On a special, Detroit Public Television-produced Frontline episode, Reporter Christy McDonald and Producer Bill Kubota tell the story of the efforts to support neighborhoods across the city using social media technology and innovative financing. As they report, vacant structures in any city mean trouble. They are a haven for predators, drug dealers and drug users, and fast declining property values for the entire neighborhood. But in Detroit, an infusion of federal funds, new technology and community involvement are helping Detroit Mayor Mike Duggan speed up the removal of blight in the City and save at-risk neighborhoods from becoming blighted through code enforcement and new homeownership programs.
As a federal judge continues to hear arguments for-and-against Detroit’s plan to exit bankruptcy, a new player is weighing its potential investment in the city. That player is the state of Israel. WDET’s Quinn Klinefelter talked with Israel’s Consul General to the Midwest – Roey Gilad – about the potential economic connections between Detroit and Israel, and how that nation views the US strategy to fight the group calling itself the Islamic State.
The Wall Street Journal reviewed a recent city spreadsheet and other documents to total the cost of the Detroit bankruptcy for the city.
That includes $47 million to the Jones Day law firm, which so far during the trial alone has had seven attorneys argue in court with more present in the courtroom.
The cost is surpassing such corporate bankruptcy filings as General Motors Corp., which came in around $110 million, and Chrysler at around $77 million. Still, Detroit is unlikely to set any records. Bankruptcy fees for the U.S. administration of Lehman Brothers Holdings Inc., for example, surpassed $2.2 billion.
Some information about the bankruptcy’s cost is available online. Emergency Manager Kevyn Orr’s bankruptcy page on the city website has links to the Fee Examiner reports. (The Fee Examiner, who is appointed by the court, reviews billings for professional fees and submits to the judge a critique of the reasonableness of them). The last available, filed in the court docket last month, covers fees only through March.
One of the most outspoken, visible and controversial creditors in the city’s bankruptcy case is bond insurer Syncora. They’ve objected at seemingly every chance, arguing to Judge Steven Rhodes that the Detroit Institute of Arts collection should be sold to pay debt, pensioners are unfairly getting much better of a deal than financial creditors and that at least one of the city’s settlement agreements violates state law.
In court today, one of Syncora’s attorneys argued that one of the city’s deals with other creditors violates Michigan law. During the ongoing negotiations to reduce$18 billion of debt, attorneys for the city of Detroit are striking deals with creditors. One of those agreements is for the refinancing of almost $400 million of bonds approved by voters and backed by property taxes. As part of that deal, some bondholders would receive about three-quarters of their value. The remaining bonds would go to the city’s pension systems, which could use taxes to pay off the debt.
Ryan Bennett, representing Syncora, argued against the deal in front of Rhodes. “If the plan is confirmed, your Honor, the city will be permitted in fact required to unlawfully tax its property tax payers where such taxation would not be permitted under Michigan law,” he said.
An attorney for the city says only the state can challenge the deal. An attorney from the state told the judge he supports the settlement. Judge Rhodes did not immediately rule on Syncora’s objection.
Syncora also has filed legal documents alleging bias of the case’s mediators.
Earlier, WDET’s Quinn Klinefelter spoke with one of Syncora’s attorneys, James Sprayregen, who is a restructuring partner in the Chicago and New York offices of Kirkland & Ellis law firm.
Here’s a transcript of that full conversation:
James Sprayregen: We do want to make it clear, we wish the city of Detroit well. We wish all of its employees and former employees well and we have no beef whatsoever with the pensioners. We were involved with a transaction that put $1.4 billion into the city’s pension funds because those funds were underfunded and we actually helped make those pension funds much better funded. Then the city turns around and says that that transaction was illegal and they want to keep the money and not pay us anything back. We believe under the bankruptcy code that we are very similarly situated with the pensioners and should be treated in a similar way rather than under the current plan where we’re getting virtually zero and the pensioners, after you adjust for all the actuarial calculations, are recovering nearly 100 cents on the dollar. Now we’re sympathetic to one dollar in cuts to any pensioner’s check and we understand that that can be difficult for anybody but under the bankruptcy code, we and the pensioners need to be treated similarly.
QK: In fact to an extent you’re charging that the mediators that are in this case are biased to an extent, correct?
JS: Yes, we didn’t charge that, we just quoted what they said publicly. And look, understandably they’re from the city of Detroit. They have great sympathy as do we for the claims of the pensioners. They have a love of the art museum and the assets there. We have no problem with any of that. It’s just when a city goes bankrupt, it has to comply with Chapter 9 in the way it distributes its assets, and you can’t take assets that are of very substantial value to the city, like the art, and sell it at a fire-sale price to a private foundation. You have an asset of the city that has been valued at anywhere from $800 million to $8 billion.
