Detroit Emergency Manager Kevyn Orr seems to making a victory lap after the Michigan Legislature passed the “Grand Bargain” bills…and during The Craig Fahle Show today he invited others onto the “love train” of positive momentum. Listen to what guest host Laura Weber Davis and Next Chapter Detroit’s Sandra Svoboda ask him about other current and future happenings in history’s biggest Chapter 9 case.
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.
Detroit Emergency Manager Kevyn Orr spoke at the American Bankruptcy Institute’s annual meeting in Washington D.C. on April 25. It was an appreciative crowd, who laughed at many of Orr’s quips throughout the speech, and gave him hearty applause at the end.
Orr, according to his spokesman, Bill Nowling, didn’t speak from prepared remarks, so Next Chapter Detroit transcribed his speech and the answers he provided to questions posed by the audience.
We skipped Orr’s “thank yous” at the very beginning of his speech and a few at the end, but here’s the rest of it, as he begins with talking about an early meeting with unspecified Michigan officials. We added some hyperlinks for reference in a few places:
“I originally got involved in this matter as part of the pitch team to receive the representation, and when we went in … we had a very frank discussion and one of the question they asked us was, ‘Do you need an Emergency Manager? Do you think we need one?’ And I sort of went off on a tirade that I thought lost us the case, I said, ‘Are you kidding me? Have you looked around this city? This is long overdue, it’s taken too long, this is a ridiculous question, and I guarantee you I will work cheek by jowl with whatever poor schmuck you get to do that job.’ They called the next day. Despite my initial answer being ‘No, I’m relatively comfortably ensconced in my petite bourgeoisie existence as a law firm partner at a large corporate law firm’ and judging from the amount of tropical weight wool and silk ties I see in the audience, I’m speaking to my brethren, I decided that it was a call to service, an obligation in a city that’s been so unique in this country’s history.
“Yes it is the Motor City, Motown, the Arsenal of Democracy, a border town, a jumping off point for the Underground Railroad. One of the first places to be occupied for over a year in the War of 1812. A city that’s been central to the history of America. But a city, for so many reasons, that have fallen down on hard times. And I haven’t spent a whole lot of time focusing on a retrospective of why, who, what, where, when, there’s enough fingers to point, there’s enough attribution, there’s enough blame. You can read that, frankly, most of the local papers, the Free Press and The Detroit News, amongst them, have chronicled Detroit’s arc to where it is now quite well. So when we came in, we’d done an analysis but one of the things that was most striking to us in this process is while the bankruptcy was filed July 18th 2013, the restructuring process had been going on for three years prior to that. This process actually started in November 2011 when the governor, Gov. Snyder, made a courageous move to say, ‘I’m going to take on Detroit. Sixty years of decline, 60 years of neglect and I’m going to take it on on my watch.’ There’s no upside here. The governor gets 2 or 3 percent of the vote from Detroit or Wayne County. It was just good work. So he began with the review team back in March 2012 that issued a report which entered into consent agreement in April 2012. Failing to meet some of the conditions of that consent agreement, a memorandum of Detroit reform was entered into in November 2012 with specific de credo obligations under that agreement that was approved in two city council votes, then-city council votes, for those provisions. Failing to meet those, another Detroit review team was empaneled in December 2012 and issued a report in March, end of February 2013, and the governor issued 22 pages findings of facts of the condition of the city. And most of you in this room have read it. $18 billion in total debt. $5.2 secured, the rest, $5.7 billion OPEB. $3.5 billion unfunded pensions obligation and liabilities, roughly $2 some odd billion in unsecured credit. 60 percent of the fires are either arson or non-emergent. Response times were low for police, 40 percent of the street lights out, 20 percent of the housing stock, 78,000 units of 320,000 units roughly blighted, abandoned, objected. If you drive through the city, certain parts of it, it looked like a shadow of the former great American city that it was.
