounts of the Authority. From the 3 recommendations of the audit committee, the
Board may select, not more than 30 days after receipt of the recommendations of the audit
committee, the independent certified public accounting firm with whom the Authority shall
execute an agreement to conduct annual financial audits for the succeeding 3 fiscal years of the
accounts of the Authority. If the Board does not select 1 of the recommended independent
certified public accounting firms to conduct annual financial audits for the next 3 fiscal years of
the Authority within 30 days after receipt of the recommendations of the audit committee, the
audit committee shall have the sole power to select the independent certified public accounting
firm with whom the Authority shall execute an agreement to conduct annual financial audits of
the accounts of the Authority for the next 3 fiscal years. A person may not prevent or prohibit
the internal auditor or the audit committee from carrying out or completing any audit or
investigation. The internal auditor and members of the audit committee shall be protected under
the whistleblowers' protection act, 1980 PA 469, MCL 15.361 to 15.369.
K. The members of the Board. shall, at time of appointment meet all of the following
qualifications: (a) neither the Board member, nor his or her spouse nor his or her siblings,
children or step-children or their spouses, parents, or siblings or their spouses of the Board
member maybe actively engaged or employed in any other businesses, vocation, or employment
of any of the business having a contractual relationship with the Authority or under the control of
the Authority, (b) neither the Board member, nor his or her spouse nor his or her siblings,
children or step-children or their spouses, parents, or siblings or their spouses of the Board
member, may have a combined 1% or greater direct pecuniary interest in any enterprise having a
contractual relationship with the Authority or under the control of the Authority; and (c) the
Board member would not be considered to have a conflict of interest under 1968 PA 318, MCL
15.301 - 15.310, in respect of any contract or subcontract involving the Authority if the Board
member were considered a state officer under 1968 PA 318, MCL 15.301 - 15.310. Nothing in
GLWA Art 090814 Page 7
this paragraph shall preclude an Incorporating Municipality from appointing an employee or
other official of the Incorporating Municipality to serve on the Board.
A Board member who, at any time during his or her term of service, becomes in violation of the
preceding paragraph shall have 30 days to divest, or arrange for the divestment of, the interest
that caused the violation. If the Board member or his or her relative is still in violation of
subparagraph (a), (b) or (c) of the preceding paragraph after the expiration of the 30-day period,
the appointing authority that appointed that Board member shall remove the Board member from
office and such removal shall be deemed "for cause".
With respect to the management of the affairs of the Authority, a Board member shall exercise
the duties of a fiduciary toward the Authority and shall discharge the duties of his or her position
in a nonpartisan manner, in good faith, and with the degree of diligence, care and skill that an
ordinarily prudent person would exercise under similar circumstances in a like position. In
discharging his or her duties, a Board member, when acting in good faith, may rely upon the
opinion of counsel for the Authority and other experts or advisors retained by the Authority, the
report of an independent appraiser selected by the Board, financial statements of the Authority
represented to the Board member to be correct by the person having charge of the Authority's
books of account or stated in a written report by or a certified public account, a firm of
certificated accountants, to reflect the financial condition of the Authority.
ARTICLE 8— VACANCIES
A. A member of the Board may resign by written notice to the Board and the appointing
authority. The resignation will be effective upon its receipt by the Board or a subsequent time as
set forth in the notice of resignation. A member of the Board may be removed at the pleasure of
the appointing authority or, as set forth in paragraph J or K of Article 7, for cause, by the
affirmative vote of 5 members of the Board.
B. If a vacancy occurs on the Board due to resignation, cause, death, disability, change in
required residency, conflict of interest, or other condition set forth in these Articles, the
Authority shall notify the appointing authority and such seat shall be filled in accordance with
the provisions of paragraphs A, B, C, D or E of Article 7 hereof, as applicable.
C. If an Incorporating Municipality withdraws from the Authority as provided in these Articles,
the Governor shall appoint a replacement Board member who shall be a resident of the
withdrawing municipality and who shall serve at the Governor's pleasure.
ARTICLE 9- BOARD MEETINGS, VOTING
A. The Board shall conduct regular meetings as needed and not less than at least once during
each quarter of each year. The business of the Board shall be conducted at a public meeting of
the Board held in compliance with the OMA. Public notice of the time, date, and place of the
meeting shall be given in the manner required by the OMA. After organization, the Board shall
adopt a schedule of regular meetings and adopt a regular meeting date, place, and time. A special
meeting of the Board may be called by the Chairperson of the Board or as provided in bylaws
GLWA Art 090814 Page 8
adopted by the Board. Notice of a special meeting shall be given in the manner required by the
OMA.
B. At least a majority of the members of the Board constitute a quorum for ordinary
business. Each Board member shall have one vote. The Board shall act by resolution or may act,
if permitted or required by law, by ordinance.
