Allen Park Finance Director Bob Cady (right) explains the $3 million DUWA over-payment settlement March 14 while Council Members Kevin Rourke and Tina Gaworecki, and City Treasurer Maureen Armstrong listen.
By SUE SUCHYTA
Sunday Times Newspapers
ALLEN PARK – A $3 million, six-year credit was approved for the city by the Downriver Utility Wastewater Authority for over-payment based on incorrect calculation of its waste water flow and debt service charges.
The correction, approved by the DUWA member city board March 9, will also go to Wayne County officials for approval, along with supporting data from the city’s engineering and budget analysts.
A credit of $500,000 a year, for six years, will likely be applied to the city’s annual charge for the waste-water it discharges into the system and for the system’s capital improvement debt service. The first payment is expected to be credited to the July-August bill.
The city’s waste-water is processed by two separate systems, with about 20 percent being processed by the Detroit waste-water system, and the rest by DUWA.
Water consumption data is used to establish a community’s waste-water “base flow” amount, and an “excess flow” amount is added, which is influenced by rain and snow, and averaged over five years to avoid fluctuation for “wet” and “dry” years.
The first part of Allen Park’s over-payment likely began in 2010, when the city inadvertently attributed 100 percent of its waste-water to DUWA, when 20 percent was actually going into the Detroit waste-water system.
The second part of the over-payment, for fiscal years 2016 and 2017, was discovered when it was found that Wayne County used the wrong data to calculate the “excess flow” quantities. The wrong numbers entered into the rate formula resulted in more overcharges.
The third part of the over-payment occurred when the waste-water flow, which determines a city’s share of the system debt, which pays for capital improvements, was higher than it should have been because of the inflated base and excess flow waste-water amounts.
Correcting the “excess flow” amount also will increase the accuracy of the city’s future waste-water bills, Mayor William Matakas said.
“This would be very important as to what the residents are charged in the future, and it is certainly important if the Downriver Wastewater Authority does purchase the county’s waste-water plant and all their pipelines,” Matakas said, “because there will be debt issues that will be allocated based upon the new (usage) rates.”
Councilman Kevin Rourke asked why the city was not getting $3 million from Wayne County before DUWA was purchased by the 13 cities it services.
Allen Park Finance Director Bob Cady said he asked the same question during the negotiations.
“The county really doesn’t have the $3 million to give us,” he said. “We would be taking the reserves that are already in the system, which they are reluctant to give up. Yeah, we’d love to have the money up front, but this is going to be a big boost to the water fund, as you know. I guess we will take what we can get at this point.”
Cady said the city self-reports its waste-water flows, and instead of taking the actually meter reading from water entering the system and subtracting the 20 percentage that went to the Detroit waste-water system, the city was paying the cost of the 20 percent of the waste-water going to Detroit and paying 100 percent to Wayne County.
“When you calculate the ‘excess flow,’ which is based on what you report, and also our share of the debt, which is based on what we report, all three of those combined is an extra 20 percent that we were paying,” Cady said.
Matakas said Wayne County administered the system, but had no money in it, and its budget is provided by the 13 member communities.
“It is our revenue that all goes in to take care of the second largest waste treatment system in the state,” Matakas said. “That is all the 13 communities’ contribution.”
He said four of the communities, like Allen Park, have some of their waste-water going to another system, like Detroit.
Matakas said the cash reserve is being used to help obtain a favorable credit rating for the 13 member communities that will soon own and operate DUWA.
He said the credit being given to Allen Park comes from the other member communities.
“The communities would not be excited about a $3 million rate increase in one year for all their residents,” Matakas said. “The county may be responsible for part of this mix-up, but they have no money in this project.”
Matakas said the $3 million was a negotiated flat rate, and the city can count it as a receivable on its balance sheet.
When the 13 Downriver member cities buy DUWA from Wayne County by issuing revenue bonds, experts have advised the group it will get a lower interest rate if shares of the debt are not allocated to specific communities, since the financial instability of some of the cities could cause a higher risk-adverse interest rate. Therefore, DUWA will service its debt from waste-water rates instead of apportioning shares to specific communities. A city’s payment for its waste-water will include an amount for bond repayment.
The DUWA member cities are operating under the assumption that the cost of paying off the debt needed to purchase the system from Wayne County will be less than the higher fees each city might pay in the future, if Wayne County sold the waste-water authority to an independent third party, who could then charge whatever it felt the market would bear. Cities would also be financing a third-party’s facility capital improvements without acquiring an equity share.
The Allen Park City Council approved the terms of the $3 million settlement, and the member DUWA Service Agreement at its March 14 meeting, the last of the 13 cities to approve it.
“I think most everyone felt that they would be better off as a member and under the rate system that we have been living with pretty much for 50 years,” Matakas said.
(Sue Suchyta can be reached at [email protected].)