“But the one thing that struck me of going into the city is the resilience of its people. So while the city of Detroit may be bankrupt, the people of Detroit are not. They soldier on, committed to their city with the hope that they do dream of better things and that it shall rise from the ashes, the motto of Detroit. And what struck me in that retrospective is that hopefully there’s no cause and effect behind this phenomenon but other cities that I’ve gone to have had a similar text. Out of law school I went to Miami and in 1981, some of you might remember, there were periodicals, ‘Miami’s dead,’ ‘Paradise Lost,’ ‘Crime Rampant’, race riots, fires and brimstone. It’s never going to come back. In fact, if you go to South Beach at Fifth there was still the old training center where Muhammad Ali and Angelo Dundee used to train on Fifth Avenue and Michigan and below Fifth was where the Marielitos forensic wards from Cuban prisons would stay. Crazy criminals. And everybody thought it would never come back and within a snapshot of five years it began to turn. Investment flowed into the city, 300 sunny days. Great beaches, Nice, azure blue waters. I think I want to go back. Especially when I hear about those 132 inches of snow. But the city began to grow and be seen again to thrive. From there in 2001 I came to Washington D.C. My office was at 901 E street, right now the street here, across from the FBI building. Between the 7th and 9th street corridor, you could see the buildings and storefronts that were burned out from the ‘68 riots. Shaw, U Street, Cardoza, UDC. Nobody would go. Too dangerous. And from there after … built … a stadium, the city began to revive. Now U Street, Cardoza, thriving, Condominiums, 5 million, People running at night Gentrification, Yuppification. Trendification. People coming back into a city supporting the space. Despite the prognostications that it wasn’t going happen, happening with dispatch.
New York: I met with the housing director of the city of NY a few months ago and he brought in some photos and left them in the conference room before we came in. I looked at them and said “Oh, that’s Detroit.” He said “No, that’s 135th and Lex in 1978. Here, let me show you 135th and Lex now.” Thriving. It doesn’t matter. Every city, Baltimore Inner Harbor, Pittsburgh, Three Rivers Stadium. Every city has an opportunity for a rebirth and that’s what struck me about Detroit.
“But the crushing legacy cost of debt and unfunded obligations and conduct of borrowing from the pension funds and calling it deferral, giving back 8 percent script for hundreds of millions of dollars: simply unsustainable. The fact that last year we had a city-wide surplus on a billion-dollar general fund budget of $5 million. We were bouncing paychecks and by December we were going to go below the line as far as revenue. The city would not function, and you cannot cut enough of the FTEs and services to balance the budget. The city already is underfunded. So the need was apparent. We tried initially to suggest to everyone we can do this without bankruptcy, and I received some pushback on that from some quarters that that was sophistry, that that was a little bit too ambitious to think it could be done. But what we’ve seen from just July 18th to now, even in the past three weeks is that we’ve made great momentum. Some of you have read about it, the settlement with the unlimited tax general obligation bond holders, the swaps settlement, with Judge Rhodes, a very able, a confident member of this brethren, took me to task a couple of times for putting out a deal that he thought was a little too rich, and I’ll take a beating on behalf of the city any day, but drove it down from a number of an obligation of almost $400 million to one of $76.6 million but more important than that, the interest rate on that swap obligation was being calculated on a nominal amount of $800 million. The $52 million a year that we were spending was interest only with the sword of Damocles being almost a $400 million termination fee to terminate the swap. The transformation of that settlement is to take that $76 million and make those $4.2 million a month or $50 million a principle reduction payment. So the city is paying down the debt without the risk of its casino revenue which was security interest.
“The settlements with GRS, the general retirement fund, PFRS and others and hopefully more to come as even today we’re to file yet another Plan of Adjustment. It took us from the needs that were apparent in the city and had been discussed about in volume for many, many years, to a point where we had a framework in bankruptcy to provide a structure and mediation as a process to provide a venue to resolve many questions. Some of the counterparties have representatives here, and I saw you back there somewhere in this room with us today. And let me tell you, there’s been some heavy lift, late nights, a lot of positions, some people walking out. Some people sucking their thumb, crying, all that kind of good stuff. But we’re getting it done. We’re getting it done.