C. For the adoption of any action there shall be required a majority vote of all of the
members of the Board, unless a greater majority or a unanimous vote of all Board members is
required by the Act, these Articles or the Authority's bylaws. Action required to (i) set or
approve rates and/or charges for the provision of water and sewer services, including storm
water collection and treatment services, or for a combination of such services, (ii) establish and
adopt the Authority's operating budget, (iii) establish and annually approve a five year capital
improvement program, (iv) establish and adopt procurement rules and regulations, (v) select a
chief executive officer, (vi) authorize the issuance of debt, (vii) remove a Board member for
cause, or (viii) approve or modify the DWSD Lease, shall require compliance with the Act and
the affirmative vote of at least 5 members of the Board. Any amendment to these Articles of
Incorporation shall require compliance with section 6 of the Act and the unanimous vote of the
Board.
D. The Board shall adopt bylaws governing its procedures and regulating the affairs of the
Authority which are not in conflict with the terms of the Act, any other statute, or these Articles.
E. Subject to paragraph D of Article 5, the Board shall adopt rules and regulations by resolution
and with concurrence by resolution of constituent municipalities in accordance with the Act.
F. The Board shall keep a written or printed record of each meeting, which record and any
other document or record prepared, owned, used, in the possession of, or retained by the
Authority in the performance of an official function shall be made available to the public in
compliance with the freedom of information act, 1976 PA 442, MCL 15.231 to 15.246. The
Board's written or printed record shall be signed by the Secretary and shall show how each
member voted. Each member shall vote upon all motions, resolutions and ordinances unless
disqualified from voting thereon by reason of any personal interest as defined by the conflict of
interest laws of the State of Michigan or these Articles. All votes shall be "yeas" and "nays,"
except that where the vote is unanimous, it shall only be necessary to so state.
G. The Board shall provide for a system of accounts for the Authority to conform to a
uniform system required by law and for the auditing of the accounts of an authority. The Board
shall obtain an annual audit of the Authority by an independent certified public accountant and
report on the audit and auditing procedures in the manner provided by sections 6 to 13 of the
uniform budgeting and accounting act, 1968 PA 2, MCL 141.426 to 141.433. The audit also shall
be in accordance with generally accepted government auditing standards and shall satisfy federal
regulations relating to federal grant compliance audit requirements.
H. Before the beginning of each fiscal year, the Board shall cause to be prepared a budget
for the Authority containing an itemized statement of the estimated current operational expenses
and the expenses for capital outlay including funds for the operation and development of the
facilities under the jurisdiction of the Board, including the amount necessary to pay the principal
and interest of any outstanding bonds or other obligations of the Authority maturing during the
next fiscal year or that have previously matured and are unpaid, and an estimate of the estimated
GLWA Art 090814 Page 9
revenue of the Authority from all sources for the next fiscal year. The Board shall adopt a budget
for each fiscal year in accordance with the uniform budget and accounting act, 1968 PA 2, MCL
141.421 to 141.440a.
I. For fiscal year 2017 and beyond, the Board shall formally adopt a two-year operating
budget.
J. Not less than quarterly, the chief executive officer shall present to the Board reports
showing budget to actual comparisons of expenses and revenues incurred and received together
with projections of operations through the current fiscal year. Explanations for variances from
the operating budget and proposed adjustments to the operating budget relating thereto shall also
be presented to the Board for their consideration and action.
K. The Board shall adopt a procurement policy meeting the requirements of this Article 9.
The procurement policy shall provide for all of the following:
(1) the purchase of, the contracting for, and the providing of supplies, materials, services,
insurance, utilities, third-party financing, equipment, printing, and all other items as needed by
the Authority the cost of which exceeds a threshold to be established by the Board to efficiently
and effectively meet the needs of the Authority using competitive procurement methods to
secure the best value for the Authority.
(2) the acquisition of professional services in accordance with a competitive,
qualifications-based selection process and procedure for the type of professional service required
by the Authority. The Authority shall not be required to use competitive bidding when acquiring
proprietary services, equipment, or information available from a single source, such as a software
license agreement or for emergency repairs, or to respond to a declared state of emergency or if
procurement is necessary for the imminent protection of or mitigation of an imminent threat to
public health or safety. The Board may enter into a cooperative purchasing agreement with the
federal government, the state, or other public entities for the purchase of goods or services
necessary for the Authority.
(3) a requirement for the Authority to use its best efforts within the competitive
solicitation requirements of these Articles to achieve fairness in the number and value of
contracts for goods or services entered into by the Authority with persons or firms based in the
Authority territory area consistent with applicable law.
(4) the control, supervision, management, and oversight of each contract to which the
Authority is a party.
(5) monitoring the performance of each contract for goods or services including, but not
limited to, a contract that exists on the date the Authority assumes control of a water supply
system or sewage disposal system, to assure execution of the contract within the budget and time
periods provided under the contract and compliance with the terms of the contract, the Act, these
Articles and federal and state procurement law.
(6) unless specifically provided for in the procurement policy, that the chief executive
officer or other authorized employee of the Authority shall not sign or execute a contract until
the contract is approved by the Board.
