• The Bankruptcy Bills: Increased oversight, $195 million and more terms proposed for Detroit

    Michigan lawmakers introduced a package of bills yesterday that includes a $195 million appropriation toward Detroit’s pension funding but also creates a series of restrictions, oversight provisions and other conditions.

    Under these proposals, the funds would be in a lump-sum payment from the “rainy day fund,” which would then be “repaid” over 20 years in $17.5 million installments from the tobacco settlement monies. Detroit would use the money to shore up pension funding and protect the Detroit Institute of Arts collection from sale. Along with $100 million from the DIA and $350 million pledged from private foundations, the state money is part of the so-called “grand bargain.”

    All of the measures were referred to the House Committee for Detroit’s Recovery and Michigan’s Future, which will hold its first meeting Tuesday, May 13. Below are descriptions of the bills with links to their full texts.

    House Bill 5566: Dubbed “The Oversight Commission Act,” this measure creates a seven-member panel to oversee Detroit’s fiscal operations including its finances, budgets, contracts, collective bargaining agreements, debt issuance and revenue estimates. Introduced by Rep. John Walsh (R-Livonia).

    House Bill 5567: Detroit would be required to hire a Chief Financial Officer to manage day-to-day operations. Introduced by Rep. John Kivela, (D-Marquette).

    House Bill 5568: This bill would require Detroit to transition new city employees from a traditional pension program to a defined contribution plan (401k) and prohibit the city from providing retirement and health care benefits greater than what state employees have available. Introduced by Rep. Gail Haines, (R-Waterford Township).

    House Bill 5569: If adopted, this bill would prohibit Detroit from opting out of the required 80/20 split (employer/employee) for health care premium payments. Introduced by Rep. Andrea LaFontaine, (R-Columbus Township).

    House Bill 5570: This bill creates an Investment Committee make recommendations to pension fund boards and requires reports about travel and related expenses paid for by pension systems. Introduced by Rep. Ken Yonker (R-Caledonia).

     House Bill 5571: The Detroit Institute of Arts would be prevented from extending its current millage or having a new one under this measure. Introduced by Rep. Ken Goike (R-Ray Township).

    House Bill 5572: This is the legislation that proposes taking $194.8 million from the state’s “rainy day fund” for appropriation to Detroit. Using an interest rate of 6.75 percent, the $194.8 represents the present value of the$350 million for Detroit that Gov. Rick Snyder had proposed.  Introduced by Rep. John Olumba (D-Detroit).

    House Bill 5573: To pay back the $194.8 million appropriated in HB 5572, this bill dedicates $17.5 million annually from the state’s tobacco settlement fund. Introduced by Rep. Alberta Tinsley-Talabi (D-Detroit).

    House Bill 5574: This legislation enables the Michigan Settlement Authority to receive the $194.8 million. Introduced by Rep. Thomas Stallworth (D-Detroit).

    House Bill 5575: Under this measure, the Michigan Settlement Administration Authority would be created to ensure the criteria are met for the state’s $194.8 million. Introduced by Rep. Fred Durhal (D-Detroit).

    Added May 13: House Bill 5576: Binding arbitration for police and fire would be subject to approval from the Oversight Commission. Introduced by Rep. Joseph Haveman, (R-Holland).

    -By WDET’s Sandra Svoboda

    @WDETSandra and nextchapter@wdet.org

  • Introduced: Bills to fund, aid, oversee Detroit

    The state of Michigan would tap into its “rainy day” savings to put almost $200 million toward the Detroit bankruptcy settlement under bailout legislation introduced today. The savings account would be repaid from tobacco settlement money.

    The state payment is part of a so-called “Grand Bargain” to mitigate cuts to pensions, and ensure that works owned by the Detroit Institute of Arts aren’t sold off as part of the city’s bankruptcy.

    The plan also calls for a state-appointed financial review team to oversee contracts and spending for as long as 20 years. The oversight panel would be named by the governor, state treasurer, legislative leaders, and Detroit’s mayor. Walsh says he plans to hold two to four public hearings before the committee votes on the bailout package in coming weeks.

    State Rep. Harvey Santana, D-Detroit, says some of the city’s lawmakers are already pushing back, but he supports the idea.

    “We would be in our best interest to make sure we have an extra level of security to make sure the money that’s being circulated in the city of Detroit is being managed correctly,” said Santana. “I don’t think anyone that there’s anyone out there with an ounce of logic or sanity that would disagree with that.”

    Santana is one of two Detroit lawmakers named to a special committee to craft the legislation.

    “We seriously do not wish to be in the day-to-day operations of the city,” said state Rep. John Walsh, R-Livonia, “but we do want to assure that taxpayers that we’re keeping an eye on the money that we’ve put in there and trying to make sure that the city doesn’t fall back into trouble again.”