QK: The art at the Detroit Institute of Art museum.
JS: Exactly, and so that art is being transferred out of the city’s coffers not only to our detriment but to the great detriment of all of the city’s creditors for a price that is far below anything anybody has valued this art at.
QK: You’ve mentioned the municipal bond deal that helped shore up the pension system back in 2005. The city has argued that that deal was illegal and should not count. The judge even from the bench has said he was iffy about it, that maybe Detroit should sue over it and they might win. I’m very much a lay person, but in your experience, is that unusual to have a judge from the bench argue in that kind of way?
JS: Yes, we found that to be unusual. Our point on that was we were asked to help the city out of a pension jam which we did. We don’t think that transaction was illegal but it put $1.4 billion into the pension fund so if somebody thinks it’s illegal and they want to unwind the transaction, they can’t just say ‘Thank you for the money’ and keep the money, unwind the transaction and get the money back. I think anybody who is putting money into municipalities needs to be looking at the Detroit case very closely to determine whether the rule of law is going to apply here. We are in the United State of America and we do believe that ultimately the rule of law is going to be vindicated. But if it turns out that we can put $1.4 billion into a pension fund and then be told we have no claim, that will definitely impact the willingness of financial creditors to help out pensioners in the future.
QK: You’ve mentioned in some other reports as well that it’s seems almost as if the city is setting up kind of unfair Detroit v. Wall Street scenario, that the whole situation is in effect being politicized. Why do you argue that?
JS: Because we think that’s exactly what’s happened. Unfortunately it’s been set up like that and again, we think it’s very inaccurate and very unfair. Again, the money that caused us to be a creditor went to the pensioners and we think appropriately so. For whatever reason, Kevyn Orr when he came into his position called us and others ‘the Huns of Wall Street’ and started out the process that way. Obviously the state of Michigan, Judge Rosen himself and Kevn Orr have made number of public statements that are not friendly to financial creditors and we think that’s unfortunate because we think there’s a partnership amongst financial creditors, city, municipalities, workers in order to help bring Detroit back.
QK: Are you getting any, I don’t know if feedback is the right word, but a sense from some of these people, “gee, why are you guys arguing about this, you’re standing in the way.’ This bankruptcy seems to be moving fairly fast for bankruptcy cases. They’ve set up these deals with pensioners, etc., getting all these people in line as they go through to argue the Plan of Adjustment and then here’s Syncora of Financial Guaranty and you’re the obstacles holding the whole process up. Why not just play ball and get out of the way?
JS: That’s definitely the way it’s being attempted to be portrayed. All we’re asking for is that we be treated fairly, just like the other creditors are being treated fairly and if that happens we could have a consensual resolution this afternoon, and our door is wide open to do that and we’re still hopeful that that can occur.
QK: How far is Syncora prepared to go if the judge would approve Detroit’s Plan of Adjustment. Can you appeal it to other courts?
JS: We’re hopeful the judge will see this plan is not confirmable and send the city and Kevyn Orr back to discussions with us to reach a consensual resolution. But if not, and he were to confirm the plan, yes, we can appeal it to the district court and if we lose there we can appeal to the Sixth Circuit and if we were going to lose there, we could appeal to the U.S. Supreme Court. This is the largest municipal bankruptcy in United States history, and we believe it deserves the scrutiny a case of this size should get and we intend to go all the way to protect our rights.
QK: Do you think Syncora would be a little bit reluctant to try to look at municipal bonds in the future now after all this?
JS: The unfortunate thing here is there have been some people who have said, ‘Syncora, what were you thinking? You knew Detroit was in trouble and they were potentially going bankruptcy. Why did you do this transaction in the first place?’ I don’t think the type of conduct we want to encourage in America is to say that financial players should not be helpful to cities in trouble, and if you help a city in trouble, that’s your fault because then you’re just going to cause people to stay away from helping cities in trouble and you’re going to cause more municipal bankruptcies. I think we actually want to encourage financial creditors to be helpful in difficult situations and the way to do that is to have the rule of law apply.
As part of the Detroit Journalism Cooperative effort, Bridge Magazine‘s Mike Wilkinson and WDET‘s Sandra Svoboda teamed up on a couple of reports about Detroit Mayor Mike Duggan’s campaign finance and fundraising strategies. They are:
Today, Detroit Free Press columnists Stephen Henderson and Nancy Kaffer examine the stories and the impact of the mayor’s nonprofit. Kaffer writes:
For the last decade, southeast Michigan politics have been absolutely lousy with nonprofits, the kind that can receive unlimited contributions but don’t have to disclose donors. And thus far, the track record for politicians and those kinds of nonprofits hasn’t been so good.