GLWA Art 090814 Page 10
(7) preclude the Authority from entering into a procurement or employment contract with
a person who has been convicted of a criminal offense incident to the application for or
performance of a contract or subcontract with a local government, state or federal governmental
entity or with a person who has been held liable in a civil proceeding or has been convicted of a
criminal offense that negatively reflects on the person's business integrity, based on a finding of
embezzlement, theft, forgery, bribery, falsification or destruction of records, receiving stolen
property, or violation of state or federal antitrust statutes, or similar laws.
L. The Board shall prepare an annual report detailing all contracts entered into by the
Authority during the immediately preceding fiscal year, which report shall be made publically
available and posted on the Authority's website. As used in this paragraph, if a person is a
business entity, person includes affiliates, subsidiaries, officers, directors, managerial employees,
and any person who, directly or indirectly, holds a pecuniary interest in that business entity of
20% or more. Nothing in this paragraph shall be construed as creating a quota or set-aside for
any city or any county in the Authority territory area.
M. The Board may employ personnel as the Board considers necessary to assist the Board in
performing the power, duties, and jurisdictions of the Authority, including, but not limited to,
employment of a chief executive officer. The Board shall adopt an employment policy consistent
with applicable law that includes a requirement for the Authority to use best efforts to achieve
fairness in the hiring of employees from among residents of the City of Detroit and each
Incorporating Municipality within the Authority territory area. Nothing in this paragraph shall be
construed as creating a quota or set-aside for any city or any county in the Authority territory
area.
N. The Board shall establish policies to assure that the Board and the Authority shall not do
either of the following:
(1) Fail or refuse to Ere, recruit, or promote; demote; discharge; or otherwise
discriminate against a person with respect to employment, compensation, or a term, condition, or
privilege of employment, or a contract with the Authority because of religion, race, color,
national origin, age, sex, sexual orientation, height, weight, marital status, partisan
considerations, or a disability or genetic information that is unrelated to the person's ability to
perform the duties of a particular job, position, or contract.
(2) Limit, segregate, or classify an employee, a contractor, or applicant for employment
or a contract in a way that deprives or tends to deprive the employee, contractor, or applicant of
an employment opportunity or otherwise adversely affects the status of an employee, contractor,
or applicant because of religion, race, color, national origin, age, sex, sexual orientation, height,
weight, marital status, partisan considerations, or a disability or genetic information that is
unrelated to the person's ability to perform the duties of a particular job or position.
ARTICLE 10- BOARD AFFAIRS
A. The Chairperson of the Board shall be its presiding officer and except as otherwise
provided in these Articles, the Chairperson shall not have any executive or administrative
functions other than as a member of the Board. In the absence or disability of the Chairperson,
the Vice-Chairperson shall perform the duties of the Chairperson. The Secretary of the Board
shall be the recording officer of the Board.
GLWA Art 090814 Page 11
B. The Treasurer of the Board shall be custodian of the funds of the Authority and shall
provide a bond conditioned upon the faithful performance of the duties of his or her office as
provided in paragraph D of Article 13. The cost of this bond shall be paid by the Authority. All
money shall be deposited in financial institutions designated by the Board as permitted by 1943
PA 20, MCL 129.91 to 129.96, and all checks or other forms of withdrawal therefrom shall be
signed by the Chairperson or Vice-Chairperson and by the Treasurer or Secretary. The Board
shall appoint and employ a chief financial officer who is not a member of the Board as Treasurer.
C. The officers of the Board shall have such other powers and duties as may be conferred
upon them by the Board.
D. The provisions of this Article shall be considered controlling over all other provisions of
these Articles of Incorporation.
ARTICLE -11 REVENUES
A. In addition to the requirements set forth in paragraph C of this Article 11, the Authority may
raise revenues to fund all of its activities, operations, and improvements consistent with its
purposes. The sources of revenue available to the Authority may include, but are not limited to,
any of the following:
(1) Rents, fees, or other charges for use of a water supply system or a sewage disposal
system, including a storm water collection and treatment system, or a combination of such
systems, which the Authority may fix, regulate, and collect.
(2) Federal, state, or local government grants, loans, appropriations, payments, or
contributions.
(3) The proceeds from the sale, exchange, lease, or other disposition of property to which
the Authority has title.
(4) Grants, loans, appropriations, payments, proceeds from repayments of loans made by
the Authority, or contributions from public or private sources.
(5) Investment earnings on the revenues described in subparagraphs (1) to (4).
B. The revenues raised by the Authority may be pledged, in whole or in part, for the repayment
of bonded indebtedness and other expenditures issued or incurred by the Authority.
C. The Board by resolution shall establish and fund a separate segregated fund for each water
supply system and sewage disposal system under its jurisdiction for the sole purpose of receiving
rates and charges imposed in consideration for the lease of the related system from the City
which shall be used at the City's direction and discretion to fund any or a combination of the
following: Detroit local system infrastructure improvements, debt service associated with such
improvements or the City's share of the cost of common-to-all improvements.
