Bernero: Time to look at BWL sale

Lansing Mayor Virg Bernero’s adamant opposition to even considering the sale of the Board of Water & Light has softened to the point that he is calling on his Financial Health Team to study the potential mplications of such a sale.

“It’s time to look at it,” Bernero told City Pulse.

Former Mayor David Hollister, who heads the mayor’s Financial Health Team, said Tuesday that Bernero “has approached us for doing this,” but hasn’t spelled out details on how he wants it done.

The Financial Health Team recommended more than two years ago that the sale be studied, which Bernero swiftly shot down. “Not on my watch,” he declared in his 2013 State of the City Address.

But in an interview at the City Market on Thursday, Bernero confirmed growing rumors that he has reconsidered.

On Tuesday, he issued a statement to City Pulse:

“The BWL is one of the city’s key assets and has served the region well for many years. The Financial Health Team is carefully reviewing all assets and liabilities facing the city of Lansing to help chart a viable path forward. That review includes considering the costs and benefits of potential changes in the ownership structure of the BWL as a way to address our longterm liabilities for pensions and retiree health care and possibly to provide a source of funding for major infrastructure investments like fixing roads. Any decision on the long-term disposition of the BWL would be premature at this point.”

In his City Market interview, Bernero said he was influenced by a meeting on April 23 with Kevyn Orr, the emergency manager who oversaw Detroit’s bankruptcy. The meeting occurred after Orr spoke at a Lansing Regional Chamber of Commerce event.

Hollister, appearing on the “City Pulse Newsmakers” TV show, said he had attended the meeting, which he described as “private.”

Referring to Orr, Hollister said, “He said you know in a federal bankruptcy proceeding, a federal judge can seize your assets and sell them. “ He said Orr told them that any effort to stop such a forced sale “doesn’t stand a chance.”

“I think that had an impact on the mayor because up until that point, he wasn’t even willing to consider it, but when he heard that a judge could come in and make such a sweeping decision,” Bernero realized that “maybe we ought to at least look at what it’s worth and make a judgment.”

Hollister said a “thoughtful 18-month to two-year study” — a “depoliticized deep dive” — would be in order. He said as mayor in the 1990s, he looked into the sale of the public utility after the city was approached by an investor. Ultimately, he decided it wasn’t necessary at the time.

In an interview Tuesday, Hollister said the study will look at "any option." For example, he said, it will consider selling some of BWL´s assets short of ceding majority control.

He said the study needs to look well down the road. "Thirty years from now, water may be more valuable."

He said the city valued the BWL at $350 million when he looked at the sale in the ‘90s. Now it “could be half a billion, could be a billion — who knows,” Hollister said about the current value.

The price paid for BWL would be a consideration in deciding whether to sell it to private investors. Other factors would be the effect on rates and on jobs, Bernero said.

The main reason to sell would be to pay off or at least sharply reduce the so-called structural deficit, which covers pension and benefit costs for past and current employees. One estimate places the cost at more than $600 million, which is a figure Hollister has cited.

About $45 million of the city’s overall $196 million a year budget is earmarked for the employee pension and benefit costs that contribute to the structural deficit, administration spokesman Randy Hannan said.

Bernero said the size of the structural deficit remains a threat to the city, even though its coffers have improved for the second year in a row after the 2008 recession. Bernero described the city as “in line” to go bankrupt — “not first in line, maybe 15th or 17th,” referring to other communities in Michigan.Bernero also questioned whether he or any mayor can exercise his responsibility under the City Charter for overseeing the BWL, given all its complexities. He wants the City Charter amended to provide the mayor with an inspector general with a background in utilities to report to him on BWL. The Council rejected his funding proposal for such a position and seems unlikely to agree to put such a proposal on the ballot. Instead, the Council approved $200,000 for an independent audit of BWL in the coming fiscal year. Bernero hasn’t decided if he will undertake such an audit.

Asked about a study, state Sen. Curtis Hertel Jr., D-East Lansing, said, “We can study it all we want. The real concern people would have if we were actually going to sell the Board of Water & Light is what would it do to ratepayers, can we get a fair price on the current market and will the same environmental concerns that are frankly still there now get worse under a private company.”

BWL is still burning coal, although it has reduced how much with the addition of its first natural gas-burning electric cogeneration plant.

Lansing’s other state senator, Republican Rick Jones from Grand Ledge, said, “Everything has to be on the table, but I don’t know why they’d want to sell their cash cow.”

Revenues from BWL, which as a nonprofit doesn’t pay taxes, accounts for roughly 1/6th of the city’s nearly $120 million General Fund budget. The city is expecting to collect about $21 million from BWL in the current year. A privately owned utility would pay significant taxes, perhaps offsetting BWL’s transfer payments.