“But more importantly than that, a few months ago, in November, now six months ago, I was up on Seven Mile in the McNichols area, as I drive around the city from time to time, just to get a feel for what’s going on. I want to see the lights that we’re putting on now. We’re hanging between 500 and 800 lights a week. I want to get a look at the blight, which is going to be announced a new plan next Tuesday as to how we’re going to handle and get at some of these houses. I wanted to get a look to see if the buses were running just to see if they’re running on schedule and this is why: As I’m driving by that street corner, and I’ve told this story before, there’s a little princess, she’s the age of my daughter, 6 years old, she’s got a little pink backpack on, she’s adorable, she’s waiting for the bus. She’s waiting for the city bus because we can’t afford school buses. And on that bus, which she rides with adults and older children, it’s her way to school. And if that bus is late in November when the sun goes down at 4:30, and she’s out on that bus stop by herself on a cold granite bench alone, that child is at risk. Every day. And if she has to walk from that bus stop past blighted homes, monsters live in those homes, people live in those homes. So the risk to the city is tremendous. And what we’re trying to achieve to provide an adequate level of services is for that little girl, to provide adequate pensions for the innocent bystander retirees who’ve done nothing wrong other than work for the city and expect at this point to be paid and to provide a sustainable future for the city is crucial.
“So next steps, because I know we’d like to spend some time taking a few questions. As I say, it’s part of a long, long race and we’re just now coming round the third turn and we’ve got the fourth turn and the straightaway coming up. We’ve still got a lot of lift to do because despite some of the successes that we’ve had with mediations and some of the settlements that we’ve announced, we’ve got to negotiate definitive documents. We’ve got people to sign. We’ve got to get through a planned structure where some of our counterparties haven’t agreed to anything. Some of our creditors. That’s going to be difficult, and we’ve got to get the funding in, subject to conditions, the $816 million dollars that allows us to true up some of these pensions from three different groups. We’ve got the foundation community, Ford Foundation, Kresge, Kellogg, greater southeast Michigan, others that have come in with $366 million. Knight Ridder from Florida, wasn’t really big in the Detroit area, $366 million. We’ve got the state legislature and the governor that have to appropriate $350 million and $100 million from the DIA community to give us $816 million to true up pensions. We’ve got to get that in. And we also have to come up with an exit strategy that leaves in place some post-emergence oversight which is the state of the art, the expectation, the state of law, in every other restructuring like New York’s Municipal Assistance Corporation that lasted from 1975 to 2008, 33 years. Like here in DC, the nation’s capitol, that’s got Daddy Warbucks in the form of Uncle Sam giving us a federal payment still had to have four years of a proposed balanced budget over actuals that it met before it get out from oversight from the DC control board. Likewise from Detroit that will have an obligation to keep true north.
“So let’s talk about that true north and where we’re going next. We do see a brighter future. We have a new mayor, and he is as committed, who I see every day and talk to regularly, he is as committed to turning around the city and Detroit’s renaissance as anyone. We have a city council that is actually talking and working with the mayor. They’ve even voted for some of the proposals that my office, the emergency manager’s office has proposed because it’s in the interest of the city. We have city fathers and mothers — Roger Penske, Dan Gilbert — committed to the city for years. The foundation community, a billion dollars over the past ten years to the city of Detroit coming in, and professionals, some of who I talked with this morning, about what it means to be involved. Downtown, the central core, nine square miles, we’re 97 percent leased. You can’t get an apartment in downtown Detroit now if you wanted to. We actually have had investors come in who trip over each other. We had a group of investors from China come in and they bought three buildings because the value proposition and the relatively low acquisition costs smells a whole lot like, dare I say it, Miami, Washington DC, Baltimore, Pittsburgh, and other cities that have gone through a renaissance. But that’s nine square miles in a city that’s 130 miles square. You can fit Boston, Manhattan and San Francisco in our borders. And the city has got to deliver services to all of those 139 square miles so there’s still some work to be done.
