Kevyn Orr with Craig Fahle at the Mackinac Policy Conference: A transcript

Kevyn Orr with Craig Fahle at the Mackinac Policy Conference: A transcript

While Kevyn Orr was at the Mackinac Policy Conference last week, he sat down with WDET’s Craig Fahle for a segment on the show. Here’s a transcript of what Craig asked and Orr said with some links to articles and posts to provide background and context for the conversation.

Craig Fahle: Talk about squeezing this in and why it’s important enough to squeeze in a conference like this while you’re in the midst of all this.

Kevyn Orr: We are at a critical stage and we have some significant milestones coming up whether it’s getting the funding from the Senate, getting the vote on the plan. There are some actives who are a little reluctant, and we want to make sure they understand the risk and the reward of doing that. This is really an opportunity for me to get and tell everyone we are not done by any stretch of the imagination. We may be in the third turn coming into the fourth. We’ve got that fourth turn, we’ve got a long, long runaway, straightway and we can’t really trip up now. That’s why it’s important.

CF: I think there was a little understatement there and a little reluctance is the phrase you used. Talk about the conversations you’re having, or are you able to have conversations about this or does it create a problem with the vote.

KO: We’ve been having town halls, my staff, and I’ve been speaking to some of the leadership but it’s really critical because I think one of the thing I have not done, I didn’t want to be a fear monger. One of the things I have not done is say: If we don’t get this funding, if we can’t get this vote, we don’t just go back to square one. The outcome of the plan would be much more draconian. We’re talking about retirees having to choose between medicine and cat food in some cases. There could be cuts as deep as 40 percent. For someone making $20,000, they could lose 8,000, end up on 12,000. That means they could end up on the federal poverty level which mean they go to the state for assistance, Medicare, Medicaid for their kids, it would be catastrophic. I didn’t want to be alarmist but I do want to say this is significant. It’s very, very important that we get this done.

CFS: One of the things that we talked about very early on in this process when you were developing the original plan of adjustment here was whether or not there was going to be some floor which you would not allow people to fall through when it came to the cuts.

KO: And we have that in this plan. We took some of the unlimited general obligation tax bond settlement and used it for an income stabilization program so that no one, no one is pushed over into poverty. But if we don’t have the settlements approved, if we don’t have the plan, that goes away because we don’t have a deal with our bondholders and we may not be able to do that so what we retelling some of the members in the House last week was look this is going to come to the state one way or another, either through the state settlement, that present value funding of the $195 million  or through increased people on the assistance roles, we need to tell the voters, the constituents that are out there. This is significant. It is an opportunity for us to reset the city, it is an opportunity for us to preserve you and your health care and potential pensions but without it, it would be much more drastic.

CFS: This is obviously a big step here, in terms of getting those who are potentially impacted by this to vote in favor the plan. We had a snafu this week.  A couple thousand ballots went out with inaccurate information. Does that set back the timetable or can it?

KO: No it doesn’t actually because the funny thing about it, when we found out that some of the information was inaccurate, I said immediately, look, let’s go correct it, let’s do the right thing, let’s do this right. We don’t want anyone to feel that they were gamed and not change it. The net result is it’s actually better for those 2,000 potential employees or retirees because it’s a lower cost to them for the alternative savings fund. That’s what drove it when we got the information, the actual calculations went down. They got a better deal even though administratively we have to get these ballots out.

CFS: The judge was less than pleased.

KO: As he should be.

CF: So he wants a name by Friday as he said.

KO: That’s in litigation. I’m going to leave that to my litigation team. We’re correcting the problem but I certainly appreciate the judge’s consternation at trying to run a fair and accurate process and how a glitch could upset a jurist in that way.

CF: Obviously the state House passed the state’s portion of the grand bargain, the Senate’s going to take it up next week. That was another pretty significant hurdle. There we a lot of questions about whether out stet legislators were going to care enough about Detroit’s plight to vote in the affirmative.

KO: Yeah, I had those questions.

CF: OK, let’s talk a little bit about what you were going through, what was going through your mind when you watched those totals come in?

