Emergency manager confident of Detroit rebound

DETROIT — A year into his tenure as emergency manager of the largest American city to go bust, Kevyn Orr says he's still confident that a post-bankruptcy Detroit will rebound from some of its gloomiest times.

But any progress report on that year — and Detroit's historic Chapter 9 bankruptcy filing — has to be sprinkled with qualifiers and asterisks. Even as the anniversary of his March 25, 2013, appointment by Michigan Gov. Rick Snyder approaches, some of the benefits of bankruptcy that Orr pledged would come are beginning to bear fruit only now, many in unseen ways.

Much of what might be called the bright side of emerging from bankruptcy — with the city's debts slashed, Orr proposes spending $1.5 billion over the next decade to remove blight and boost public services including police and fire protection — is contingent on the trial that begins in June on his plans for reorganizing the city.

But already, Detroit is no longer "borrowing from the pension funds and calling that revenue when it's actually debt at 8%," Orr said in a recent interview in his 11th-floor office, in a suite next to Mayor Mike Duggan's office.

"Contrary to some of the predictions when we started out that this (bankruptcy) was going to wreck the city, au contraire, we have lenders that are willing to do business with the city even now on competitive rates and terms," Orr said. "That is helpful for the city. We are paying our bills on time for the first time in a long time.

"The average resident, they don't really see that. They think about, 'Are the lights on? Is the garbage being picked up? Will the ambulance come, will police come? Are potholes being fixed?' "

On those questions and many others central to Detroit's recovery, "the jury is still out," Orr concedes.

"I have no doubt in my heart of hearts Detroit will get better," Orr said, noting that there's already progress in two crucial areas: ramping up efforts to remove blight and get the city's streetlights back on.

He said Detroit's blight task force is preparing to release an unprecedented assessment of every residential property in the city, including the estimated 78,000 blighted homes for which the city's plan of adjustment calls for spending $500 million over 10 years to tear down or rehabilitate.

The city's public lighting authority, meanwhile, has adopted a more aggressive $160-million plan to fix the city's broken streetlights, relamping all city neighborhoods by the end of 2015, with major thoroughfares completed within an additional 18 months after that.

"Those things are surely going to happen — they already are," Orr said, but other long-term changes will take years to work out.

Room for improvement

Orr offered a measured critique of his year in Detroit, suggesting he could have done things differently in his first two months here, from more quickly accepting reports about the city's financial condition that former Mayor Dave Bing's administration and the state had done, to underestimating what he said is a broad majority of Detroiters ready for change despite protests that accompanied his first days on the job.

Coming into the job, Orr said he'd read extensively about the city's history, its financial condition and even academic books on how Detroit got to where it is.

"I was perhaps a little naive because my view was, given all this wealth of information, everyone would recognize and acknowledge the need for change," Orr said. "Forget academically. Driving through the city, coming up I-94, you've got block after block of burned-out, caved-in-roof buildings with 20-, 30-year-old trees growing out in the middle. You've got streets that need to be paved. You've got huge swaths of downtown property that are open. And so, I just assumed ... everyone would recognize the need, even though they didn't want an emergency manager and all that kind of stuff, they would say, 'Hey, we need reform in the worst kind of way.' "

Orr can't play favorites

It wasn't his only miscalculation.

U.S. Bankruptcy Judge Steven Rhodes, who's presiding over the case, ruled in December that Detroit was eligible for bankruptcy, but, at the same time, admonished the city for not bargaining in good faith with creditors, unions and others.

Rhodes later rejected two settlements that Orr's team negotiated with UBS and Bank of America Merrill Lynch — two big banks involved in a disastrous $1.4-billion debt financing deal that the city entered into in 2005 to shore up underfunded pensions. Orr first proposed paying the banks about $230 million to get out of the deal, and then came back with a $165-million offer, both of which Rhodes said were too generous to the banks. He admonished the city against making "hasty and imprudent" financial decisions.

If Orr expected a slam dunk, "he was disabused of that notion when the judge twice rejected settlements with the banks," said Michael Sweet, a bankruptcy lawyer with Fox Rothschild in San Francisco who has represented local governments in restructuring efforts to stave off bankruptcy. "In that light, Orr knows he has to be very careful about what he's proposing, because this judge is not going to be a rubber stamp, even where everyone seems to be on board."

Rhodes also has made it clear that he won't accept an inhumane outcome for the city's 23,500 pensioners, even though Rhodes ruled that pensions can be cut in bankruptcy.

Wayne State University law professor Laura Beth Bartell said that, no matter the missteps, Orr quickly "picked up on what the judge is looking for and follows that lead" and has adjusted accordingly to keep the city's bankruptcy case on an unusually fast schedule, given his appointment as emergency manager is expected to end in September.

"Fast tracking this bankruptcy has been a brilliant strategy," Bartell said. "It creates a sense of inevitability that works to the city's favor."

Sweet said he was among the skeptics about the faster pace, but equated Orr's performance at the one-year mark to a football game: "If I were evaluating the quarterback in the middle of the game, I'd say he's been pretty impressive."

Still, Orr faces deep opposition in federal court on two fronts. On one flank are retirees and unions fighting against deep cuts to pension benefits atop drastic reductions in health care benefits, two legacy costs that propelled Detroit's financial collapse. On the other side are the unsecured creditors facing losses of 80 cents on the dollar and vowing to fight Orr's plans to treat pensioners more favorably than investors.

Sweet said Orr is, ultimately, constrained by the federal bankruptcy code.

"This is the plight of a bankruptcy practitioner: You can't have favorites," Sweet said. "

Cooperation in city hall

Orr's record for his other role — responsibility for overseeing and improving how city government operates — is also a work in progress.

After a tumultuous, mistrustful relationship with Bing, Orr seems to have found a more willing partner in Mike Duggan, who speaks often of a more cooperative relationship with the emergency manager.

City Councilwoman Saunteel Jenkins said that, despite widely held reservations about whether Orr would come in with a mandate to slash or privatize whatever he could, she said she has found him to be thoughtful, open to ideas and more respectful of Detroit's elected officials than emergency managers in other Michigan cities have been.

That said, Jenkins said she hasn't agreed with everything Orr has done. For one, she said that Orr's team seemed focused in the beginning on the city's balance sheet so much that there was too little consideration to improving city services. But she credited Orr with bringing in a strong team of advisers late last year and early this year, including some administrators he allowed Duggan to hire, who have renewed an emphasis on core services, such as public lighting and the bus system.

"So far, it seems as if Kevyn Orr was the right person for the job," Jenkins said.

Politically, Orr has scored some victories, but "the majority of Detroiters are disconnected to the process," said political analyst Eric Foster. For them to care, they would need to see more tangible actions impacting their daily lives, especially on the issues of crime, blight, parks, lighting."

Orr said he understands criticisms and knows he'll have enemies in bankruptcy court and outside of court. But he said he believes perceptions of him have changed in recent months.

"I think there was a great deal of concern that I was going to come in here and slash and burn everything — you know, cut staff by 10%, give another 10% pay cut," Orr said. "We're been playing it pretty straight, so the real focus has been creditors and pensions. From what I've been hearing from most of the people who've studied this and given it some thought, there's a great degree of support, a great degree of hope, optimism that may be reflected in some of the interest that is coming into the city."