Detroitreutersdetroit-emergency-managerKevyn Orr

Detroit Could Get Through Bankruptcy Without New Borrowing, Says Kevyn Orr

A Little Good News For Bankrupt Detroit
Reuters
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Kevyn Orr, emergency manager for the city of Detroit, listens during a news conference in Detroit, Michigan, U.S., on Friday, July 19, 2013. Detroit, the cradle of the automobile assembly line and a symbol of industrial might, filed the biggest U.S. municipal bankruptcy after decades of decline left it too poor to pay billions of dollars owed bondholders, retired cops and current city workers. Photographer: Jeff Kowalsky/Bloomberg via Getty Images

(Corrects day of week to Wednesday, not Tuesday)

DETROIT, Aug 7 (Reuters) - Detroit's state-appointed emergency manager said on Wednesday he is confident the city should be able to navigate its way through the nation's largest-ever municipal bankruptcy before his term expires by October 2014 and possibly without having any new borrowing to fund Detroit's operations.

"If we can get our cash flow free-and-clear, we may be able to get through this thing without necessarily borrowing a lot of money," Kevyn Orr said in a wide-ranging interview on Tuesday. "The schedule we're on, we should be able to get this done in 14 months, so I don't anticipate a need for me to stay on." (Reporting by Nick Carey; Editing by Gary Hill)

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Before You Go

How Detroit Could Change After Bankruptcy
Could Detroit Come Back After Bankruptcy?(01 of12)
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We combed through Detroit Emergency Manager Kevyn Orr's 150-page-plus restructuring plan he released to the public in June 2013, weeks before the city's bankruptcy filing, after meeting with bondholders. Orr met with those creditors to negotiate Detroit's structural long-term debt, now said to total over $18 billion. Along with finances, the plan proposes 10 years' worth of improvements, priorities and changes that will affect residents, businesses, neighborhoods and visitors.Click through the slideshow to read our analysis of how Detroit could change after bankruptcy. You can see the nitty-gritty details for yourself by reading the full report here. (credit:(AP Photo/Paul Sancya))
Vacant Buildings(02 of12)
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Mayor Dave Bing launched a program in April 2010 with the goal of demolishing 10,000 vacant structures by the end of his term. Over 5,000 of those abandoned buildings have been torn down, with the remainder scheduled to go by the end of 2013.But there was never enough money to fully rid Detroit of its blighted buildings. Orr's report says a funding gap of $40 million exists before Bing's goal can be completed.And while 10,000 demolitions is an insanely high number, Orr's report says that only covers 13 percent of the city's vacant buildings, and 26 percent of those that have been deemed dangerous. (credit:Photo via AP)
Neighborhoods(03 of12)
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Orr's restructuring plan presents a number of ways the city can speed up blight removal. One tactic involves coordinating and simplifying the myriad local, regional and national agencies and statutes that regulate demolitions. Another priority is moving blighted land through the demolition process faster, in order to return those properties to private ownership (Pages 72 and 73).Police and fire departments will integrate their data so demolitions can be targeted to reduce crime and arson.Orr's budget calls for $50 million annually in 2014 and 2015 to battle blight, to be increased to $100 million each year for 2016 through 2018. Some of that money will have to be raised through grants and public-private partnerships. (credit:Old Victorian style homes sit vacant in the Brush Park Historic District in the Midtown neighborhood on May 2, 2013 in Detroit, Michigan. (Photo by Ann Hermes/The Christian Science Monitor via Getty Images))
Pensions(04 of12)
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According to the city's preliminary analysis, Detroit hasn't kept up on its obligations to beneficiaries of the General Retirement System and Detroit's Police & Fire Retirement System. By how much? A staggering $3.5 billion, says Orr, who writes, "At this level of underfunding, the City would have to contribute approximately $200 million to $350 million annually to fully fund currently accrued, vested benefits. Such contributions will not be made under the plan." (credit:AP)
Retiree Health Benefits(05 of12)
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Under Orr's plan, pension funds would receive a proportional (pro rata) share of $2 billion in notes that the city would issue. But since that share of $2 billion won't equal the total amount of unfunded pension costs, the report notes, pensioners should expect "significant cuts in accrued, vested pension amounts for both active and currently retired persons." According to the Detroit Free Press, retiree health benefits will likely be transferred to modified medical benefit plans that will come into effect with the Affordable Care Act. Those over the age of 65 would be transitioned to Medicare. (credit:AP)
Detroit Police(06 of12)
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Hiring a new police chief was the first task on Kevyn Orr's Detroit Police checklist, but it's not the only change he recommends. Orr envisions using a data-driven approach to restructure DPD from top-to-bottom. Another priority is improving officer morale and giving the force the tools they need to do their jobs: bulletproof vests, tasers, vehicles and functional IT. He's also a fan of the "Broken Windows" policing theory piloted last year in the city's Rosedale Park neighborhood. In total, Orr plans to spend $26 million more on DPD in 2014, with an additional $66 million investment over the next four years. (credit:AP)
Unsecured Creditors(07 of12)
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It should come as no surprise to readers that Detroit is bonded to the hilt. Creditors may take a huge hit on payments from the city, reportedly as little as 10 cents on the dollar. Orr has stopped paying some debts entirely, and his plan calls for reinvesting that money into city services after bankruptcy. (credit:AP)
Detroit Fire Department(08 of12)
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Aging fleets of fire engines and facilities to maintain them threaten the impact of the Detroit Fire Department, which responds to around 30,000 calls every year. The restructuring plan calls for at least $6 million in additional investment over the next five years, with an $18.4 million facility investment in 2017. But the restructuring plan doesn't talk about hiring any more fire investigators -- as of Dec. 2012, the department only had 12 on staff to investigate more than 5,000 suspicious fires set in the city's neighborhoods every year. (credit:Tyree Guyton stands in the remains of an art house at the Heidelberg Project that was burned in a suspicious fire (AP).)
Public Transit(09 of12)
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The restructuring plan mentions that DDOT, Detroit's underfunded bus system, could eventually be merged with a private company or SMART, the suburban public transportation system. There's also talk of bringing DDOT under the control of the new regional transit authority. A consultant is apparently studying long-term solutions, including outsourcing (Pages 74 and 75).While it could make more sense long-term to have all of the region's transit under one umbrella, the RTA is too new to make that determination and doesn't yet have funding. In the event of a merger, gains in savings and efficiency may be balanced with layoffs.
Belle Isle(10 of12)
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Managing and maintaining the 982-acre Belle Isle Park costs the city of Detroit some $6 million annually. Orr's verdict on Belle Isle comes as no surprise: He says the city "intends to enter into lease transaction with State on generally the same terms as the State’s prior proposal," though no timetable is given (Page 87).That means "Detroit's crown jewel" is slated to become a state park managed by the Michigan Department of Natural Resources. Under the previous 30-year lease proposal, pedestrians and bikers would still be able to access the park for free. Motor vehicles would have to pay an annual $11 Recreation Passport fee to the MDNR, good for accessing any state park. (credit:Photo via Getty)
36th District Court(11 of12)
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Orr proposes possibly transitioning to "paperless" transactions at the 36th District Court (Page 73). Welcome to the 21st century, guys! (credit:AP)
Residents Who Work Outside The City(12 of12)
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Orr's report proposes levying an income tax for reverse commuters -- those who live in Detroit but work outside the city (Page 81). The City loses approximately $30 to $45 million of income tax revenue every year, claimed to be 15 to 20 percent of the total tax collected, from reverse commuter non-filers. Expect new legislation to tax these residents. (credit:Photo via Getty)
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