“In fact what I say to people about the efforts we’re making and the restructuring is this is almost not quite easy but long overdue and expected. It’s what we do as restructuring professionals. We pore over balance sheets, we look at assumptions, we come up with proposals and we cut deals that make sense. That’s the least of it. Because when I and my team, my core team, as someone said to me today, ‘Well, how many more professionals can you cram into a conference room?’ I said, ‘It depends is it Christmas eve or New Year’s Eve?’ but my core team is my ex law firm Jones Day, my investment bankers at Miller Buckfire, Ernst and Young, our accountants, and Conway MacKenzie, and they have been doing this work since mid 2012 and they have been stellar in the way we’ve handled ourselves. We haven’t fought. We haven’t played games. I haven’t proposed a RIF, a reduction in force, only to claw it back as a tactic. I haven’t set up deadline in terms of proposals: ‘if you don’t agree in the first five days I’ll take a quarter point off every day thereafter.’ We’ve tried to be reasonable and forthright and fair, to some people’s position a little too much so as I’ve heard from others but the important thing is we have to leave this city in a way that is able to move forward together so that it can seize this moment to rebuild a great American city.
“So what do I see? I see a city that’s already on the way to its renaissance, a city that is thriving downtown, a city that has committed folk of good faith, a city whose workforce has been remarkably patient and secure. When I first came in, there were gentlemen who showed up at city hall, the usual sobriquets, ‘ah, he’s a sell out, he’s an Uncle Tom, here’s a bag of Oreos,’ all that kind of stuff. I said ‘Hey, if you brought some milk, we could have a snack. I like Oreos, they’re quite delicious.’ And now I’m having lunch with those gentlemen, you know what they say? ‘What can we do to help? How can we pitch in? We thought you were going to be Darth Vader but you’ve proven yourself to be a reasonable guy in how you handle yourself’ and we want to take this moment to make the city better for that little princess in the pink backpack. That’s what this is all about. But I also see much effort because that core, those 700,000 residents deserve and expect services in a city that has got to resolve the blight, come through the arc and grow.
“So I’m going to speak personally just for a moment on two fronts. No. 1, it’s been a privilege for me to have this opportunity. I said I didn’t want to do it because, frankly, I was thinking about the usual stuff, what kind of toy am I going to buy, where are we going to go on vacation and how much am I funding my pension plan this year and it seemed like it was a sacrifice but I cannot tell you how much worth it it was for what we’re trying to achieve. The second thing, although I didn’t know she was going to be here but now that she is, I’d like my wife to stand up so I can say to her in front of all of you, thank you honey, thank you for being supportive, thank you for being patient. You can probably tell I’m sort of proud of her but the reality is when I’m home she tells me ‘Take out the garbage, walk the dog, I don’t care what you’re doing in Detroit.’
“But I want to thank all of you also because from the judge to the mediators to the professionals to a little part I’m playing, as Al mentioned, this is an effort, a restructuring effort that shows what everybody in this room does, the unique capacity in America to take an enterprise, be it civil, municipal or private, restructure it and give it a fresh start, to give it the opportunity to thrive, to give it the opportunity to grow, and many people out there in the community don’t quite understand what we do. Many of them look at bankruptcy as a bad sobriquet as opposed to a business tool that has grown and achieved normalcy in how we use it. So whether it’s doing something in Detroit or doing something in a private enterprise that you all do, I’m just proud to be a small part of your brethren and be given this opportunity to allow this city to rise from the ashes.
“Thank you and I’d be happy to take any questions.
Q1 (paraphrased): What will happen with the art collection?