    -By Rick Pluta, Michigan Public Radio Network

  • What’s the Grand Bargain?

    State, foundation and Detroit Institute of Arts funds are all part of the so-called “Grand Bargain,” a key and as-yet unfinalized piece of the city’s financial restructuring in the bankruptcy case. Here’s a way to help understand the grand bargain.


  • Bankruptcy: Bad News for Bond Insurers

    With demands to sell the Detroit Institute of Arts collection, hundreds of pages of legal arguments and a few successes at the negotiating table, The Detroit News reports five financial firms are “fighting for their survival” in the Detroit bankruptcy case.

    The reason is simple: These insurers will be left holding the bag for nearly every dollar cut from payments on the city bonds, a tab that could run to more than $2 billion. And after taking massive losses during the great recession, a big hit in Detroit’s bankruptcy could push at least one bond insurer to close its doors, notes Matt Fabian, managing director of bond analysts Municipal Market Advisors.

    One of those firms is Syncora Guarantee, a branch of the Bermuda-based Syncora Holdings Ltd., which insured the pension “interest rate swaps,” a deal settled for $200 million under its value.

    Syncora also is the creditor who subpoenaed massive amount of information from the Detroit Institute of Arts, Christie’s and the Michigan Attorney General as part of the Detroit bankruptcy case. Last week, the AG’s office provided documents, revealing officials there and at the DIA had been communicating about the issue of the artwork as collateral for creditors weeks before the bankruptcy was filed.

    Another of the bond insurers profiled in The News today is Financial Guaranty also known as FGIC. The company insured $1.1 billion of the certificates of participation in the 2005 and 2006 pension funding arrangement. Emergency Manager Kevyn Orr  has authorized a lawsuit seeking to void that deal. The News writes:

    FGIC filed a 1,027-page lawsuit disputing the city’s lawsuit that attempts to repudiate the COPs deal. FGIC accuses the city of turning “a crooked eye to history, revising the facts of the pension funding transactions and claiming that the city was the innocent victim of fraud perpetrated on a grand scale.”

    FGIC has filed court papers, urging the court to do “due diligence” in assessing the value of the DIA collection.

    Two other bond insurers, National Public Finance Guarantee Corp. and Assured Guaranty Municipal Corp., are negotiating a deal over the city’s water and sewer bonds. The News reports “Assured covers $1.6 trillion in those bonds, while National insures $1.8 billion, plus another $621 million with Berkshire Hathaway.”

    A fifth insurer, Ambac, “remains on the hook for the city’s limited-tax general obligation bonds, and was ordered to mediation on April 22.”

    In the last bankruptcy proposal, the city planned to settle at 10 percent to 13 percent of the $164 million in bonds, which would hand Ambac a loss of $82 million to $85 million. Ambac has strenuously objected.

    Ambac, along with Assured and National Public Finance Guarantee Corp., earlier reached a deal with the city reducing the trio’s $388 million claim to $287.5 million on general obligation bonds.

  • Don’t Sell the Art: DIA Director speaks to graduates

    Admitting his last year “hasn’t been a very enjoyable one,” Detroit Institute of Arts Director Graham Beal discussed the museum’s role in the city’s bankruptcy case during his speech to Schoolcraft College graduates. Some creditors have urged selling off the museum’s collection in order to pay other outstanding debts, but Beal and others are fighting to keep it intact and raise funds for pensions.

    The Detroit News reported on Beal’s appearance, writing:

    More than 400 graduates attended the ceremony at Compuware Arena in Plymouth. In addition to honoring the graduates, Schoolcraft College presented Beal with an honorary associate of arts degree. He did not directly address plans for the DIA, but did talk about how the DIA was founded based on collections and donations that were, in many cases, given to the museum by wealthy families. The artwork was eventually taken over by the city.

    Beal is among the 30 witnesses the city plans to call during the hearing on its post-bankruptcy plan, scheduled in July.

    From The Detroit News: http://www.detroitnews.com/article/20140503/SCHOOLS/305030027#ixzz30rtLJDs5

  • Kevyn Orr Speaks: A full transcription of remarks at the American Bankruptcy Institute

    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.”


  • Snyder: Detroit should have oversight committee post-bankruptcy


  • So what happened in Lansing? WDET asks Rick Pluta

    Emergency Manager Kevyn Orr is trying to persuade state lawmakers to approve Gov. Rick Snyder’s proposed $350 million to help shore up pension funding and protect the Detroit Institute of Arts collection from sale . Orr traveled to Lansing this week to meet with lawmakers and Governor Snyder. WDET’s Pat Batcheller asked Michigan Public Radio’s Rick Pluta whether Orr made any progress.

