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March 15, 2013

Bankruptcy expert named Detroit emergency manager

DETROIT — Michigan’s governor appointed an auto-industry turnaround expert Thursday to steer Detroit back from the brink of ruin. The one-time symbol of America’s industrial might became the biggest U.S. city to be placed under state financial control.

Kevyn Orr, a partner in the Cleveland-based law firm of Jones Day who represented Chrysler during its successful restructuring, will have broad powers to control all spending, including renegotiating labor contracts, selling off assets and even suspending elected officials’ salaries.

“We can rise from the ashes,” Orr told a news conference. “This is a beautiful city and a wonderful state that gave me my start. I feel compelled to do this job.”

Under state law, his appointment is to last 18 months. But Orr doesn’t expect the turnaround to take nearly that long.

The job “has a fuse on it,” he said. “And If I do a good job, I get fired. I am highly motivated. If we work together, we can get this done significantly shorter than 18 months.”

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.

When he met with Gov. Rick Snyder, Orr said, he called the manager job “an unsung hero task.” He asked the governor why he would bother to help the city. Snyder’s response was: “Kevyn, it’s the right thing to do, and it’s the right time to do it.”

The new manager called the job “the Olympics of restructuring” and said he relished the challenge, even though it meant up giving up his job with the law firm.

“It’s not that I’m altruistic, but if we can do this, I will have participated in one of the greatest turnarounds in the history of this country,” said Orr, who will make $275,000 per year.

Mayor Dave Bing and the City Council, who fought the prospect of an emergency manager for months, will keep their jobs, but the manager will decide all financial matters. And only the manager will have the power to authorize the city to pursue bankruptcy.

Orr said the Detroit’s city charter “won’t let you do anything by compulsion. 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.”

In a possible warning to city unions, vendors and others, he said: “Don’t make me go to the bankruptcy court. You won’t enjoy it.”

A state-appointed review team previously determined that Detroit’s cash deficit meant the city would have to either increase revenues or cut spending — or both — by about $15 million per month for three months starting in January to “remain financially viable.”

Those troubles, and the struggles of the mayor and the City Council to present a workable turnaround plan, led Snyder to turn to Orr.

“The bottom line here is that we must stop fighting each other,” Bing said Thursday. “We must start to work together. I’m happy that now I’ve got teammates. I’ve got partners that can help me do things that need to be done in our city.”

Led by some of the city’s clergy, about 100 people protested outside the office building where Orr was introduced. Many were part of a larger group that opposed a previous version of Michigan’s emergency manager law, which was repealed by voters in November.

Orr’s appointment “means that (Detroit) residents are losing all of their voting power,” Shirley Tolliver said. “We have been in contact with people from Pontiac, Benton Harbor and Ecorse, and (managers) have taken away everything.”

Those cities are among the six — including Detroit — under state oversight.

Shortly before Orr was hired, Bing announced that Detroit had chosen Jones Day as the city’s restructuring counsel.

The international firm, with more than 2,400 attorneys on five continents, has the experience needed to assist Detroit in its restructuring, according to a news release from Bing’s office.

According to Jones Day’s website, Orr has practiced law in business restructuring, financial institution regulation and commercial litigation since 1984. He has served as the chief government legal officer of a failed financial institution and a special master to oversee the operations of a real estate development firm.

Orr also has represented health care financier National Century Financial Enterprises in its bankruptcy. The 1983 University of Michigan Law School graduate is a member of the American Bankruptcy Institute and serves on its law review advisory board.

Orr’s success or failure will be part of Snyder’s legacy as governor. Race continues to polarize the 80 percent black city and its mostly white suburbs.

Snyder has sought to change that, trying to convince those outside Detroit that the state’s fortunes and Detroit’s turnaround are inter-related, while making it clear to city residents that the state only is offering a helping hand.

The hiring of an emergency manager is just the latest in a string of embarrassing setbacks to befall Detroit in recent years.

Explicit text messages made public in 2008 revealed the tawdry affairs and other shenanigans by the city’s then-Mayor Kwame Kilpatrick, leading to criminal charges and eventually prison time for him.

On Monday, Kilpatrick was also convicted on 24 federal corruption charges, capping a five-month trial that exposed a brazen pay-to-play culture during his tenure.

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