KO: Good question. Last year when I came in, I kept saying …we actually hired Christie’s to come in and do an appraisal and they’re one of the most pre-eminent as you all know, Christie’s, Sotheby’s are one of the most pre-eminent organizations around. We hired them in April and there were two weeks of “Kevyn Orr is casing the joint, he’s going to sell it all off, he’s going to be a Viking in this thing.” So I asked Christie’s to go away. I’ll say right here, thank you to Christie’s because they took a little hit for that. They lost some commissions in that process, and people were calling them a carpet bagger. But I did that for a reason. We spent the following seven month saying to the community and the DIA, “This is an opportunity for you to save yourself. If you don’t we may have to go out and sell some art because we’re in a bankruptcy and you sell assets, rationalize prices, that’s what we do.” Fortunately people listened to that and as a result the foundation community came in and one of their conditions of all the funders for that $816, the $366 million from the foundation, the $350 million from the state and $100 million from DIA is that none of the art be sold. So on our plan, we’re going to preserve the art in place, and it’s one of the most stellar art museums in the nation. We have four Diego Riveras in the mural, we have wonderful paintings but the interesting thing about the Christie’s assessment is everybody thought we had 66,000 pieces of art and they were going to be worth $50 billion. In fact they weren’t. It’s $367 million to about $860 million or some odd and really only 400 pieces of that 66,000 pieces really have the value. So we fortunately will have the opportunity to preserve the art institute. It’s a great facility not just for the city but for America. That was an opportunity we did not have seven months ago.
Q2: audio missing
KO: I think your question is am I monetizing assets in the city? Is that your question? Some and some not. Under Chapter 9 it’s a little bit different, 903 and 904, I can use bankruptcy speak in this crowd, in the code, 903 and 904 give the city substantial discretion as to how it manages its affairs and handles its assets. In fact the judge, Judge Rhodes, very presciently I might add, added an order that said the city has discretion to make many of those decisions. So we’ve looked at opportunities. Really in the city there were three principle issues we had to deal with. One was DIA, which is now off the table because we have the foundation funds, The other is the Detroit Water and Sewer Department, which we’re going through an analysis now as to whether or not a contractor provision or even a mediation process will go through to see if we can create an authority to provide some benefit to the city. The really only other one city-owned buildings, city-owned land, there was Belle Island, but that island which was designed by James Olmstead, the fountain, it was designed by the same architect that did the Supreme Court, that island we’ve leased to the state so we that can preserve it as a haven for city residents. There are a few miscellaneous pieces but that’s generally what we’ve done so far to try to maximize value for our creditors.
Q3 (paraphrased): (Person asking is from Chicago) What tactical lessons do you think you’ve learned that can apply to other cities and states around the country tackling some of the same issues?
KO: Thank you for that question because I try to say every time I go out, you know, all municipalities are different, cities, states. All have different enabling legislation as far as what they can do. All have different tax bases as far as what they can do. Chicago has a quite healthy tax base. It’s one of my favorite cities. I used to like to go to Hamburger Hamlet quite a bit before it shut down. But it’s a different city but you do have $19 billion in pension obligation, another $1 billion due this year. Generally speaking at 40,000 feet, and I think your mayor is well aware of this as well as mayors of other cities, you know delay does nothing for you, does nothing for you. The reality is, one of the ways we’re able to get the pension to 100 percent for our police and fire, our uniformed retirees, and roughly 95 percent for our general service retirees is that their market investments in the pension funds behaved better this year. Well part of their behavior being better, is there’s some oversight. You know everybody’s looking
I have a statute saying I’ll make criminal referrals if there’s any inappropriate behavior. Some of those funds have had four trustees and general counsel in prison, doing time at Club Fed as we speak because of misbehavior. So if people behave in a rational way and deal with the issues early on, you get over the risks that belaboring, it doesn’t get better. This issue with Detroit has been coming this way for 60 years since 1950 when population began to go down and for 25 years more acutely when it was clear that the tax base of the city could not support the services and in the past 10 years from 2000 to 2010 when a city of a million lost 240,000 residents, 24 percent of its population in 10 years. That’s a city that’s lost a city the size of Taylor or Wyandotte every year in the city. Clearly there were plenty of warnings. It’s just the chance that you have to take the opportunity to deal with them.