And Henderson concludes:
…these committees have one purpose, no matter how upfront their propagators pledge to be: They’re intended to operate around the law, to dance outside campaign finance and other tax restrictions, to achieve political aims. Right there, that puts them out-of-bounds in my book. We have campaign finance rules and restrictions for a reason. And we expect that public officials will conduct their business, well, in public. These committees are about undermining those expectations, ostensibly within the letter of the law, but clearly far outside the spirit of it.
Others have weighed in about what issues accompany the modern era of campaign finance. Here are two interviews Svoboda conducted in conjunction with the articles.
Here is a transcription of the Rich Robinson interview.
Here is a transcription of the Peter Quist interview.
As part of WDET’s partnership in the Detroit Journalism Cooperative, WDET’s Bankruptcy Reporter and Next Chapter Detroit Blogger Sandra Svoboda teamed up with Bridge Magazine’s Mike Wilkinson to look at Mayor Mike Duggan’s campaign finances. They look at his Super PAC from last year’s election, and discuss the other fundraising efforts he has underway. Theircollaborative reports are the first to document Duggan’s campaign finances and funding in a transparent way. Wilkinson and Sandra talked with WDET’s Pat Batcheller about their two articles.
Here’s a transcript of the conversation:
Pat Batcheller: A new fund has been created to help raise private money to pay for some of the projects that the Mayor would like to initiate and then also, you’ve taken and extensive look at how Super PAC money played a significant role in the last mayoral election and how that may change municipal elections across the country. Let’s start with you Mike, on the, what you uncovered regarding this new nonprofit called the Detroit Progress Fund. What is that exactly?
Mike Wilkinson: We learned about this about a week ago that Mayor Duggan had a birthday party over on the riverfront where people were invited to bring their checkbooks so that they could put some money into the Detroit Progress Fund, and it turns out that it was created back in February and the goal of it, well, it’s considered a social welfare nonprofit, a 501c4 and they’re going to use the money to promote the mayor’s agenda.
PB: We’ve seen funds like this before, of course, the Kilpatrick Civic Fund and Gov. Snyder’s NERD fund, both of which raised significant amount of controversy for each politician. The mayor obviously is cognizant of the pitfalls of that, I would think, otherwise, he wouldn’t go down this road. What is he going to do to ensure that he doesn’t fall into those traps?
MW: One of the things when we asked the mayor’s staff about this, they were very quick to respond that it’s going to be different in terms of transparency. By IRS rules they only have to give a limited amount of data every year when they make their filing but they’re going to disclose, unlike what Snyder did initially with the NERD fund and Kilpatrick with the Civic Fund, they’re going to disclose who their donors are, they say, and they’re going to disclose what the money gets spent on. Kilpatrick did not do that and part of what he did end up spending it on, golf clubs and some other personal stuff, ended up adding to his time that he’s now spending in federal prison. And in the NERD fund’s case, the revelation of the fund led to a lot of embarrassment for the governor and he shut it down and said that if he creates a new fund he will disclose.
PB: What kinds of things could this fund be used for?
MW: It’s limited by IRS rules. You can’t get involved in the direct partisan politics. What Kilpatrick had aid he was going to do and what is allowed is I think some of the voter education efforts, but what we can see from the records that are filed with the state, the Detroit Progress Fund is not going to be going into that. It’s more to support the mayor’s agenda, and the one example that John Roach, a spokesman for Duggan gave us, is in the event when they have a high-ranking official somewhere else in the country who’s coming to Detroit to interview for a job, that the fund would be able to pick up the travel and defray the costs so that the taxpayers would not have to.
PB: And of course as we learn more about the Detroit Progress Fund, we know that a significant amount of money was raised for the last mayoral election to support Mike Duggan and his opponent last November, Benny Napoleon. Sandra, you looked into this as far as the influence that Super PACs had on this.
Sandra Svoboda: It was reported during the election last year that both candidates, Benny Napoleon and Mike Duggan, had Super PACs, What I don’t think we realized is how truly unusual that is. In the wake of the 2010 U. S. Supreme Court ruling, Citizens United, which really changed the game of campaigns because of the campaign finances restrictions being loosened on who can pay for what, candidates across the country have been able to use these Super PACs. Or, well, I shouldn’t say it that way. The candidates themselves don’t use the Super PACs because they’re not directly coordinated. But it’s clear when you look at the donors and even more so the expenditures in the Super PACs that they are clearly supporting certain candidates. It happened during the mayoral election which is kind of unique around the country. We don’t see that many big city mayor although the experts, the advocates for campaign transparency that we interviewed expect this to be a much bigger trend.