ARTICLE 12— SALE AND ISSUANCE OF BONDS, NOTES AND OTHER
INDEBTEDNESS
A. The Authority may borrow money and issue bonds, notes, and other evidences of
indebtedness in accordance with and exercise all of the powers conferred upon the Authority by
the laws of the state, including without limitation, the Act, the revenue bond act of 1933, 1933
GLWA Art 090814 Page 12
PA 94, MCL 141.101 to MCL 141.140, and the revised municipal finance act, 2001 PA 34, MCL
141.2101to 141.2821.
B. Bonds issued by the Authority are debt of the Authority and not a debt of any Incorporating
Municipality except to the extent that a withdrawing Incorporating Municipality retains liability.
C, The issuance of bonds, notes, or other evidences of indebtedness by the Authority shall
require approval of the Board as set forth in paragraph C of Article 9.
ARTICLE 13- EMPLOYEES
A. The Board shall appoint and fix the compensation of a chief executive officer for the
Authority. The Board shall prescribe the duties and responsibilities of the chief executive officer
in addition to any duties and responsibilities imposed upon the chief executive officer under the
Act, these Articles or law. The chief executive officer of the Authority shall serve at the pleasure
of the Board.
B. The chief executive officer shall supervise and be responsible for the day-to-day operation of
the Authority, including the control, supervision, management, and oversight of a water supply
system or a sewage disposal system (including a storm water collection and treatment system, or
a combination of such systems), the issuance of bonds, notes and other evidences of indebtedness
approved by the Board, the negotiation and establishment of compensation and other terms and
conditions of employment for any employees of the Authority, the negotiation, supervision, and
enforcement of contracts entered into by the Authority and approved by the Board, and the
supervision of contractors of the Authority in their performance of their duties. The Board may
delegate to the chief executive officer of the Authority the power and responsibility to execute
and deliver, and sign for, contracts, leases, obligations, and other instruments as have been
approved by the Board.
C. The chief executive officer of the Authority shall have all powers as are incident to the
performance of his or her duties that are prescribed by the Act, these Articles or by the Board.
All actions of the chief executive officer of the Authority shall be in conformance with the
policies of the Board and in compliance with applicable law.
D. The Board shall require the chief executive officer of the Authority and the Treasurer and
chief financial officer of the Authority to post a suitable bond of not less than $50,000,00 issued
by a responsible bonding entity, with the cost of the premium of the bond paid by the Authority.
E. The Board shall not authorize the chief executive officer of the Authority to do any of the
following:
(1) Appoint a successor to the chief executive officer.
(2) Except as may be specifically provided in the procurement policy adopted pursuant to
Article 9, approve a contract or a contract amendment.
(3) Appoint or hire legal counsel for the Board.
(4) Prescribe ethical standards for the Board or Authority employees without Board
approval.
F. The Board shall have power to hire employees to assist the Board in the execution of Board
functions and to fix the compensation therefor.
GLWA Art 090814 Page 13
ARTICLE 14- FEDERAL, STATE OR LOCAL GRANTS IN AID
The Board, on behalf of the Authority, shall have the power to accept contributions, capital,
grants, gifts, donations, services, loans or other financial assistance from the United States of
America or any agency or instrumentality thereof or from the State of Michigan or any agency,
instrumentality or political subdivision thereof.
ARTICLE 15- AUDIT
The Board shall cause an annual audit to be made of its financial statements, including such
federal and state audits as may be required relating to grants and awards, by a certified public
accountant, and shall furnish at least two copies to each Incorporating Municipality. The books
and records of the Authority shall be open for inspection by any Incorporating Municipality at all
reasonable times upon reasonable notice.
ARTICLE 16- PUBLICATION
A. These Articles shall be published once in the Detroit News, Detroit, Michigan, which
newspaper has general circulation within the territory encompassed by the Authority. One
printed copy of the Articles of Incorporation as printed in this newspaper, certified as a true copy
thereof as provided below, with the date and place of publication shown by a publisher's
affidavit of publication attached thereto, shall be filed with the Michigan Secretary of State and
also the Clerk of the City of Detroit and the Clerk of the Counties which are Incorporating
Municipalities after the execution and publication thereof has been completed. The fact of the
adoption of these Articles shall be endorsed on the Articles in the manner mandated by section 2
of the Act, MCL 124.282.
B. The Oakland County Clerk is hereby designated as the person to cause these Articles of
Incorporation to be published, certified and filed as described.
C. All expenses for the publication of these Articles and all other expenses incurred in the
incorporation and establishment of the Authority shall be paid as a common-to-all expense by
DWSD or from such grant funds as may be secured to support such expenses.
ARTICLE 17- EFFECTIVE DATE
This Authority shall become effective upon the filing of certified copies of these Articles of
Incorporation, as provided in the preceding Article 16.
ARTICLE 18- EXEMPTION FROM TAXATION
The property of the Authority shall be exempt from all taxation and assessment and no writ of
attachment or writ of execution shall be levied upon the property of the Authority.
