A standing ovation. That’s what Gov. Rick Snyder got when he asked the Mackinac Policy Conference audience members to let him know if they support Detroit.
Snyder opened his 30-minute address talking about the funding for and restructuring of Detroit that’s provided for in a package of bills. The legislation passed the House last week with broad bi-partisan support and awaits action in the Senate.
“It surprised people that people got on board. It was wonderful to see the breadth of support,” the governor said. He pointed out that representatives from throughout the state “the Upper Peninsula, the Lake Michigan shoreline” voted in favor of the legislation that provides $195 million for Detroit pension funding and requires oversight for the city’s future operation and financing.
“We like to talk about the bankruptcy being over the last year,” Snyder said. “This is our opportunity for a solution for 50, 60 years of problems.”
Snyder said he looks forward to changing the typical conversations people have about Detroit. “They’ll be bringing up things they saw on the national news. In many cases, those things aren’t even right, but that’s the way the discussion goes,” he said.
The governor praised Detroit Mayor Mike Duggan for his presentation at the conference yesterday. An enthusiastic and energetic Duggan gave updates about his administration’s progress on blight removal, street light repairs and additions, increased bus services and other improvements.
“He was marketing Detroit but he was marketing reality, he was marketing facts,” Snyder said. “I need each and every one of you to sign up to be am ambassador for Michigan.”
Following his prepared remarks, WWJ radio’s Vickie Thomas asked her own and moderated audience questions. She started off asking the governor about how he felt now about appointing an emergency manager for Detroit, a move that has been met with some opposition.
“It was the right decision. It was not an easy decision, folks. These were tough calls,” Snyder said. “I wasn’t looking at bankruptcy when I started looking at building a brighter future for Detroit.”
He talked about campaigning in Detroit, holding town hall meetings and meeting with the faith-based community and returned to the topic of emergency management.
“The reason they strengthened the law was to make it so that someone like Kevyn Orr could come in, do their job and get out and have strong, good leadership and have the city continue on instead of having it drag out over time. Let’s get the job done. Let’s do the tough thing, and then let’s get sustainable, solid leadership in a financial situation that’s sustainable.”
-By WDET’s Sandra Svoboda
@WDETSandra and firstname.lastname@example.org
In court last week, Judge Steven Rhodes questioned Detroit attorneys what would happen with the city’s contract with the Jones Day law firm if the Chapter 9 case isn’t finished at the end of the September. That’s the timeframe Emergency Manager Kevyn Orr has given for his departure from Detroit, and the date he and the judge have had for wrapping up history’s biggest municipal bankruptcy case.
“We have not had discussions to my knowledge going beyond that,” Gregory Shumaker, a Jones Day attorney, said in court. “The mayor, the city council, it would be up to them whether Jones Day would continue its representation of the city.”
Following that exchange, the Detroit Free Press followed up with a story about Mayor Mike Duggan’s plans, reporting a spokesperson said the mayor would not support keeping the Washington D.C.-based law firm beyond Orr’s exit.
Today on Mackinac Island, Mayor Duggan corrected that:
“There must have been some miscommunication here because Oct. 1, I’m quite confident that the City Council is going to terminate Kevyn Orr’s tenure but it makes no sense to terminate Jones Day. They’re in the middle of all the legal stuff. There’s been no conversation about Jones Day,” Duggan told a crowd of reporters.
The mayor also said he continues to work closely with Orr. But while the mayor has control of most of the city operations, the Detroit Police Department remains with Orr.
“Every week I say to Kevyn Orr, ‘I’m ready to run the police department,’ and every week he says, ‘not this week,’” Duggan said.
What’s the hold up?
“You’re going to have to ask him,” the mayor answered.
Orr plans to be on Mackinac Island for a Friday keynote address.
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
Of course we never know what any of the speakers might spontaneously say about Detroit’s bankruptcy, but following are a few of the sessions where we expect issues related to the Chapter 9 to be front and center.
WDET will be following the conference at this link.
Detroit Public Television is broadcasting live for much of the conference and can be viewed here.
The first full day of the conference is largely focused on entrepreneurship, but two sessions promise some specific Detroit mentions:
1 p.m. Gov. Rick Snyder speaks as part of official “conference welcome.”