PB: And you’ve put together a database on Bridge so people can see who the big contributors were and there were some interesting but not necessarily surprising names of some of the biggest donors to the mayoral campaigns, names people are familiar with like Roger Penske, for example.
MW: Mr. Penske, who has long been a supporter of Detroit politics. He’s been a supporter of the city. He’s committed $10 million to the grand bargain in bankruptcy court. He personally gave the Turnaround Detroit Fund for Mr. Duggan $500,000. His corporation gave him another $500,000. He also gave $3500 to his direct campaign committee. So you have people who are able to give huge sums of money and what it does, what I find interesting, if you look back at what was considered the most expensive mayoral election before this one, you go back to, I think it’s 2005 and with Freman Hendrix and Kwame Kilpatrick, it was $5.4 million between two men. Here, Mike Duggan raised himself $2.8 million, another $3.1 million was raised in support of him but the $3.1 million was from only 246 people. They average well over $12,000 a donation. It took him 3,600 people to raise the $2.8 million. So you really narrow your focus of fundraising if you have several big backers. You don’t have to have the wide spread of support at least financially to run a campaign.
SS: And that’s the difference in the post-Citizens United era. There can be these unlimited amounts of fundraising going to campaigns through the Super PACs, not coordinated through the campaigns but certainly supporting. And we as voters, we as the public don’t necessarily know where that money’s coming from.
PB: So that’s why you created this database to give people an avenue to find out where the money came from. How does it work?
MW: If you were a regular citizen and you wanted to know who supported Mike Duggan, you would have had to go to two different places: to the Wayne County Clerk’s election database, contribution database, and to the Secretary of State at the Michigan level. What’s interesting about Duggan’s Super PAC is it started in Wayne County and then it moved to the state and unless you combine the two, you wouldn’t get a full picture. What we did was take that in addition to his campaign contributions and clearly identify which money was going directly to him and which was going to his Super PAC so you can see a fuller perspective and then you can see that the people who gave to the Super PAC, most likely, in most case also gave to the campaign. So you can tell there are these veins of support that run both ways.
SS: And thanks to the Internet and technology, this information is available to the public. What Mike did was put it in one site that you can get at BrigeMI.com where people can look themselves. They can see who contributed from their hometowns. They can run certain names. It really helps give a picture, a more complete picture of what’s going on in our politics.
PB: Were there any surprises that you found in the data?
MW: I think we all have known from the 2012 presidential campaign the vast amount of money that has poured into Super PACs. I don’t think I really understood there was this amount of money being spent locally. Kwame Kilpatrick had a leadership PAC called Generations. Some people Karmanos, Penske, well, I’m not sure about Penske, had given him a significant amount of money. So we saw it there. That money, he was allowed to give to other candidates but here we’re able to see people like Karmanos. We see Vanguard Health, which bought the DMC where Mike Duggan worked before. You see DTE putting in a lot of money. A Quicken Loans PAC. And you see there are people who have these reserves of wealth that they wanted to share on Mike Duggan’s vision, and I think it’s important going forward as Mike Duggan spends a lot of money to make the city, to improve the city to see if there’s any correlation. And it’s a transparency issue he’s talked about. He wants to be transparent and with our database on BridgeMI.com, we’re going to kind of help make it transparent.
SS: I think on a related issue, one of the things I hear in covering the bankruptcy is the number of people outside of the area, attorneys especially, and financial consultants, who are working on the bankruptcy. We see the same thing with Duggan’s campaign contributions. There is a lot of money coming from outside the city of Detroit and there is some criticism from within the city, people who don’t like that outside money is helping determine the outcome of elections.
PB: Not just the outside money but one could reasonably ask, I suppose, if these donors are giving these donations through the Super PAC and also through the Detroit Progress Fund, if they’re giving donations to these, are they getting something in return, and you’re not necessarily alleging that that’s taking place, but it is something that would certainly be a reasonable question.
SS: I think journalists call that “job security.” We have our work cut out for us in the next few years to look at this.
MW: One thing I find really interesting about the Super PAC and the transparency issue, is the wealth of electronic data has allowed us, we get to see who has sported Mike Duggan, now the Super PAC is not coordinated and it’s independent, but because of that transparency, Mike Duggan knows who supported him. And what I wonder if Roger Penske’s assistant calls up and wants a meeting with the mayor, does that meeting gets scheduled as a guy who gave $3,400 to his campaign committee or is it as a guy who gave $1 million to the Super PAC? I’m presuming the latter.