KO: We had spent some time up on the hill in Lansing and went through the business case for the funding. And when you did you saw the light go off in people’s minds of saying, “Oh, OK, I understand it. I get it now. This is not only in the interest of Detroit it’s in the interest of the state if not in the interest of the country because Detroit is one of the 21 economic centers, metropolitan economic centers in the country that accounts for half of the United States $16 trillion GDP. So it’s also an economic conduit for the entire state and as I said before, if people don’t get this funding, if we don’t get this resolved, people will be pushed into poverty They’re coming to the state one way or another. There are folks who certainly have some sincere and well thought out concerns in the out state but I think when they looked at the merit of the solution, the fact that it was lower to do it at net present value financing, it was expressed in the vote. We’re very thankful for that.

CF: Mayor Duggan, of course, gave a pretty rousing speech a couple of days ago at the conference and it certainly seems to me as if he’s suggesting that he can handle this job once your term expires and the council and the mayor have made it pretty clear that even if you agree to stay on past this original term that likely isn’t going to happen. What stage does this bankruptcy need to be in for you to feel comfortable to step away at that point?

KO Certainly we put a lot of blood, toils, tears and sweat into this thing. We want to make sure get through the confirmation hearing and we have an order but as the judge has said he wants to make sure that it’s done in the right way. We’re going to be respectful of that process and the issues that the court process has to go through to get there. We’d like to think that we’ll keep to the schedule that’s out there right now and by the fall, certainly by October, we get a ruling in and then be able to go through that process and go forward but well deal with that as it comes up.

CF: There’s been a lot of discussion in recent days about the water department. I know this is still in litigation, there are still negotiations going on and the judge has put a gag order on so we can’t get into a lot of it at this point in time but suburban leaders have been pretty vocal and not necessarily observing the gag order on this question and there’s some discussion about tying this potentially to the grand bargain discussions in the Senate.

KO That would be a mistake. You know, the issue of an authority. I think Judge Feikens began discussing this in 1982, 1984. Certainly Judge Cox who is the mediator in this case discussed in his opinion last year. So this has been going on for a long, long time. We proposed what we thought was a solution to address all their concerns. For whatever reason that didn’t happen. We’re in mediation so I can’t talk in details but we’re going to dual track it. We’re also talking to one of the biggest operators and managers of water in the country, two of them, actually for a potential contractor and we’re going to pursue that as well. We certainly think an authority is in the best interest of the city and its customer base, meaning  the counties, but we’re at a point now where we can’t wait around for people to finally see if they can find their way. We’re more than happy to try to pursue it though.

CF: When you talk about the water department and potential privatization, is there a situation where you could see a whole sale of the water department or would it strictly be some public-private partnership?

KO: No, we’re talking about operational and management contracts which is not a sale. In fact, specific terms of the RFP that we sent out would be that all of the assets, including the assets that we have now as well as any assets that are developed over time under the management, remain assets of the city. I want to be very clear about this. There’s no discussion whatsoever about selling the water department. We’re talking about managing it as other communities have quite successfully for the benefit of the city and the counties.

CF: Talk a bit about Mayor Duggan though and the relationship that’s developed there at this point in time. You’ve obviously got different responsibilities. He made a point to suggest that the police department is still not under his control. I think he’d like to see that change. What is preventing that right now?

KO: Well, you know, when the chief came in, one of the things we wanted to focus on it’s not just the mayor, the police commission wanted to focus on was restructuring the department in a way that made sense and how departments are structure around the world. The chief has done a wonderful job. He’s driving violent crime down by double digits. Car jackings are down by 12 percent this year. There will come a time when it will become appropriate for us to go back to ordinary course both for the mayor and the police commission but I wanted to give the chief the opportunity – he’s only been here for less than a year and look at what he’s done in that time. I wanted to give him the opportunity to do the restructuring that needed to be done for the department to make the department a modern-da police force in the city and then there will be a transition period and I think that’s appropriate.

CF: Would you expect anything else from a mayor other than the type of chirping that “I need control of all this”? Does that impact the relationship?

KO: No it doesn’t. The mayor and I talk regularly. I certainly know that any mayor wants control over martial organization like the police but we have as he’s probably said, some fairly frank discussions. I would be more concerned if the indicators were going in the other direction, if crime was up. It’s not. If carjackings were up. They are not. If we weren’t solving cases and handling evidence the right way. We are. In fact in the past year now from one of the consent decrees, the one regarding confinement, we’re hopefully trying to get out from under one we’ve been under for 10 year dealing with excessive use of force. So there’s been progress just in that time. I understand it. I appreciate it. But all the indicators are going in the right way, and as I said, when the time become appropriate, hopefully in the near term, we’ll make that transition;.