4:45 p.m. Detroit Mayor Mike Duggan will be interviewed by Detroit Free Press columnist Rochelle Riley. DPTV is hosting an online screening and chat during his appearance with Next Chapter Detroit’s Sandra Svoboda as a panelist.
The second day centers on STEM – science, technology, engineering, math – but we’re watching and listening for Detroit bankruptcy topics primarily in the following sessions:
9:30 a.m. Author Malcom Gladwell gives a keynote address and is interviewed by Detroit News columnist Daniel Howes, who has written extensively about the Detroit bankruptcy. As Gladwell’s writing pushes a message of how entrepreneurship and education can help overcome obstacles, he’ll explain how these lessons can apply to Detroit as well as the entire state.
2:45 p.m. Gov. Rick Snyder will be interviewed by Vickie Thomas, WWJ city beat reporter, and is expected to review the highlights of his administration.
5 p.m. WDIV and The Detroit News conducted a survey for the Mackinac Policy Conference, and the results will be discussed at a town hall meeting. They include the statewide view of Detroit as well as attitudes and opinions about this year’s political races and policy issues.
This is the bankruptcy day with several sessions and speakers focused on the topic:
8:55 a.m. New Orleans Mayor Mitch Landrieu, interviewed by WDET’s Craig Fahle, will explain how rebuilding from natural disasters transformed the Crescent City and how lessons learned there could help Detroit’s revitalization.
9:40 a.m. Detroit Emergency Manager Kevyn Orr will be interviewed by Vicki Mabrey, former ABC News correspondent. He’s expected to discuss how Detroit is being positioned for success post bankruptcy and what his plans are toward the city’s long-term sustainability.
10:15 a.m. The panel titled “Detroit Next: Positioned for the Future,” will be moderated by Detroit Free Press editorial page editor Stephen Henderson. Speakers include Detroit City Council president Brenda Jones, Kresge Foundation CEO Rip Rapson, and Jase Bolger, Michigan speaker of the house, and others who will address how “bankruptcy is positioning Detroit to establish financial stability and sustainability and redirect its efforts in city development. With a newly elected mayor and city council in place to guide the city through the post-bankruptcy phase, Detroit offers an environment for unprecedented innovation and collaboration.”
Here’s the link to the full agenda.
Judge Steven Rhodes still has July 24 scheduled as the day to begin confirmation hearings on the Detroit’s Plan of Adjustment — the document that explains how the city proposes to restructure its debt and operations post bankruptcy. But between now and then, there are plenty of outstanding issue he’ll address in court documents and hearings. Here are few that are pending:
First, creditors continue to pressure Judge Rhodes to delay the hearing. At a May 22 status conference, attorneys for several creditors urged the judge to postpone by a few weeks the July date. “There are many different creditor issues, any one of which, in my world as a complex litigator, could itself be a multi-year litigation,” said Stephen Hackney, a Chicago-based attorney for bond insurer Syncora. “I can’t come as a surprise to us that there are complicated issues to work through and complicated issues on discovery.”
To help along issues related to document production and witness lists, Judge Rhodes ordered attorneys for Detroit’s creditors to form a Committee on Discovery and Trial Efficiency, which they did. He has told the attorneys he hopes they can work out discovery-related issues themselves, but he will continue last week’s status conference on May 28 where he will continue to hear updates about the discovery process…and undoubtedly continued objections from attorneys to the timeline.
“I cannot adequately represent my client as the schedule is currently constructed,” said Guy Neal, an attorney with the Sidley Austin law firm from Washington D.C. who represents National Public Finance Guarantee, which insures about $1.8 billion worth of Detroit Water and Sewerage Department bonds. “We’re stuck on discovery but not even deposition discovery. We’re stuck on document discovery.”
Second, while it’s largely the city that’s pressing for the ambitious court schedule, Judge Rhodes’s appointed (and paid) expert witness has complained the city is preventing her from doing the necessary work to evaluate the feasibility of the city’s plan. An attorney for Martha Kopacz filed a letter with the court stating, in part, that the city’s accounting firm, Ernst & Young, was not providing her with complete financial information about the city. Kopacz wants the information on which the city is relying to make multi-year financial projections.
