DETROIT (AP) — The first report by Detroit’s emergency manager declares that the city is broke and at risk of running completely out of money — a financial meltdown that could mean no paychecks or pension benefits and even deeper cuts in municipal services.
If Detroit cannot avert disaster, the only remaining option appears to be bankruptcy, a threat that looms large over Kevyn Orr’s urgent efforts to make deals with creditors and debt holders. Experts say he will have to seek concessions from those groups to keep the Motor City afloat.
In March 2012, Detroit borrowed $80 million from Bank of America to avoid running out of money. But the outlook has not improved, and the city could be out of money by the end of the year.
“No question his first attention has got to be turned to making sure he has enough money to pay the bills he has coming in,” said James McTevia, president of McTevia and Associates, a Detroit-area turnaround firm. “If I’m a creditor getting paid for my current goods and services, I’m going to be more apt to work out on something I’m owed.”
Orr, a Washington-based turnaround expert and bankruptcy attorney, was selected by Gov. Rick Snyder to oversee Detroit’s finances. In his report, Orr described the city’s operations as “dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption.”
“Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st century government,” Orr wrote. “A well-run city will promote cost savings and better customer service and will encourage private investment and a return of residents.”
Detroit’s net cash position — the amount of money in the bank after bills are paid — was a negative $162 million as of April 26. The budget deficit that a few months ago was believed to be about $327 million could reach $386 million before July 1.
The city also owes more than $400 million, including $124 million for public improvement projects. Its long-term debt tops $14 billion.
Orr avoids using “bankruptcy” in the 41-page report to the state treasurer, but the inference is clear, McTevia said.
Orr may choose to go before a bankruptcy judge “when he gets his back against the wall and he can’t meet payroll and he has to have court protection,” McTevia told The Associated Press on Monday.
“He can default on payments to pension funds. He will try to sit down and negotiate with the pension funds: ‘We can do this out of court or we can do this in court.’ The same thing with bond holders. It will take years for Detroit to ever pay its bonds, and they need to be negotiated,” McTevia said.
The bulk of the city’s revenue comes from property and business taxes. But Detroit’s population dropped by 250,000 between 2000 and 2010. And outside of downtown and a few other areas, business growth virtually is nil.
“He certainly cannot, nor should he, borrow any money to keep the company afloat,” McTevia said. “My gut feeling is that taxes are going to have to be raised at some time,” possibly a temporary surcharge on businesses to keep the city afloat.
A Chapter 9 bankruptcy filing would also come with even more spending cuts for the city, according to Wayne State Law School professor Peter Henning.
“Services never improve after a bankruptcy,” Henning said. “I read through Orr’s report. The emphasis is really on the cost-cutting and the restructuring. Rarely does that improve services in the short run. In the short run, city services are going to suffer.”
If a decision is made on pursuing bankruptcy, it could come in three to six months, Henning added.
“We’ve identified the problems,” he said. “How do we solve this and is bankruptcy an option. (Orr’s) a bankruptcy lawyer. What do bankruptcy lawyers do?”
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This Week’s Celebrity Instagrams (11/26-12/2)
30 photos Launch gallery
1. Little Legend and Puddy 😍😍😍😍
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2. "You on point Phife?" "all the time,Tip". 💥 #bannedfromnormal
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3. Vegan! The Impossible burger at Crossroads
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4. Lawrence #BeforeandAfterEpisodes 1-4: 184lbs 13% body fatEpisode 8: 196lbs 8% body fat S/O @coachdaveboxing with the works outs and @kildareriordan with the nutrition
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5. Jus haaaanngin out
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6. Meanwhile back at home in Atlanta GA someone mad they not on the 🛳. 😳
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7. No limits... Photo cred: Chris Bridges @ludacris
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8. new new
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9. Apparently my 260lbs is too much for the actual vines in the Hawaiian jungles to hold me without breaking and me falling hundreds of feet. So for safety purposes, I'm forced to swing thru #Jumanjj on wires strong enough to hold 12 adult buffaloes and 1 adult Rock. #OnSet #Jumanji #IronicallyIEatBuffaloDailyForLunch #MoreManThanNatureKnowsWhatToDoWith
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10. hey ma! 🎎#wcw 💙
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11. Surprise visit to our factories!!! #GoodAmerican #USA
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13. Peachy Keen 🔥✨⚡️
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14. If this don't look thankful I don't know what does. Happy Thanksgiving to you and yours. #UltraBlessed #24kMagic #SweetPotatoFly
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15. Late nights @nbcmarlon with the writers... we in here!!!
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16. There goes my baaaaaaaaabbbbyyyyy #QueenKingMagic!!! We're up to something! Ira BIG!!! Stay out our buisness -
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17. You want to win every game you play but when you come home to these faces... who cares. #ILoveYouGirls best part of my day, everyday!
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18. Steady,steady..... full size jenga.. "I got this one "???? Or do I ?
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19. Cornrows kind of day 😉@dontaysavoy2 you convinced me and I love. ❤️️
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20. #BrotherlyLove #tbt
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22. #basel #TeamLOVE @kingcombs
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23. Just introduced a special screening of @directher 's groundbreaking (must see) documentary @13thfilm with my brother @themichaelealy | @unitedblackout #blackoutblackfriday
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24. Me & Vanessa Williams giving #DuckLips #Pose on the set of #DaytimeDivas @vh1 - Coming Soon to a tv near you. Lol. - My make up done by @makeupsurgeon
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25. This picture just makes me wanna praise the Lord, you hear me!!!!!! Yes Lord brotha #TEDDYCAMPBELL What a #man !!! You are everything right on this picture husband ......... #gorgeous #stylish #classy #strong #masculine #king #sexy #debonair #gentlemenstyle And that #bible in your hand just seals the deal for me (probably cause i know that, that is what helped you become just as amazing as you look😘). While my heart and mind experiences the goodness of God at #church on Sundays, my eyes experiences the goodness of Teddy😍. Amen somebody🙌🏽. "Bless the Lord oh my soul and all that is within me bless his holy name" #myman #myhusband #goodman #blackman #dapperman #godlyman #goodfather #mybestfriend
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26. Yesterday was my mama's 53rd birthday!!!!! Got to celebrate with her all day. If this is what I have to look forward to I can't wait. Looking like a soft bucket a cocoa butter. Yaaaaaaaaaas! 😍😍😍 love you mommy!
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27. "Shout out to @PureAtlanta for getting the family right"....I'm loving this jogger. 😍😍
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28. This pic warms my heart ❤️ #myLogiebeans and aunt aunt umba @itowandabraxton 😘
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29. You will always be my baby😜. #HappyBirthdayReginae #mybaby18
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30. GC "Gods Child" Red on Red SweatSuit available now at www.MonicaApparel.com ... Take Your Crown wherever you go!! I'm pictured in a Medium... Go to the site now for other options ... cc: @trukernell
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