ARTICLE 19- AMENDMENTS
These Articles of Incorporation may be amended at any time as provided in the Act and these
Articles so as to permit any county, city, village, township or charter township to become a
member of the Authority, if such amendment to the Articles of Incorporation is adopted by the
legislative body of such county, city, village, township or charter township proposing to become
a member, and if such amendment is adopted by the legislative body of each Incorporating
Municipality of which the Authority is composed. Other amendments may be made to these
Articles of Incorporation at any time if adopted by the legislative body of each Incorporating
GLWA Art 090814 Page 14
Municipality of which the Authority is composed. Any such amendment shall be endorsed,
published, and certified and printed copies filed in the same manner as the original Articles of
Incorporation, except that the filed and printed copies shall be certified by the recording officer
of this Authority.
ARTICLE 29- MISCELLANEOUS
A. These Articles of Incorporation may be executed in two or more counterparts, each of
which shall be deemed an original.
B. The captions in these Articles of Incorporation are for convenience only and shall not be
considered as part of these Articles of Incorporation or in any way limiting or amplifying the
terms and provisions hereof.
C. These Articles have been adopted by the Incorporating Municipalities, as is set forth in
the following endorsements and the designated officials of each Incorporating Municipality have
endorsed a statement of such adoption.
These Articles of Incorporation were approved by the of the City of Detroit
by dated ,2014.
City of Detroit
These Articles of Incorporation were approved by the Board of Commissioners of the Charter
County of Macomb, Michigan, at a meeting duly held on , 2014.
County Clerk
Macomb County
GLWA Art 090814 Page 15
These Articles of Incorporation were approved by the Board of Commissioners of the County of
Oakland, Michigan, at a meeting duly held on , 2014.
County Clerk
Oakland County
Chairperson
Oakland County Board of Commissioners
These Articles of Incorporation were approved by the County Commission of the Charter County
of Wayne, Michigan, at a meeting duly held on , 2014.
County Clerk
Wayne County
GLWA Art 090814 Page 16
Execution Copy
MEMORANDUM OF UNDERSTANDING •
REGARDING THE FORMATION OF THE GREAT LAKES WATER AUTHORITY
The following memorandum of understanding (MOU) represents a framework for the
establishment by the City of Detroit, Oakland County, Wayne County and Macomb County
(each, an "Incorporating Municipality") of a regional water and seweristormwater authority to be
called the Great Lakes Water Authority, pursuant to Act 233 of 1955 (Act 233), to operate,' -
control, and improve both the Water Supply and Sewage Disposal Systems (SysteMs) owned
by the City and presently operated by the Detroit Water and Sewerage Department (DWSD).
This ,framework describes terms to be incorporated into articles of IncorporatiOn which shall be
presented to the City and the legislative bodies of the Counties as soon as practicable, for
approval or disapproval no later than October 10 1 2014. The Authority shall be established
upon adoption of the articles of incorporation by the City and the legislative body of at least one
County, and the publication and filing of the articles of incorporation as provided In Act 233.
GOVERNANCE
The Board of the Authority shall be comprised of six voting members:
• Two members appointed by the Mayor of the City
• One member appointed by each County which adopts the articles of Incorporation •
• One member resident of a service area outside the territories of the three Counties
appointed by the Governor
In the event that Wayne, Oakland or Macomb County does not adopt the articles of
Incorporation the Governor shall also appoint a :Board member resident in the service area
Within that County, Board members shall have four year, staggered terms, with no more than
two members' terms expiring in same year. Each Board member shall serve at the will of and
may be removed by the appointing authority.
The Board shall act by simple majority vote, except that a supermajority (5/6) shall be
required for
• Appointment of the Authority's general manager/executive director
• Approval of rates; fees,and charges and rate-setting .protocols
• Issuance of debt, which shall be revenue -backed debt • •
•• Approval (*annual operating budget -
• Annual approval of a rolling Five Year Capital Improvement Plan
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• Adoption of a procurement policy, which will Include the terms on which any aspect
of the operations ofeither Systemmay be privatized
• Approval of a Lease of the Systems from the City
• Removal of any Board member for cause.
All Board members shall possess minimum education and professional experience
standards, to wit: at least seven years of experience in a regulated industry, a utility,
engineering, finance, accounting or law.
Compensation of Board members shall be determined by a supermajority vote of the
Authority Board, and shall be consistent with the practices for other large public utilities.
LEASE
The City shall lease the Systems (except the Detroit local system infrastructure) to the
Authority for an initial term of 40 years, extendable to at least match the term of any outstanding
bonds of the Authority. Consideration for the. Lease shall be the $50 million comrhon-to-all
charge per year (not subject to further Board approval) to be held by the Authority in the funds
described below and used at the ,Citys direction and discretion to fund any or a combination of
the following: Detroit local system infrastructure improvements, debt service assoclatedwith
such improvements or the City's share Of the cost of common-to-all Improvements. The parties
agree that no Lease shall be entered into if payment in consideration for the Lease'would
cause the Systems to be unable to provide a reasonable level of service, satisfy its debt
obligations and adhere to the rate structure set forth in the Plan of Adjustment. Initially, 45% of
the charge shall ba allocated to Water Supply System customers and 55% shall be allocated to
Sewage Disposal System. customers, such allocation to be subject to review and. adjustment by
the Board every three. to five years consistent with the method of allocation of other common-to-
all charges between the two Systems, provided, that no such adjustment shall reduce the
availability of such revenues to pay debt service on bonds issued to finance Detroit local system
Improvements below the level In anticipation of which such bonds were Issued.