Judge Rhodes issued an order that he would consider Kopacz’s complaint at a May 28 hearing.
Third, the issue came up at last week’s hearing what would happen with the city’s contract with Jones Day law firm if the Chapter 9 case continued past September. That’s when the Detroit City Council could vote to remove Emergency Manager Kevyn Orr from office. Orr, of course, is a former partner with the Washington D.C. law firm, and the previous City Council voted to contract with the firm.
In court, the Jones Day attorneys said they weren’t sure what would happen if the bankruptcy case wasn’t settled by Orr’s exit date. “We have not had discussions to my knowledge going beyond that,” said Gregory Shumaker, a Jones Day attorney. “The mayor, the city council, it would be up to them whether Jones Day would continue its representation of the city.”
A day later the Detroit Free Press reported what Mayor Mike Duggan thought about that issue:
Mayor Mike Duggan’s office said Thursday he won’t support extending Kevyn Orr’s time as the city’s emergency manager or keeping on his former law firm, Jones Day, if Detroit’s bankruptcy extends beyond Orr’s expected exit date in late September. … Duggan made clear that if the bankruptcy proceedings extend beyond Sept. 25, he won’t support keeping Jones Day as the city’s law firm in bankruptcy. “We have no intention of keeping Jones Day,” Duggan’s spokeswoman and chief of staff, Alexis Wiley, told the Free Press. “We have every intention of running this city, and that means both services and finances.” Wiley declined to discuss how Duggan would handle the bankruptcy after ditching Jones Day, or which lawyers would pick up where the firm left off.
The Detroit bankruptcy story is far from ending.
Beginning with a presentation from Detroit Emergency Manager Kevyn Orr, the Michigan House Committee on Detroit’s Recovery and Michigan’s Future on Tuesday will take up the 10-bill package that proposes appropriating state money toward the city’s pensions.
The money comes with plenty of terms, and no doubt public comments and the legislators themselves will address some of those during the hearings.
Orr is scheduled to speak at 10:30 a.m., followed by the committee’s Chair, Rep. John Walsh (R-Livonia). The committee will hear testimony about the bills beginning at 11:30 a.m. and continuing in the afternoon.
House TV is available online for live streaming of committee meetings.
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.”
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.
Seeking support for the state’s share of the “grand bargain,” Emergency Manager Kevyn Orr is in Lansing today meeting with lawmakers.
The “grand bargain” includes the $100 million pledged from the Detroit Institute of Arts and the $366 promised from foundations to shore up pension funding and protect the museum’s collection from sale to raise money to pay the city’s creditors in the bankruptcy case. The city’s plan to emerge from bankruptcy includes $350 million of state money as part of the bargain and requires pensioners to vote in favor of the plan as part of the bankruptcy court process.
Since Gov. Rick Snyder proposed the $350 million state contribution earlier this year, the boards of the city’s pension systems have agreed to settlement terms with the city and the foundations have released their commitments. What remains is the state appropriation, and that’s what Orr is hoping to help secure this week.
He’s in meetings throughout today and tomorrow with party-specific groups of legislators and the governor. If you’re looking for instant coverage, here are the Twitter handles for some of the reporters working up there today:
@RickPluta, reporter/producer for the Michigan Public Radio Network
@KathyGray, political reporter for the Detroit Free Press
@ChadLivengood, capitol reporter for The Detroit News
@ChrisGautz, capitol correspondent for Crain’s Detroit Business
The American Bankruptcy Institute‘s spring meeting is underway in Washington D.C., and attendees will hear from Detroit Emergency Manager Kevyn Orr today. He’s the keynote speaker for the luncheon, and his talk is titled “The Challenge of a Lifetime.”
Orr’s keynote address is sponsored by the international law firm Skadden, Arps, Slate, Meagher & Flom, which represents Bank of America, one of the two banks involved in the Detroit pension “interest rate swaps” deal. That’s the agreement Bankruptcy Judge Steven Rhodes approved two weeks ago that reduced a roughly $280 million debt to $85 million.
We’ll stream Orr’s speech here during the luncheon, which begins at noon: