New cooperative tone helps Detroit weather bankruptcy

DETROIT – A year into Detroit's historic bankruptcy, state-appointed emergency manager Kevyn Orr says the mayor and City Council are ready to run the city once his tenure ends in September.

Orr said he's impressed with the focus of Mayor Mike Duggan and council members on improving the city and putting aside the deep divisions apparent during the first months of Orr's tenure.

The battles between the mayor's office and council members have all but disappeared, and differences between Orr and city officials are largely handled privately. Orr has gradually handed back responsibility for day-to-day operations to the mayor and council. To be sure, there will be a financial advisory board in place for at least 10 years, but the mayor and council will be running the city.

"If that focus continues, there's no reason they shouldn't be the right crew," Orr told the Free Press in an interview.

A year ago, such a pronouncement might have seemed unlikely, given how Orr for the most part sidelined then-Mayor Dave Bing and the previous City Council amid open criticism of him and state intervention.

The new cooperative tone is just one of the unexpected ways the bankruptcy has played out. The case has moved extremely fast through federal court, aided by a no-nonsense approach from U.S. Bankruptcy Judge Steven Rhodes, who has not tolerated legal gymnastics and delays.

He has stuck to a fast schedule, despite Detroit's Chapter 9 case being "bigger and more complicated than any other in history — it's beyond unprecedented," said Wayne State University bankruptcy law professor Laura Beth Bartell.

The unusual political and community support for protecting pensioners and Detroit Institute of Arts masterpieces also has kept time-consuming legal fights to a minimum. The bankruptcy case also was odd from the start because it involved a state-appointed emergency manager with absolute power over city finances, including union contracts.

Soon after the July 18 bankruptcy filing, many predicted a drawn-out legal battle lasting years. There were warnings of dire consequences for all creditors, particularly pensioners. There were doubts Detroit could emerge from bankruptcy without an enormous federal bailout and ominous predictions of state oversight for years on end.

The reality was much different — a streamlined bankruptcy that could wrap up in less than 18 months, and widespread support for a settlement that came about, in large part, through something few anticipated: a successful mediation effort. That mediation produced an unprecedented deal — known as the "grand bargain" — among a group of wealthy foundations, state lawmakers and the DIA to donate hundreds of millions to offset pension cuts and protect city-owned art from the auction block.

During the past 12 months, there have been twists and unanticipated outcomes in Detroit's historic bankruptcy. Among them:

City leadership transformed

After two years of division between the mayor and City Council, council members elected two-term member Brenda Jones as council president, and presented for the first time in recent memory a unified front, with a cooperative relationship with new Mayor Mike Duggan.

Jones, who was among the most reliable critics of state intervention, appointment of an emergency manager and the rationale for bankruptcy, underwent something of a transformation, concerned with reversing the reputation of city government as uncooperative and plagued by infighting.

"I'm still Councilmember Brenda Jones, but I'm also council president, meaning that I'm there representing the council as a whole," Jones said. "I'm representing the entire city.

Duggan, for his part, says he remains opposed to Detroit having an emergency manager but had to recognize a political reality.

"I think Kevyn Orr and I have made it work professionally," he said.

Political analyst Greg Bowens said Duggan, Jones and the council are engaging in "the smart politics of now."

"They probably still don't like the emergency manager law and would get rid of it if they could," he said. "But once you win an election you have to learn how to govern."

The grand bargain

Considered a life jacket for pensions and the Detroit Institute of Art, the grand bargain came from a chance meeting between a judge and a leader of a major foundation.

Rhodes appointed Chief U.S. District Judge Gerald Rosen to oversee mediation between the city and creditors. Rosen bumped into Mariam Noland, president of the Community Foundation for Southeast Michigan, at a Detroit deli last fall. As Rosen tells the story, Noland asked casually whether there was anything she could do to help.

After weeks negotiations, Rosen persuaded major philanthropic groups to contribute more than $350 million. The foundations, state government and the DIA agreed to pay the equivalent of $816 million to lessen pension cuts and in exchange transfer the museum to a nonprofit trust that would shield its artwork from being sold.

Orr said the money, like manna from heaven, would save pensioners much deeper cuts to pensions. But for the money to be available, pensioners must approve his bankruptcy plan in voting that closed Friday at 5 p.m. Early indicators were that retirees and active workers voted strongly in favor of the grand bargain. Orr said official results won't be released until July 21.

While the mediation efforts led by Rosen have produced other significant settlements, the grand bargain is the one that changed the tenor of the bankruptcy, said Wayne State University bankruptcy law professor Laura Beth Bartell.

"The one-two punch of Judge Rhodes and Judge Rosen on his team has been brilliant," she said. "What they have achieved so far has been remarkable."

Under Orr's plan, police and fire retirees won't see their checks reduced, but cost-of-living adjustments are reduced by half. General retirees face 4.5% pension cuts with no inflation adjustments.

Pensioners have seen significant cuts to health care benefits, and general retirees who participated in an annuity savings program are being asked to pay back what the city says were excessive interest payouts. So, even with the grand bargain money, retirees face a major blow.

A welcome in Lansing

Duggan and the council also found receptive audiences among state lawmakers this summer as they lobbied for passage of bills to crack down on scrap metal theft, one of the driving forces behind city streetlights not working and abandoned homes and buildings being gutted beyond repair.

Then came a bigger vote: Largely bipartisan majorities approved the state's share, $195 million, toward the bankruptcy grand bargain.

Longtime political analyst and pollster Steve Mitchell said he believes the summer's pause in the often contentious relationship between the city and state lawmakers is more than a momentary detente.

Duggan deserves credit for being a "very savvy mayor who's used to building consensus, and therefore his ability to do that has worked with both the council and the legislature," Mitchell said. "And by building a consensus, I think it will last. In life or in politics, relationships become good relationships when you work hard to make them that way."