Detroit Emergency Manager Warns Against Bankruptcy

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  • DETROIT (AP) — The turnaround expert who represented Chrysler during its successful restructuring is taking on one of the toughest fiscal tasks anywhere in the country: Fixing Detroit.

    Kevyn Orr, hired Thursday as Detroit’s emergency manager, brings expertise from his work at one of the world’s largest law firms plus the threat of Chapter 9 bankruptcy, which he says favors cities like Detroit when it comes to erasing debt.

    “Don’t make me go to the bankruptcy court. You won’t enjoy it,” Orr said Thursday in a possible warning to city unions, vendors and others after being introduced by Gov. Rick Snyder as Detroit’s emergency manager.

    “Bankruptcy’s been my stock and trade. I’m very comfortable in bankruptcy courts,” said Orr, who has resigned from the international Jones Day firm ahead of his new appointment. “You can do everything by consent. … When I say consensual, I mean … let’s get at it and work together because we can resolve this.”

    His appointment makes Detroit the largest city in the country to fall under state oversight. He starts work March 25 in Detroit.

    Detroit is saddled with a $327 million budget deficit and more than $14 billion in long-term debt — a morass that developed slowly during the decline of the auto industry, the exodus of a quarter million people from 2000 to 2010 and outright mismanagement at City Hall.

    At the height of its manufacturing boom, in 1950, Detroit was home to 1.8 million people. The 2010 census put the population at 713,000. Some estimates now place it below 700,000.

    The city has been making ends meet on a month-to-month basis with the help of bond money held in a state escrow account. The city has also instituted mandatory unpaid days off for many city workers.

    Mayor Dave Bing has spent the initial three years of his first term trying to turn the city’s fiscal fortunes around. His hands often were tied by an unwieldy city charter, pushback from unions determined to keep victories from earlier contract battles, and a City Council he didn’t see eye-to-eye with on many critical financial issues.

    Snyder has taken that problem and given it to Orr, along with a $275,000 annual contract and broad powers available only under the state’s emergency manager law.

    Orr, who represented Chrysler during its successful restructuring, will control all spending, including renegotiating labor contracts, selling off assets and even suspending elected officials’ salaries.

    “The argument Kevyn made is creditors are in a worse position in a Chapter 9 so that they would be better off negotiating an outcome at the city level,” state Treasury Andy Dillon said.

    “You meet with all these folks now and you have a consensual arrangement about how we’re going to recast the city’s balance sheet to go forward. If there’s a lot of obstruction and inability to get people to the table, (bankruptcy) becomes an option. But I don’t think that it’s necessary.”

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