KEY FINANCIAL TERMS
The Authority shall have no taxing power. .
A.financial obligation of the Authority shall be the financial obligation of the Authority only
and not a financial obligation of an incorporating Municipality or a -constituent .munIcipailty
except to the extent a municipality which-is=a-wholesale customer may have liability in that
capacity.
-2-
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The State shall allow theAuthority to Use the Michigan Finance Authority to issue' bonds •
on behalf of the Authority,
The Authority's common-to-all rate structure shall Include:
• The $50 million annual charge to be deposited with the Authority and applied, at
the City's direction and discretion, (i) in the case of funds to be used for pay-as-
you-go Detroit .1004 systernimprovements, in a separate subaccount within. the
Authority's Construction Fund.or Extraordinary Repair and Replacement Reserve
Fund; as appropriate, for the related System, to be dedicated to Detroit twat
system infrastructure improvements; and/or (II) in the case of funds to be applied
to the payment of debt service on Authority bonds (either debt service allocable -
to Detroit's share of the cost otcommen-to-all capital improvements or to bonds "
issued by the Authority to finance Detroit local system improvements) to the
apriroixiate Rebt Service: Account,
$4.5 million in 2014115 and an 'amount equal to .6% of base budgeted operating
revenues Per year thereaftek.;:for deposit to an independently-administered Water .
Residential Assistance •Program fund to provide assistance to indigent residentiel
customers throughout the Systems who agree to take appropriate actions to
reduce consumption.
The existing recognitions of the City's ownership and system support in the water and
sewer system rate structures (return on. equity for water and per settlement for sewer) milli be- : •
frozen and continue at $26.216 million per year [$20,700,000 as the.rate of return for the water
• system and $6,516,000 pursuant to settlements for the sewer System] during the term of the
Authority.
The transfer of the Systems to the Authority shall not cause impairment of tax treatment
of outstanding DWSD bonds, New debt and refunding bonds shall be issued pursuant to the •
Revenue Bond Act (PA 94 of 1933) or other statutory authority.
The MOU Is predicated In part upon the assumption that the Bankruptcy Court will
approve the terms of the City's , Sixth Amended Plan of Adjustment (as it may be modified,
'supplemented .or amended) (the "Plan of Adjustment") allocating liability to DWSD for funding
the.City's. frozen General Retirement System (ORS) pension plan (the Pension Liability) and the
City's settlement ofclaims associated with. the swaps for its Pension Obligation Certificates,, and
for payments relating.te debt Service, on DWSUs allocated share.of liability on the New 13 ,Notes
attributable to the GRS VESA and Pension Obligation Certificates. The financial analysis ' •
-3-
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undertaken by the parties assumes that the Authority will issue bonds to prepay its Pension
Liability or Identify other savings should such financing prove to be infeasible and the Pension
Liability is paid over the schedule provided in the Plan. Within 90 days after the establishment of
the Authority, the Authority, Working With the City and the investment Committee of the GRS -
(Investment Committee) shall develop aprocess to reach agreement on the dollar amount
which the Authority would need to deposit with the GRS as a one-time payment in lieu of the
Pension Liability payments payable at the rate of $42.9 million per year (not including $2.5
million in annual administrative expenses or the one-time restructuring cost payment of $20
million in 2014/15) over nine years pursuant to the Han of Adjustment. Notwithstanding the
foregoing, nothing in this MOU modifies, or purports to modify, the Obligations of DWSD as set
forth in the Plan of Adjustment, and the Authority shall assume and comply with such
obligations.
The Investment Committee established for the ORS pursuant to Section 13g of the
Public Employee Retirement System investinent Act (MCL 38.1133g) (PERSIA) is obligated to
receive and approve summer); annual report, a public document prepared pursuant to Section
13(3) of PERSIA,. It is the expectation of the parties that the investment Committee will provide
the Authority with a copy of each summary annual report prior to the formal approval of such
report The parties understand that the summary annual report will continue to (a) track DWSD
retirees, deferred retirees, and active vested, members, pension benefits paid and actuarial
accrued liabilities separately from other.GRS members and (b) shall allocate to the ,
DWSD/Authority an undivided interest in GRS administrative expenses and in each investment
and class of investment in the GRS, to enable the Authority to verify the appropriateness Of
allocations to the Authority. For each fiscal year commencing from and after July 1, 2023, on
normal schedule for determining the current fiscal years contribUtions to GRS, GRS shall
determine whether DWSD's/Authority's unfunded accrued actuarial liability on a market value Of
assets basis for its component of the frozen GRS plan ("DWSD GRS. Component II UAAL") Is
fully, funded at 100%. If DWSD GRS Component ll UAAL is funded at 100% or more, no
contributions for the current fiscal year will be required from the Authority. If DWSD GRS
Component II UAAL is less than 100% funded, then the Authority shall make such level annual
contributions to GRS as necessary to amortize such shortfall over 5 years at an interest rate
equal to the then current GRS investment return assumption.
