Bloomberg News

Detroit Rescue Bid Vetted by Residents as City Faces Bankruptcy

June 11, 2013

Detroit Rescue Bid Vetted by Residents as City Faces Bankruptcy

Marie Thornton, former Detroit School Board member, center, asks a question during a public meeting with Kevyn Orr, emergency manager for the city oF Detroit on June 10, 2013. Photographer: Jeff Kowalsky/Bloomberg

Detroit residents condemned and praised Emergency Manager Kevyn Orr at a forum he used to drive home the severity of the city's fiscal crisis, which has pushed it to the brink of bankruptcy.

One step he plans to take as Detroit’s financial overseer is to lease the Belle Isle municipal park to the state to save $6 million a year, Orr said late yesterday at the hearing on his roadmap to revival. The City Council rejected a similar proposal from Republican Governor Rick Snyder earlier this year.

Leasing the park is just one step proposed by Orr to help the city deal with a budget deficit nearing $386 million and to restructure $9.4 billion in long-term debt. In a report last month, Orr also called for altering benefits for city workers as a way to cope with $5.7 billion in projected unfunded obligations for retiree health care. He says the city may owe billions of dollars more to the retirement system because of skipping payments to preserve cash.

“People had their differences but they listened and were respectful,” said Sheila Cockrel, a former city councilwoman who teaches at Wayne State University, where the meeting took place. “This was democracy in action.”

Priorities Outlined

Improving public safety is his top priority, to rebuild confidence in a city where crime, blight and population loss have left swaths of vacant and unused land, Orr told a packed crowd of more than 260 people. Next in line, he said, are dealing with the city’s liabilities and reworking services such as the transit system, which is unreliable. Detroit isn’t sustainable on its present course, the emergency manager said.

Orr spoke for half the 70-minute session, where as many as 100 people couldn’t get in. Outside the meeting hall, a few dozen protesters against the emergency manager marched with signs and chanting such slogans as “Make the banks pay.”

Lenders that do business with the city caused the crisis, Jerome Goldberg said at the meeting, identifying himself as a lawyer who helps block foreclosure proceedings. “They owe us billions of dollars.”

Covering what the city owes on an annual basis will consume about a third of Detroit’s $1 billion fiscal 2014 general-fund budget, according to Orr’s May report. The payments are draining the city’s ability to provide basic services, yet it has borrowed more in recent years to cover budget deficits.

“We have to break our addiction to debt,” Orr said.

Bankruptcy Option

Resident Marie Thornton asked Orr, a bankruptcy lawyer in Washington, if he intended to put the city under court protection from its creditors. He said that’s an option, yet he aims to reach agreements with creditors and others to reduce costs and financial burdens.

Afterward, Thornton said she wasn’t persuaded by that response.

“You talk about how you’re going to fix the situation, not the hammer that you hold in your hand for bankruptcy,” she said.

Cockrel, the former councilwoman, said Orr displayed empathy while expressing firmly that “he’ll do what needs to be done” to help the city recover.

Detroit’s revenue has dwindled as its population has declined. Once among the top 10 U.S. cities by population, it has lost more than a quarter of its residents since 2000, to about 701,000 last year. That’s less than half its postwar peak of 1.8 million in 1950.

Declining Fortunes

The city’s income-tax receipts have dropped 40 percent since fiscal 2000, to $233 million in 2011, while the jobless rate has tripled and property values have declined, reducing related revenue. State aid has fallen 48 percent, to $173 million in 2012 from a peak of $334 million in 2002, the report shows. Unemployment at 18 percent in June 2012 was almost double the state average rate of 9.3 percent at that time.

A new emergency manager law passed by the state legislature gives Orr sweeping authority to cut city spending and services, and to impose new terms for employee contracts, including wages and benefits. Yesterday’s hearing on his report was required by the law.

On June 14, Orr plans to meet with more than 100 creditors, union leaders and bond insurers to lay out his plan to revive the city’s fiscal fortunes. Orr’s call for concessions will be “staggering,” Bill Nowling, a spokesman, said in a June 7 interview. He declined to elaborate.

Negotiations could extend into August or beyond, Orr said in a June 5 interview.

Tax-exempt Detroit general-obligation bonds maturing in April 2015 traded June 7 at an average yield of about 15.2 percent, data compiled by Bloomberg show. The limited-tax debt isn’t insured.

The securities carried a yield on June 7 that was almost 15 percentage points higher than the 0.4 percent yield in an index of top-rated municipal bonds with comparable maturities, data compiled by Bloomberg show. That compares with a 7.3 percentage point spread at the start of the year, the data show. Standard & Poor’s rates the debt B, five steps below investment grade.

To contact the reporter on this story: Chris Christoff in Lansing, MI cchristoff@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net.


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