Opinion: Highland Park shouldn’t declare bankruptcy over water debt – Detroit Free Press

Eric W. Lupher| Detroit Free Press

Once again, the City of Highland Park is having financial troubles. This time, a long-running lawsuit with the Great Lakes Water Authority (GLWA) has run its course, and the court has ruled that the city owes the water authority an estimated $24 million for unpaid services.

Conflicts between the Highland Park and the water authority, including its predecessor the Detroit Water and Sewerage Department (DWSD), have gone on for decades, because Highland Park chronically underpaid for sewage treatment services. Those problems continued after GLWA was created, and it became more apparent that the other communities were bearing the cost of Highland Parks actions.

The Michigan Court of Appeals ruled that Highland Park had to pay these charges, amounting to more than twice what the city collects annually in property and income tax revenues and more than four times the citys annual water and sewer fund revenues.

Highland Park's combined general fund and enterprise budget is roughly $20 million. It finished the 2021-22 fiscal year with $4 million in cash reserves. It does not have the cash on hand to pay back this debt. Repurposing existing revenues for this purpose would draw from general government, public safety, public works and other services that arguably already are underresourced.

Facing this large debt, Highland Park asked the state to initiate a review of the citys finances pursuant to the states emergency manager law. A week later, the city sought to skip the legal process and jump straight to filing for municipal bankruptcy.

Perhaps Highland Park leaders think their problems are like what Detroit was facing a decade ago. But there are significant differences. Detroits fiscal decay and years of poor policy choices led to unbalanced budgets, impeded its cash flow, caused it to run up years of operating deficits and created long-term debts the city was unable to manage.

Highland Parks financial condition is much better. The city has maintained balanced budgets, stashed more than a third of its operating expenditures in cash reserves, and worked to pay down its long-term debt.

Instead of looking at Detroits 2013 bankruptcy as a way forward, Highland Park officials might consider the state actions in 2016 that addressed the long-standing financial problems that faced Detroit Public Schools (DPS). It owed over $1.7 billion in notes and loans that were backed by the state and other school districts.

When governments borrow from private entities, it comes with the governments promise to repay the borrowed amounts with interest. The financial history and credit worthiness of the government dictates the interest rates charged for borrowing.

When local governments borrow from the state or regional governments, it is the other governments, and ultimately state taxpayers, who bear the risk and absorb the cost if payments are not made.

Detroit filed for bankruptcy with most of its debt owed to investors and pensioners. Much of its debt relief came from shorting investors who knew that the city had experienced decades of decline and was a financial risk.

DPS experienced the same socio-economic declines and financial struggles and by 2016 was saddled with debt for delinquent payments for pension and retiree health care, the cost of early retirement incentives, and the repayment of cash flow borrowing, among other things. Because Michigan operates the teacher pension system and provided funding for the cash flow borrowing, it was the state, other school districts, and taxpayers on the hook for most of DPS debts.

The different nature of the debt dictated an approach different from Detroits bankruptcy.

The adopted debt relief plan did not absolve DPS of its debt, but crafted a solution in which the district repays the debt, but the state School Aid Fund plays a larger role in funding education while those payments are being made.Highland Parks unpaid sewerage billings are more akin to DPS problems than the City of Detroits. GLWA has floated the money while Highland Park wrangled over its sewerage costs. As a result, GLWA had fewer resources to invest in infrastructure improvements.

If the city doesnt have the money and bankruptcy is not appropriate, what are the alternatives?

The Wayne County Circuit Court could impose a judgment levy. This is a poor option. Highland Park property taxpayers already pay the eighth highest property tax rate in the state. While there is an element of fairness to this option those that incurred the debt must pay for it adding to the already high tax burden could further lessen any incentives to locate in Highland Park.

Issuing a bond to finance the debt would spread the cost over several years, with the effect of shifting the burden from past generations to future generations. Taking on more debt for operating costs would further burden future generations with the high cost of being in Highland Park for services provided in earlier years.

State government could foot the bill. Surplus funding from the previous fiscal year and federal funding is being doled out as the Legislature crafts a budget for the next fiscal year. This has taxpayers throughout the state foot the bill for Highland Parks debt.

The governor has proposed that GLWA repurpose a 2022 $25 million clean water grant from federal funding to make the payment on Highland Parks behalf. Because it is federal funding, all U.S. taxpayers would be absorbing the cost. This option doesnt really make GLWA whole. The dispute would be settled on paper. Highland Park would be free from the debt, but with less to spend on improvements to the regions water and sewerage infrastructure.

There are no good options. Each comes with tradeoffs with respect to who ultimately bears the cost of repaying the debt and the ability to pay.

Whatever solution is adopted, it is unlikely to address the underlying issues. Highland Park is a shrinking city that is bleeding people and tax base. Michigan, and southeast Michigan in particular, is struggling to improve the regions water and sewerage infrastructure. Both need to be addressed.

Eric W. Lupher is president of the nonpartisan research group Citizens Research Council of Michigan. Contact the Free Press opinion page: letters@freepress.com.Become a subscriber at Freep.com.

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Opinion: Highland Park shouldn't declare bankruptcy over water debt - Detroit Free Press