Q4 (paraphrased): What do you do next? What can you do that would match this kind of assignment and is a political career something that you would consider?
KO? My boss lady is in the room so the answer to the second question is no, and the first answer is a “warm island with my wife and kids.” I don’t know, you know, I really I can’t say I’ve enjoyed the process because there are so many different dimension to it that I didn’t imagine. As one of my staffers, I’ve said “yeah, I’m not a politician” in one of my whiny moments, he said “Yeah you are, you’re just not elected so you need to get over that.” I’ve since learned to put that cloak on. I’m looking very much forward to taking it off, and there are no political aspirations inside of this heart. I’ve had enough.
Q5 (paraphrased): Have you seen signs that the city has stabilized in population?
KO: That’s a very good question. In reality is we’re probably at 685,000 but there’s some shallowing in population loss, and actually in the CBD, Central Business District, there’s some growth. We don’t have enough housing for people coming in. But the other thing that makes it very good, consider this: in the next two to three years, Detroit is going to have five major infrastructure projects in that city for tens of thousands of jobs. We’ve got a new bridge. We’re such an important trade route for Canada, they’re going to build us a multi-billion dollar bridge. We have a welcoming center that goes along with that. We’ve got, downtown, we have a new arena coming in. We’ve got M-1 Light Rail going up the Woodward Corridor that’s going to be partially federally funded and locally funded and we have indigenous development that’s all along the Jefferson Corridor. So not only are jobs coming back, not the auto industry jobs necessarily but new jobs and an opportunity not just for jobs, residents but for taking many of our young people – I had a meeting with United Way of Southeast Michigan yesterday and I couldn’t tell you how many groups are dedicated to training our young people so they can get into apprenticeship jobs, become skilled tradesmen on a way to a better life. We’ve got a lot of work, I don’t want to be Pollyannish, 139 square miles and the population loss we suffered over 10 years is significant…but the opportunities that are coming he way of the city in order to turn that around are at least much better than if they weren’t there which would be a different story. There’ a reason to hope that’s based in reality is how I put it.
Audience Member: “I hope all your hopes come true and keep up the good work.”
The Michigan Citizen, one of Detroit’s African-American newspapers, has often had a lonely voice in its sustained criticism of the state’s emergency manager law and Kevyn Orr’s actions authorized by it. In the paper’s most provocative coverage of Orr’s first 12 months, the weekly publication reports on its staff sit-down interview with Orr, who visited the Citizen’s offices last week.
The Citizen posed and Orr answered an array of questions, including some in ways the mainstream media haven’t or, frankly, wouldn’t: “Do you see yourself intervening in evictions or any of the suffering?” and “Some people can hear (your policies) as wanting a whiter, wealthier city. What do you think about that criticism?”
Like it or not, those are the uncomfortable questions some Detroit residents and sympathetic observers have as they view the daily poverty, unemployment and disenfranchisement in most of the city. While downtown enjoys unprecedented investment and white hipsters are lauded in the local and national media, for example, where are the solutions for the unemployed, undereducated and poverty-stricken?, they ask. The Citizen is a voice that can steer the collective conversation about Detroit to include policy perspectives and proposals rooted social justice. In the paper’s ongoing coverage and now timely conversation with Orr, the Citizen hopes, in part, to broaden the framework by which the legacy of Michigan’s emergency manager system will be evaluated.