  • Today’s Court Happenings: Syncora to get some DIA-AG communications

    The attorneys for Detroit bond insurer Syncora, whom no one would describe as shy or reserved nor particularly successful, thus far, in their approach to the bankruptcy case, had a small victory in court today: They’ll get to see a series of communications between officials at the Detroit Institute of Arts and the Michigan Attorney General’s office as they asked for in a massive subpoena.

    Why do they want the documents?

    Syncora, which insured part of the $1.4 billion loan to the city’s pension funds in 2005, is advocating that the city sell some of the museum’s artwork to pay as-yet-unresolved debt. Making nearly full payments to pensioners and proposing pennies on the dollar as owed to financial creditors, as the city is currently doing, is unfair, Syncora’s argument goes. Syncora, according to a Detroit Free Press review of court documents, is owed about $240 million.

    “The art has been a sort of noteworthy, highly publicized part of the case, and from our standpoint, a very important part of the case because of what we’ve all been doing here,” said Stephen Hackney, a Syncora attorney who works at the Kirkland & Ellis firm in Chicago. “The city is proposing to address the issues surrounding the art collection in a way, from our standpoint, that yields far less value.” He called the DIA collection “one very powerful asset” that could be sold to provide a more fair settlement to all creditors. 

    In pursuing that argument, the Bermuda-based bond insurer wants to examine the communications between the museum and the state attorney general for the two months prior to Attorney General Bill Schuette’s opinion that the DIA collection “is held by the City of Detroit in charitable trust for the people of Michigan, and no piece in the collection may thus be sold, conveyed, or transferred to satisfy City debts or obligations.” Schuette’s opinion, of course, has no force of law in the federal bankruptcy court handling the city’s Chapter 9 case, but it is part of the evidence and arguments Bankruptcy Judge Steven Rhodes could consider in his final determination about the fairness of the city’s financial plans and debt management in emerging from bankruptcy.

    Attorneys for the DIA and the AG argued the documents Syncora wants are “privileged” — that’s the legal term that deems some documents confidential and therefore protected from opposing parties in cases. The city also objected.

    But Judge Rhodes disagreed with the museum and the state, as represented today by Arthur O’Reilly, from the Detroit law firm of Honigman, Miller, Schwartz and Cohn, and Eric Restuccia, from the Attorney General’s office, respectively.

    Here’s what Judge Rhodes said in granting Syncora’s request. WARNING: It gets into some legal-speak, but it also gives some insight about the judge’s thoughtfulness and fair-minded approach to the case as many legal observers have described:

    The basis of the objection to the request for these documents is the common interest privilege. The court concludes that the claim of privilege should be overruled and that Syncora’s request for an order compelling the production of these documents should be granted.

    Plainly, the extent to which the art held by the Detroit Institute of Arts should be taken into account in evaluating whether the city’s plan meets the best-interest test of the bankruptcy code is a substantial issue in the case, one that has not been prejudged or determined by the court at all, and, of course, this ruling should not be construed to suggest one way or another how the court will or may rule on that substantive issue of confirmation. The common interest privilege, however, requires a common legal interest, and the court is unpersuaded that at the time these documents were exchanged there was any common legal interest between the Attorney General of the State of Michigan and the Detroit Institute of Arts. The client, on whose behalf the Honigman firm produced these documents or received them from the Attorney General is the corporate entity that maintains and manages the collection for the city as a result or a contract with the city. Nothing in the record, to this point, anyway, in any event, suggests that he contract requires this entity to take a position one way or another on the issue on which the Attorney General expressed in his opinion ultimately.

    More fundamentally, the fact that parties align in presenting their arguments to the court does not by itself mean that they have common legal interest. Much more has to be shown than that, and whatever that more is has not been shown on the record here. More than that, at the time these documents were produced, before there was even an alignment of positions. So for all these reasons, the claim of privilege is disallowed and overruled and the motion is granted.

    One little open issue, were documents inadvertently produced and should have been destroyed? I’m going to trust counsel to work all of that out.

    In that final statement, Judge Rhodes was referring to what DIA Attorney O’Reilly had mentioned during the attorneys’ arguments about the issue. The museum had inadvertently turned over material to the AG’s office, O’Reilly said. The AG’s office had said those documents would be destroyed. They weren’t. And now the attorneys for the museum, the AG and Syncora will settle that issue themselves.

    UPDATE, April 29, 2014: Here’s what they worked out.

    4.29.14 Syncora Stipulation Agreement

    -By WDET’s Sandra Svoboda

    @WDETSandra and nextchapter@wdet.org

    By in Bankruptcy Court, DIA, WDET