Each System, as a whole, is assumed to experience revenue requirement Inoreases of
not more than 4% for each of the first ten years under Authority, management. The rates and
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percentage increases for different customers may vary in orderte meet their specific revenue
requirements.
The Authority shall commit to and adopt reporting practices which provide transparency '
In system operations and management. Byfiscal Year 2017 the Authority shall adopt a two
year operating budget.
The City and eacturbolesaleoustomer shall retain complete responsibility for all
obligations associated With individual revenue requirements.
The Authority shall make every-effort to employ individuals and contract with vendors
from throughout the service areas.
OPERATION AN P MANAGEMENT OF DETROITAND OTHER LOCAL SYSTEMS
The City shall have the right to continue to operate and retain employees to operate 1
maintain, repair and improve the local system In Detroit, Including capital Improvements and
repairs, and billing and collection services and any other servioes or may contract with the
Authority or another third party for all or a portion of those or other functions. The City shall
:continue to develop the capital improvement.program for the Detroit local system infrastructure
and may elect to administer the maintenance and Improvements to that system, and in any
event, will direct the expenditure of the funds dedicated for those purposes. Billing and
collection shall be managed such that the statutory lien on ,net revenues created by the . .
Revenue Bond Act applies to payments received by the Authority or its,trustee from Detroit local
system customers and theAuthority will have the power teenforce the collection of such
payments. The Authority will finance 'Detrolt.local system improvements through the Issuance of
Authority bonds under the Revenue Bond Act, with the debt service to be allocated solely to
Detroit local system ratepayers. City local rates may fund the Rate Stabilization Fund,
contemplated by prior rate settlement agreements but ap 'yet unfunded, from a portion of
improved local collections until the accumulated balance is sufficient to stabilize rates and
, redUce delinquencies. The City_will adopt metering or other practical. methods of measuring_
water loss in the Detroit localaystem.
The Authority may provide services and. issue bonds to finance improvements for other
local systems within Its service areas on the same basis.
CAPITAL IMPROVEMENTS
The State agrees to Identify ways to facilitate access and eligibility for the Authority to
the Clean Water State Revolving Fund and Drinking Water State Revolving Fund (collectively,
SRF), grants and other sources of State ftmdingto mitigate the cost of improvements for the,
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Systems and !Deal systemimproveMents, Particularly for the areas of greatest health and
environmental- need, and commits to using its best efforts to facilitate such funding for the
Authority. The City will determine priorities for capital improvements to,the Detroit focal system.
TREATMENT-OF EXISTING CONTRACTS'
Unless otherwise agreed by the parties, the City will assign all customer contracts to the
Authority, which shall assume the seme.
The Authority shall be a successor employer to pwsp for those employees transferring
- to the Authority, and will assume and honor DWSD's 'collective bargaining agreements for those
employees.
Existing DWSD vendor contracts shall be assigned to and assumed by the Authority.
EVALUATION AND TRANSITIONAUTRANSACTIONAL COSTS
The State's Competitive Grant Assistance Program (CGAP). provides incentive-based
grants to stimulate smaller, more efficient govemrnent'and encourage mergers, consolidatione,
and cooperation between two or'More qualified jurisdictions. The program is focused on
stimulating projects betwee•two or .mOre qualifiedprisdictIons .that are creating new mergers,
. consolidations, and/or cooperative effortsicollaboratidhaa iodsting.services.
The State agrees to give priority consideration to.a grant.from any of the parties to this
MOU to assist withpaYment of transactional costs assOciated With establishing and transferring
the Systems to the Authority.
The City shall retain Veolia to undertake an assessment of the Systems and make'
recommendations to assist the parties in evaluating .operating models, capital requirements and
savings opportunities, with no commitment by 'OWSD, the city Or the Authority to enter Into a
contract with Veolla to operate, manage or maintain the Systems. The Authority will be free-to
adopt ideas generated by such assessment.and recommendations Without any further obligation
to Veda. In the event the Authority Is formed and a CGAP grant is received, sufficient of such
funds shall be used to reimburse the City -for the cost of the Media assesbment.
MANAGEMENT OF THE SYSTEMS FOR.BENEPIT.OFCUSTOMERS •
Ills the parties' expectation that the Authority will use its best efforts to manage the
Systems for the benefit of all Authority customers. .Upon commencement of operations the
Authority will review and revise as-necessary the DWSD water and wastewater Master Plans:
In reviewing those plans the Authority will useita best efforts to optimize the capacity of the
Water supply system and optimize and maximize the capacity of thawastewater system to treat
flow so that operationa+ economies of scale maybe realized. The Board will take into account '
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. __Abe needs of the region in planning and operating the water and wastewater systems and will
strive to become the provider of choice for southeaStem Michigan and consider incentives for
customers to Utilize the system for their water supply needs and wastewater flow. .
