The New Emergency Financial Manager in Detroit

Detroit is entering new financial territory, with Governor Rick Snyder naming a new “Emergency Financial Manager” for the City, with Attorney Kevyn Orr being named by the Governor. Attorney Orr is a lawyer with the firm of “Jones Day”, and is a noted specialist in turnarounds and municipal bankruptcy. The connection to bankruptcy law was not lost on many. The New York Times covered Attorney Orr’s appointment:

Despite Mr. Orr’s legal background, he said he hoped the city would not ultimately need to file for bankruptcy. Municipal bankruptcies are rare, but it was lost on no one that the state had selected an expert in bankruptcy law for Detroit, as opposed to a financial accountant, former city manager or elected official. Under Michigan law, a city can file for bankruptcy only under certain conditions, including if an emergency manager has attempted other measures and concluded that such a move is needed.

Detroit really is the World Series of municipal management and restructuring, with the attention of so many students of municipal finance focused on the results of this initiative by Governor Snyder. There are so many issues at hand, but as mentioned in a prior post I do not think that simply cutting budgets will be sufficient. An active effort to bring economic development and growth to Detroit must be the main component of the restructuring, along with a solid dose of financial realism. Borrowing on the capital markets to paper over operating deficits should be a thing of the past.

Lastly I have attached some video clips of Attorney Orr talking about the future in Detroit under his leadership. The Morning Joe segment had Rev. Al Sharpton questioning the Governor closely on the issue of disenfranchising local voters by essentially removing home rule from Detroit. It is a very serious question for the Governor, and the charge, as far as it goes, is true. The locals have had most, if not all, of their financial authority removed. It is, by definition, undemocratic. Despite my agreement to the definition I do not believe there was much choice here. The locals, on a financial level, have performed in an abysmal fashion. I do urge, in other situations, that we not fib about the hard numbers that are involved in Government. As Democrats we cannot paper over the poor performance of local governance in Detroit. On that basis the Republican Governor has made the correct choice, in my opinion, in naming a financial manager. The duration should be as short as can be reasonably expected to turn that great City around, hopefully without a bankruptcy filing. Attorney Orr will be under heavy scrutiny by all.

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