The state-appointed emergency manager for Detroit, Kevyn Orr, has been given a year of legal authority to address Detroit’s insolvency problem. It is a herculean task to right decades of complex problems. Muniland observers believe that the city will end up filing for Chapter 9 bankruptcy.
The rationale for this relates to certain limitations of the emergency manager’s authority. Outside of Chapter 9, the emergency manager cannot legally cut debt or pension liabilities, and the likelihood that bond market creditors and the city’s 48 unions will voluntarily make concessions seems slim.
Orr has authority to cut public employee wages. He possibly could obtain pension concessions as part of wage negotiations. Detroit Mayor Dave Bing already reduced public employee wages by 10 percent last July, when he used his new authority under the state’s Consent Agreement to cut the pay of city workers in 40 unions and make other changes to labor agreements.
Lots of estimates of the city’s debt liabilities have been floating around, but here is what the emergency manager’s report says (page 20):
The City has liabilities of approximately $9.4 billion in special revenue bonds, state revolving loans, pension certificates of participation (i.e., POCs), mark-to-market swap liabilities, unlimited and limited tax general obligation bonds and various other funded City debts.