To his credit, Orr, who has lived in the Miami and Washington D.C. areas, spoke to the Citizen of his ideal vision of Detroit: a widely diverse, safe urban area with balanced books and manageable debt. It’s his job as emergency manager, he says, to focus on the balance sheet and steer the city through a bankruptcy toward a sustainable, healthy financial future. In doing so, he’s proposing up to 80 percent cuts to banks and lenders to free up money for city services. The financial institutions predictably don’t like it:
“They’re going to try to defeat this plan because their view is they’d rather take that money. And I’ve tried to restore it,” Orr says.
The Citizen’s Shea Howell, drawing a vastly different conclusion, says this:
This capacity, to think in a logic that excludes the consequences of your decisions on the lives of others, characterizes much of what we saw in Mr. Orr. This was most evident when he talked of pension cuts. Here he stressed, ‘There are only 20,000 pensioners in a city of 700,000.’ This is just a few people. A sacrifice for the many.
This kind of numbers game is chilling.
History will determine what the state law and Orr’s tenure will ultimately mean to the city … and if the Michigan Citizen was among the first to realize the consequences.
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
Writing in The Detroit News, Detroit’s former emergency manager, Kevyn Orr, is heralding the mediation process used in the bankruptcy case to settle debts with creditors. Sunday is the deadline for a lease agreement as part of the new Great Lakes Water Authority, but as of now, leaders of Macomb, Oakland and Wayne counties have not reached a contract with the city. Read what Orr had to say about mediation in urging that deal to get done.
Just as many Detroit bankruptcy watchers predicted, former Emergency Manager Kevyn Orr says he will head back to the Jones Day law firm in Washington D.C. The University of Michigan law grad spent more than a decade at the firm, working on bankruptcy cases, before Gov. Rick Snyder named him Detroit’s emergency manager in March 2013.
Orr, who lives in the Washington area, spoke at the Lansing Chamber Luncheon.
The Detroit Free Press’s Nathan Bomey wrote:
Orr, who resigned as emergency manager on the day Detroit exited bankruptcy in December, said he considered a variety of opportunities. “I’ve met with a number of great folks, and I’ve been fortunate enough to be able to entertain a number of offers, but I think I’m gonna go back into law at least for some period of time,” he said. Asked what he would be doing at Jones Day, he said: “Restructuring, strategic counsel, crisis management. It’s what I’ve done for the past 30-plus years.”
Orr currently is working as a consultant to the emergency manager for Atlantic City, N.J., but The Press of Atlantic City reports he will step down from there by the end of this month..
Former Detroit emergency manager Kevyn Orr was back in town Tuesday for an “exit interview” before the Detroit Economic Club. Michigan Radio’s Sarah Cwiek reports that Orr reiterated that municipal bankruptcy was the only real option for Detroit, but insisted both he and the city got through the process relatively unscathed. Michigan Radio is a Detroit Journalism Cooperative partner.
Plenty of proverbial ink is being spilled reporting that Atlantic City is under emergency management — and former Detroit Emergency Manager Kevyn Orr will act as a special consultant to the EM in the New Jersey city.
Here are some of the media reports about the news:
The Press of Atlantic City “Gov. Christie names emergency manager for Atlantic City”
Gov. Chris Christie appointed an emergency manager to oversee Atlantic City’s government and shaky finances, an extraordinary state takeover that critics called an abuse of power that could marginalize local elected officials.
NJ.com “What you need to know about Christie’s Atlantic City plan”
With Atlantic City’s finances in dire straights, Gov. Chris Christie todayannounced the hiring of an emergency manager and a consultant who helped guide Detroit out of bankruptcy to draft a road map for putting the once-thriving gambling destination back on firm footing.
Detroit’s recently departed emergency manager, Kevyn Orr, will act as a part-time legal adviser to financially troubled gambling mecca Atlantic City, N.J., that state’s governor said today.
Former Detroit Emergency Manager Kevyn Orr is not becoming the new boss of Atlantic City, New Jersey, but he will be an adviser to an emergency management team Gov. Chris Christie appointed Thursday.