SS: And I think one of my favorite quotes in the story is Rich Robinson from the Michigan Campaign Finance Network, who of course is our statewide watchdog and compiles a lot of information campaign finance around the state he says nobody writes four-, five- and six-figure checks out of good humanitarian reasons.
PB: You can assume they’re wanting something in return. What do these funds tell us about where things are with Mayor Mike Duggan?
MW: He has a lot of support from people who have deep financial interests in the city. He also had a lot of support from people in the city. There were a lot of people who gave him $5, $10, $25. I think what we have to make sure as journalists and as watchdogs is just to keep an eye on: does anyone benefit more because of those contributions. We will be able to look at that as contracts are let, as decisions are made. I think when a guy like Roger Penske gives $1 million between himself and his corporation, I’m not sure he wants Belle Isle paved for the Grand Prix, I think he wants a voice in government. And I’m going to guess that he’s going to get it.
SS: I think also what it shows us is that the dynamics of national politics and the so-called dark money going through Super PACs is coming to local elections, and that’s something that as a journalist, the one agenda I’m allowed to have is the transparency and openness in government, and it kind of scares me that we might see that dynamic determining some of the smallest, most local elections.
MW: The good thing is because of the records that are out there. Because of databases like we were able to compile on BridgeMI.com, we are going to be able to keep an eye on it. Five years ago, this was a pdf at the Wayne County building. That was electronic but then a couple years before that you were given folders that were three, four, five inches thick for Kilpatrick. You would have had to wade through just tens of thousands of pages and people didn’t have the ability to do that. Well, now they do.
The judge overseeing Detroit’s bankruptcy case has invited U.S. Attorney General Eric Holder to file a brief in the case, involving two constitutional issues that will be discussed in bankruptcy court today.
Among the city’s tens of thousands of creditors with financial claims are a handful of who say in their cases, bankruptcy law conflicts with the U.S. Constitution. Two of the men making such arguments were wrongfully convicted and imprisoned for decades: Walter Swift and Dwayne Provience. Prior to the bankruptcy, they sued the city for damages.
But their lawsuits were put on hold when the city filed for bankruptcy. In court filings, the two Detroit men and a few other creditors have argued that their claims involve constitutionally guaranteed rights and the U.S. Constitution trumps bankruptcy law.
No attorneys involved in the bankruptcy case have what’s called the “standing” to weigh in on such constitutional issues. So last week Judge Steven Rhodes asked Holder to file a brief. The judge wants Holder to weigh in on the question of the bankruptcy code’s constitutionality as related to these creditors’ claims.
Judge Rhodes requested Holder file it by Aug. 13, the day before the bankruptcy trial is scheduled to begin.
The U.S. Attorney’s office in Washington D.C. had no immediate comment on the request. But a spokesperson did say, prior to the Detroit bankruptcy, the last time the U.S. government briefed a constitutionality issue in a Chapter 9 case was in 1938. This is the second issue the U.S. Attorney General may weigh in on in Detroit. Last year, the office filed briefs arguing against the American Federation of State, County and Municipal Workers’ claim that the bankruptcy was unconstitutional.
Rhodes ruled in December the city was eligible for bankruptcy. Two weeks ago, the U.S. Sixth Circuit Court of Appeals in Cincinnati scheduled arguments for July 3 on an appeal of that ruling.
The issue of Detroit’s water shut offs became part of the bankruptcy court proceedings today. In the morning session, Judge Steven Rhodes heard from individuals who are objecting to the city’s plan of adjustment. Some complaints were about the water shut offs, which have made international news. Before the lunch break, Judge Rhodes requested that someone from the city water department come to the federal courthouse.
“I hesitate to bring this up because I’m reasonably sure that’s probably not within my jurisdiction but I’m going to anyway. It’s the issue of water,” Rhodes said this morning. “I’m going to ask you if it’s at all possible to have someone at this afternoon’s session who can advise the court and the public about the specifics of the program.”
At the start of the afternoon hearing, Detroit Water and Sewerage Department Deputy Director Darryl Latimer appeared and answered the judge’s questions about why customers are being cut off.
Judge Rhodes asked Latimer what help here is for people who can’t afford their bills. Latimer described payment programs through the department and said several nonprofits offer support for residents. Judge Rhodes also questioned Latimer about why residents haven’t paid their bills. Latimer blamed, in part, the department’s historical lack of enforcement as well as the inability to pay by some customers.
The judge asked Latimer to work on providing information to residents about payment programs and to appear Monday at a status conference in the bankruptcy case.