Detroit’s forsaken leaders
Being the emergency manager for bankrupt Detroit is no picnic. Coordinating the largest municipal bankruptcy in American history while simultaneously trying to restructure city operations, even with a posse of high-priced consultants, is a huge job. The current emergency manager, Kevyn Orr, wants to complete the bankruptcy and his term in 18 months. This is a recipe for inappropriate appointments, rich living and major mistakes.
Now the mayor of Detroit, Dave Bing, has weighed in with scathing comments about Orr’s performance. From The Detroit News:
Mayor Dave Bing reiterated Wednesday his growing frustration with how consultants and Emergency Manager Kevyn Orr have taken over City Hall and sidelined his team.
The comments came after The Detroit News obtained Tuesday a deposition in the city’s bankruptcy case in which Bing said his department heads are ‘frustrated as hell’ by the consultants and Orr is ‘not doing a competent job’ restructuring city operations.
Bing told reporters after a Wednesday press conference urging people to sign up for health insurance under the Affordable Care Act that his criticism is not personal, but city leaders should be running the day-to-day operations.
Detroit’s former state-appointed program manager, Kriss Andrews, who was removed from his post in July, had even harsher words for Orr. From The Detroit News:
‘Mr. Andrews’ conclusion is that the emergency manager, and I quote, threw away the head start we gave him, he frankly is not competent at all,’ Ullman said. ‘In fact, he’s embarrassingly incompetent and only listened to his equally incompetent staff and (does) not well exercise the added powers he had. So Mr. Andrews gives him an A in long-term liabilities and an F in operations.’
Since Kevyn Orr was appointed Detroit’s emergency manager on March 18, his approach always seemed a little off, especially when bankruptcy is concerned. For a Chapter 9 municipal bankruptcy to work, most of the parties must come to a mutual agreement about what each will sacrifice. Federal bankruptcy judges only have the authority to ‘cram down’ a minority of creditors in a specific class when the majority agrees. Federal bankruptcy judge Steven Rhodes, for example, can’t force all bondholders in a class to take a 50 percent haircut. Absent that power, municipal bankruptcy usually lasts much longer than others, as parties come to an agreement.
This balancing act is no easy task for a bankruptcy leader (city official, receiver, emergency manager or lead attorney). But when Orr laid out his creditor proposal on June 14, his aggressive treatment of retirees and bondholders seemed to me like he was wielding a chainsaw where a paring knife would have been the best tool to begin the work. The law firm Jones Day, the firm Orr left before becoming emergency manager, had been involved in the corporate bankruptcy fight of Chrysler. Orr’s opening punch felt like a move from corporate bankruptcy.
What authority do Michigan’s laws give to Orr? (Section 9(2)):
Upon appointment, an emergency manager shall act for and in the place and stead of the governing body and the office of chief administrative officer of the local government. The emergency manager shall have broad powers in receivership to rectify the financial emergency and to assure the fiscal accountability of the local government and the local government’s capacity to provide or cause to be provided necessary governmental services essential to the public health, safety, and welfare.
Following appointment of an emergency manager and during the pendency of receivership, the governing body and the chief administrative officer of the local government shall not exercise any of the powers of those offices except as may be specifically authorized in writing by the emergency manager or as otherwise provided by this act and are subject to any conditions required by the emergency manager.
The state law authorizes Orr to give authority to Bing for whatever functions he designates. So why didn’t Orr, after his appointment last March, carve out a substantial role for Bing? He had success in walking down the size of Detroit’s municipal infrastructure. The idea that Orr, in 18 months time, could come in and remake Detroit city government without the support and knowledge of current officials is unrealistic. From The Detroit News again:
On Wednesday, Bing said the removal of 11 of the 25 department heads is moving the city backward in delivering city services. Bing added the business community told him it is still frustrated with public safety areas such as EMS, fire and police service. They also are frustrated over the lack of timely buses and lighting problems.
Michigan Governor Rick Synder might want to re-evaluate whether granting the entire authority for a municipality to one outside individual is the best approach for righting a city’s woes.