CF: At the beginning of this interview, you said, “We’re still a long way from being done. We may be approaching the third turn.” Talk about some of the red flags that are still out there for you. Obviously some of the bond insurers have been throwing all kinds of legal action which you would anticipate. You told us this as going to happen. But what are the red flags that are still out there for you. The vote, obviously.

KO: I take nothing for granted. A friend of mine told me a long time ago, just because you’re paranoid doesn’t mean someone’s not trying to kill you. I keep up a healthy level of paranoia. Even last week with the vote in the House, I was watching it anxiously. Same thing now coming into the Senate. I take nothing for granted. These are autonomous legislatures who have to have their own counsel, make their own conscience. So we’ve got to get through that. I don’t take the vote for granted. I think this plan: 100 percent restoration of pensions and cost of living for police and fire, in my mind I can’t imagine anyone would vote against that but maybe somebody has other issues. For the GRS retirees, general service, I certainly recognize that for them it’s not just the 5 percent cut that’s going on in their pensions but also alternative savings fund, but that’s a result of over double-digit returns, excess returns that shouldn’t have been gotten, money taken out of the trust, which is my requirement as a fiduciary to put it back. We’re not taking all of it. We’re taking 20 percent. So I understand but even that’s better than the outcome so in my mind, this is a really fair deal, compassionate. Certainly Syncora has voiced a lot of concerns that it’s not fair. I had a friend in New York tell me today that they’re getting packages from some of the financial press in New York that are hearing from some of the bond insurers trying to undermine the deal and sell the art. They’re making a full court press.

CF: They cannot demand that that happen.

KO: They can demand anything they want but under the statute, we don’t have an obligation to sell it. That’s one of the benefits of Chapter 9. The thing that people that are trying to speak to have to understand that even if we did, those funds wouldn’t be spread to pensions, they’d be spread out over the whole $12 billion of unsecured debt resulting in less money to the pensioners. They’re creditors and that’s what they’re going to do: try to run the tables on that. Then we’ve got to go to the confirmation hearing which promises to be a battle royale.

CF: Are we really attempting right now to sort of define what constitutes fair in a Chapter 9 bankruptcy? Because this is a rare thing.

KO: You have to be fair and equitable. You can’t have unfair discrimination.

CF: Who decides? Is it solely the judge?

KO: The judge. The judge has a heavy lift. That’s part of his job. We have to be sure we can defend our case and the decisions we’re making under the doctrines of Chapter 9 which give the municipality, for instance, it gives us exclusivity. Only we can file a plan of adjustment unlike Chapter 11 where creditors can. The doctrine of Chapter 9 recognizes municipalities’ inherent autonomy to control its affairs and its assets.

CF: Does the guidance of a mediator in this process give you more confidence that the deal that are negotiated to in all of this are going to be agreed to by the other judge. Because Gerald Rosen has been working very hard on these things but the (bankruptcy court) judge hasn’t always gone along with the recommendations that he’s made.

KO: I’ll tell you this: We would not be where we are without the help of Gerald Rosen, Judge Rosen and his mediators. These deals have been worked late into the night, 24/7, weekend calls. I can’t tell you how many Sunday, Saturday night after midnight calls we’ve had. Around the clock. We would not be where we are without that mediation process and certainly the mediators are not the presiding judge. Judge Rhodes ultimately has to decide. That’s his role. These mediations on a consensual agreement are really unprecedented. They’ve been tremendously, tremendously helpful and valuable. We wouldn’t be where we are without them.

CF: One last question. Obviously it’s not a done deal yet. We can’t write the book on what Detroit’s bankruptcy is going to look like but is the process going better than you thought it would.

KO: I’m going to be careful. The minute I say it’s going better somebody is going to make sure it’s going worse. That’s just the nature of the beast. Are we further along? Look, if you had told me a year ago that we would have the agreements with some of the counterparties that we have, that we would have almost a billion dollars of new cash coming into the city to deal with pensions, that we would be further along with some of the restructuring efforts to be involved in, that we gave $12 billion last June to the  public lighting authority. They didn’t use it but just in the past six months, the mayor, the council, the lighting authority are turning on 500 lights a week. If you told me we’d be at this point a year ago, I would have been somewhat skeptical. I would’ve thought it would come down right to the wire. We’re doing a little bit better than I had anticipated but we still have a long, long road and a lot of pitfalls and a lot of folks that are trying to trip us.

CF: We’ll leave it right there.