TERMINATION OF AUTHORITY OR WITHDRAWAL FROM MEMBERSHIP
Any withdrawing Incorporating Municipality shall remain liable for any -contractual
obligations it has to the Authority. Upon withdrawal of an Incorporating Municipality, the
Governor shall thereafter appoint the member of Board, previously appointed by the
withdrawing incorporating Municipality; such member shall be iresident of the service area
previously represented by the withdrawing Incorporating Municipality.
The City will forego its consideration for the Lease if it withdraws from the Authority.
CONDITIONS PRECEDENT TO TRANSFER
This MIN is subject to the negotiation and execUtion of definitive documentation and the
receipt of all required consents and approvals required forthe transactions contemplated herein,
including, but not limited to ; the following:
The Incorporating. Municipalities shall havaestablished the.Authority and the Board will
have adopted an ordinance or resolution addressing all matters for which an ordinance is
required to permit the contemplated transaction and operation of the Systems by the-Authority.
The Authority and the City shall have negotiated a Lease, an agreement regarding the
• operation and management of the Detroit-local system effecllve on the transfer date, and an
agreement relating to the provision of services on a transitional beefs by the'City to.the
Authority. . .
The Authority shall have secured all necessary -permits and other approvals to operate
the Systems.
The City will have received approvals required under PA 436 of 2012 and will have a
confirmed plan of adjustment that contemplates the creation of the Authority.
The City shall have secutetithe consent to the transfer of the Systems toe regional
authority from the credit enhancers and a majority of the holders of DWSD bonds.
Tender Financing and Credit& Settlement Terms regarding -Transfer .
The Authority shall, in connection with Its assumption of-or substitution for outstanding .
DWSD bonds, covenant to: .
• maintain compliance with DWSD's three-part combined coverage requirements
of 1.20, 1.10 and 1.00 for senlorlienrsecond lien, and SREILinior lien
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inde4tedriess, re,spactively, for both' additiOnal bonds test and rate covenant •
purposes; and
• maintain,. Pursuant to auch'ordinances or indentures, a flow of funds consistent'
with Act 94, in the following order of priority required by Act 94: (x) operation and
maintenance expenses of the related System, and (y) debt service on all bonds
payable from net revenues of the related System before making deposits to other
accounts in the flow of funds; and
• comply with the provisions of the Bankruptcy Court Order dated August,25, 2014
approving the DWSD tender and new money financing, including but not limited
to paragraph 24 thereof [requiring the method of making the pension payments to
„ the frozen defined GRS plan].
The, Authority shall also have(I) received (a) an opinion of nationally recognized bond
counsel to the effect that the transfer of the Systems to the Authority and assumption 0 the
outstanding DWSD bands, in and of themselves, will not materially Impair the. tax-exempt status,
of the interest on such bonds; and (b) confirmation from one or more nationally recognized
rating agencies that the bonds, after assumption or substitution by the Authority are rated not
less than the then-current rating on. the bonds; (II) derhonstrated.the ability of each System:,
,under the additional bonds test described above, to Issue at least One Doner of additional
indebtedness at each level of priority; and (III) provide in the Lease or other relevant agreement
'that any lease or other payment by the Authority to the City's general fund or other fund at the
City (Other than payments for customary services historically provided by the City to DWSD that
constitute Operation and maintenance expenses under the related DWSD Ordinance and
payments In respect of pension obligations to be paid as operation and maintenance expense
consistent with the Bankruptcy Court Order referred to above) shall be subordinated to all
payments on the DWSD bonds assumed by the Authority. •
STATEMENT REGARDING STATE COMMITMENT'S
In agreeing to the terma of this MOU, the. Representatives understand that the State will
undertake' all efforts, subject to all legal requirements, to facilitate the transaction aS relates to
consideration of permit matters (including a transfer of the current NPDES permit and .
associated Administrative Consent Order without material change to existing requirements), and
applications for grant or loan funding. The State agrees to make .such•efforts.
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PLAN OBJECTIONS • •
.',..Upon.exicUtlen of the MOO the dOuntfee rePresented by the signatories to .thiS MOU
which have filed Objeotiond to the Plan of Adjustment shall' each imMediately withdraw With
prejudice their objections to the Confirmation of the Plan of Adjustment.
COUNTERPARTS
This MOU may be executed in ceunterParts.
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R6bert A. Ficano
County Executive
OAKLAND—COUNTY
L. Brooks Patterson
County Executive
MAC OMB COUNTY
Rick Snyder
Governor
September 9. 2014
EXECUTION BY REPRESENTATIVES
CITY OF D#ETROIT
Kevyji D. Orr
Eargency Manager
Mike Duggan
Mayor
WAYNE COUNTY
Mark A. Heckel
County Executive
STATE OF MICHIGAN
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Resolution #14229 September 18, 2014
The Vice-Chairperson referred the resolution to the General Government Committee. There were no
objections.