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untanglingwebs
El Supremo
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Detroit water department land deal has suburbs steaming: City's motives are questionedFriday, July 16, 2010 10:58 AM Email Article Bookmark:
(Source: Detroit Free Press)By John Wisely, Detroit Free Press
July 16--Suburban officials told the Free Press this week that the City of Detroit may have tried to shift part of the expense for a $34-million planning blunder to suburban water customers by selling 3 acres along the Detroit River to the water system for more than $17 million.
The parcel just east of the Renaissance Center, which the Detroit Water and Sewerage Department plans to use for a sewage retention basin, was part of 6.6 acres the city acquired for casino development.
After litigation and interest costs, the city paid $34 million for the property.
In 2008, the city sold half the property to the water system, for more than $17 million -- more than $5 million per acre.
"There's no way you would pay that much," said Oakland County Water Resources Commissioner John McCulloch.
The Water Department defends the price, saying it was determined by the court in a condemnation proceeding.
Others are skeptical. That price might have been justified early in the decade for casino development, but by 2008, those plans were long gone, said Steve Morris, an assistant professor of real estate finance at the University of Michigan's Ross School of Business.
"By 2008, there's no demand," Morris said. "They definitely overpaid."
Land sale may restart water fight
Suburban water leaders want answers after learning the Detroit Water and Sewerage Department paid the City of Detroit more than $5 million per acre for vacant property along the Detroit River.
The department plans to build a sewage retention basin on the land, just east of the Renaissance Center, water department spokesman George Ellenwood said.
Some suburban leaders question the need for the basin and say the water system overpaid the city for it in what was hardly an arm's-length transaction. The sale could reopen decades of legal disputes that the city and the suburbs settled in late 2008.
"The hope is that there will be a resolution short of litigation, but we certainly have every right ... to pursue it," said Oakland County Water Resources Commissioner John McCulloch. "There's no way you would pay that much."
Water department expenses have long been a flashpoint between the city, which owns the water system, and the suburbs, where three-quarters of the customers now live. In 2007, U.S. District Judge John Feikens ordered the city to repay the water system more than $24 million it spent on a new emergency radio communication system that is used mostly by Detroit police and firefighters. The suit was settled in 2008.
McCulloch said he was preparing a response to a letter the city sent explaining the purchase, including why a less expensive location wasn't considered. Other officials also want answers.
"On the surface it seems like a lot of money to pay" for a sewer overflow facility, said Butler Benton, deputy director of Public Services in Wayne County. "We're trying to understand."
City water officials said the sale was legitimate.
"The sale price was determined by the judge in the condemnation proceedings," Ellenwood said. "It went through the normal review process and was approved" by both the Board of Water Commissioners and the City Council.
The city sold the land to the water system in 2008, but suburban leaders didn't learn about it until it appeared in a note in the city's 2009 financial report, filed in May.
McCulloch said the sale's timing raises concerns because it roughly coincides with the city's settlement to repay the radio project debt to the water system. Ellenwood dismissed that idea saying the city repaid that debt by issuing bonds, not by transferring acreage.
The property was part of a 6.6-acre plot that the city condemned under eminent domain in 2000 to assemble land for what officials hoped would become a cluster of casinos in the warehouse district, as the area was known.
The casinos went elsewhere, so the city leased half the property to the Michigan Department of Natural Resources for William Milliken State Park along the river and eventually sold the rest to the water system for a basin to store untreated sewage during heavy rains.
In the condemnation, the city first offered the property owners $14 million, but the owners sued and in 2007, a court awarded them $25 million for the property plus $9.1 million interest and legal fees.
Because the parcel represented 52% of the property, the water department was charged 52% of the $34.1-million total cost, city lawyer Robert Walter said in a letter explaining the transaction.
But property is valued based on its projected use, said Steve Morris, an assistant professor of real estate finance at the University of Michigan's Ross School of Business. The location, near downtown and the river, adds value, but he would expect that property to sell for somewhere between $100,000 and $500,000 an acre, not the $5 million the water system paid.
Environmental regulators are forcing the water department to prevent sewage overflows during heavy rains from reaching the river. The department is in the process of building facilities to hold the sewage until it can be treated.
Ellenwood said the department is awaiting state approval for its plan, which includes a retention basin on the site. The basin likely would be underground with green space on the surface, he said.
Contact JOHN WISELY: 313-222-6825 or
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To see more of the Detroit Free Press, or to subscribe to the newspaper, go to http://www.freep.com
Copyright (c) 2010, Detroit Free Press |
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Sat Jul 17, 2010 4:04 pm |
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untanglingwebs
El Supremo
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Posted: July 17, 2010
EDITORIAL
Resolve dispute on water issue -- fast
Comments (21) Recommend Print E-mail Letter to the editor Share Facebook Twitter FarkIt Digg Del.icio.us Reddit Newsvine
Buzz up!The disclosure that the Detroit Water and Sewerage Department paid the City of Detroit what appears to be a grossly inflated price for vacant property on the Detroit River will do little to build trust between the system and its suburban customers, who may feel an impact from this foul-smelling deal. Whatever short-term benefit the $17-million transaction provided to the city's coffers is outweighed by the long-term damage that will be done if Detroit's neighbors -- or the system's customers within Detroit -- suspect the city is surreptitiously exploiting them.
The water system acquired the three acres in question in 2008 for a sewage retention basin. The parcel was part of a 6.6-acre site the city condemned in 2000, when it was trying to assemble land for a riverfront casino strip that never materialized. Courts eventually ordered the city to pay the original owners $25 million for the property. With interest and legal fees, the city's tab for the abortive casino project came to more than $34 million.
The water system's contention that the $17 million it paid for about half the site reflects the value established by the courts is specious on several grounds. The city's $34-million cost included interest and legal fees that have nothing to do with the property's value. And the court's valuation was based on the site's proposed use as a casino district, long before real estate prices began collapsing in 2007. Steve Morris, a real estate expert at the University of Michigan's Ross School of Business, says the actual value of the land may be less than a tenth of $5 million per acre the water system paid.
The courts have penalized Detroit for similar shenanigans in the recent past. In 2007, a U.S. district judge ordered the city to repay the water system more than $24 million it spent on a new communications system used primarily by Detroit police and firefighters.
The region does not need more lawsuits over water and sewerage issues. Detroit should move proactively to settle this dispute and resolve to make transactions like this a relic of its unsavory recent past.
In your voice|Read reactions to this story Newest first Oldest first
dsman wrote:
Please Grosse Pointe Park,start building that water treatment plant that we should have started two years ago.I was at a council meeting and one gentleman was sick and tired of all the curruption associated with the Detroit water system and I heard him being called a racist after the meeting was over.Seems that is the blueprint now when someone disagrees with the norm.
cdmongrel wrote:
It won't be long before DWSD can't pay it's bond payments, make payroll, pay contractors, or maintain and repair it's system. The cupboards are bare thanks to crap like this...I give them two years tops before they are unable to maintain permit compliance and pay all their bills.
This administration wants to treat DWSD like every other dysfunctional department in the city, so now the water department will perform like every other dysfunctional department in the city.
7/17/2010 4:11:40 PM It won't be long before DWSD can't pay it's bond payments, make payroll, pay contractors, or maintain and repair it's system. The cupboards are bare thanks to crap like this...I give them two years tops before they are unable to maintain permit compliance and pay all their bills.<br /><br />This administration wants to treat DWSD like every other dysfunctional department in the city, so now the water department will perform like every other dysfunctional department in the city. cdmongrel
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Sat Jul 17, 2010 4:11 pm |
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