Here’s what Atlantic City Mayor Don Guardian had to say about Gov. Chris Christie’s appointment of an emergency manager and Kevyn Orr as “special consultant.”
“After expecting the worse, and hearing rumors of measures that were possibly being discussed about stripping the Mayor and City Council of executive and legislative powers, I was finally able to meet the emergency manager Kevin Levan and counsel Kevyn Orr today at the Governor’s Summit for the first time and found them to be very professional and deferential to us. They made it clear that they recognized myself and City Council as the locally elected representatives of the people of Atlantic City and that they wanted to work together with us in the spirit of cooperation. Although no time table was given, they communicated to us that they wanted to get in, help us fix the City’s finances and get out. From my perspective, Governor Christie has given us more tools to help bring Atlantic City out of its financial distress and restore its long term viability.”
Here are a few side-by-side comparisons of Detroit and Atlantic City, related to each city’s financial situation and emergency management.
Detroit Atlantic City, New Jersey Population (2010 U.S. Census) 714,000 39,500 Median Household Income $26,300 $29,200 Current Annual City Budget $1 billion $258 million Approximate No. of City Employees 9,400 1,100 Monthly City Revenue from Casinos $16 million $18 million Financial Situation at the time of Emergency Manager Appointment $327 million budget deficit in FY 2012. Decades of population decline. $35 million budget shortfall. Loss of 8,000 casino jobs
Gov. Chris Christie issued a statement about “Taking Action to Solidify Atlantic City’s Finances.” In it, he named Kevyn Orr as the “Special Consultant to Atlantic City’s Emergency Manager.”
Here’s part of the release from Christie’s office:
As part of his commitment to bringing long-term stability of Atlantic City, Governor Christie believes that expert and objective leadership is needed to restructure the operations, finances and culture of its government. Today the Governor signed Executive Order 171 which appoints an Emergency Manager and Special Consultant to develop and oversee a comprehensive overhaul of Atlantic City’s government.
An executive order from New Jersey Gov. Chris Christie names an emergency manager for Atlantic City, but it’s not Kevyn Orr, The Detroit News reports.
The former Detroit EM will serve as special counsel to Kevin Lavin, who will be the city’s emergency manager.
“He’s just an adviser to the team,” Orr’s Detroit spokesman, Bill Nowling, tells NextChapterDetroit.com.
Here is the link to Gov. Christie’s executive orders.
Conflicting reports have emerged about whether former Detroit Emergency Manager Kevyn Orr has a new job.
First, New Jersey media reported yesterday Orr would head to Atlantic City to oversee the struggling city’s operations. But Orr’s Detroit-based spokesman, Bill Nowling,told The Detroit News the reports weren’t quite accurate.
Then today, New Jersey Gov. Chris Christie’s office distributed as a media advisory an article from the Wall Street Journal that reported:
…Christie is bringing in an emergency manager to take over the day-to-day operations and troubled finances of Atlantic City, an unprecedented extension of state control over a New Jersey municipality.
The Republican governor is expected to announce Thursday that he is hiring Kevn Lavin, a corporate-finance and business-restructuring lawyer…Mr. Christie is also tapping Kevyn Orr – who guided Detroit through its bankruptcy proceedings as its emergency manager – as a part-time consultant in the effort in Atlantic City.
The WSJ reports an unnamed source said the duo will begin work “immediately.”
Gov. Christie’s press office tells NextChapterDetroit.com that he will discuss the emergency management team later today at the “Atlantic City Summit.” The meeting is the third in a series attended by casino executives, local, state and union officials who are discussing how to stem a budget shortfall and revenue declines in the 39,500-resident seaside resort town.
At the second summit, held in November, Christie proposed an emergency manager to oversee spending and hiring. Four of Atlantic City’s 12 casinos shut down in 2014, and another three are in bankruptcy.