O'Keefe in the News

The New York Times – Dire Report on Detroit Is Offered by Manager

The New York Times – Dire Report on Detroit Is Offered by Manager

May 13, 2013

DETROIT — An emergency manager assigned to lead this city back from the brink of financial ruin has taken his first detailed look at Detroit’s woes, and the picture of debt and disarray he paints may be bleaker even than earlier grim portrayals.

In a report to be presented to Michigan’s treasurer on Monday, Kevyn D. Orr, the emergency manager appointed in March to take over operations here, described long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.

And in the face of those fiscal troubles, Mr. Orr, a longtime bankruptcy lawyer, portrayed city operations in Detroit as in need of significant repair, including overhauls of the city’s Police Department and Fire Department, among others.

“No one should underestimate the severity of the financial crisis,” Mr. Orr said in a statement issued by his office on Sunday. “The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city’s finances and operations will allow Detroit to regain its footing and return to a path of prosperity.”

The account from Mr. Orr, 45 days into his time in Detroit, is required under a Michigan law that dictates the state’s oversight of cities that appear headed for financial collapse. But Mr. Orr’s findings, painfully detailing the city’s problems over more than 40 pages, also seem likely to become a new focal point for debate for some in Detroit who have questioned the seriousness of the city’s troubles and the need for state intervention at a level rarely seen for a city of its size.

“It’s not as bad as what they’re trying to make it out to be,” Edward L. McNeil, a local official for the American Federation of State, County and Municipal Employees, said on Sunday. Mr. McNeil had not viewed a copy of Mr. Orr’s report, which was not made public until late Sunday, but he said he had grown accustomed to overly negative assessments of Detroit by the state and its representatives.

“All of this was a cooked deal for them to take control of the city and take the assets,” Mr. McNeil said. “This has been a sham.”

In his filing for the state, Mr. Orr made clear that the city must fundamentally restructure its financial liabilities. Noting that retirees from the city now outnumber current workers by more than two to one, Mr. Orr said pension and health care costs must be addressed.

Mr. Orr found that the Detroit Police Department, led by five chiefs over the last five years, suffers from “extremely low” efficiency, effectiveness and morale, and said its equipment and technology were out of date. The Fire Department has 52 facilities across the city, but as many as 12 may be essentially out of service on any given day, Mr. Orr said, because of “staffing and equipment constraints.” Meanwhile, he said, at least 60,000 parcels of land across the city are vacant, as are 78,000 buildings.

“The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” he wrote. “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.”

While Mr. Orr’s report is titled “Financial and Operating Plan,” it amounts more to a detailed assessment of the city’s problems than a plan for what precisely he will do to fix them. Mr. Orr, who has the authority to make significant changes to union contracts, sell city assets and privatize city services, is expected to amend the plan in the months ahead.

Under state law, an emergency manager may lead a city to seek bankruptcy protection in court, an option that city and state officials have said they view as remote and undesirable. Such a bankruptcy, known as Chapter 9, would be the largest, in terms of debt and population, for a municipality in the nation.

Patrick O’Keefe, a financial consultant from the Detroit area who has dealt with municipal turnarounds, said Mr. Orr’s outline of Detroit’s troubles was needed before any plan for fixing the problems could gain support — particularly from those who may be asked to make concessions, like employees, unions and creditors.

“There are still constituencies that are in a state of denial as to how deep the problem is,” Mr. O’Keefe said. “I think if there’s any meaningful negotiations that are going to take place outside of Chapter 9, people have to agree on what the facts are.”

This city, once the nation’s fourth largest, has a shrunken tax base but still has a vast 139 square miles of land to maintain. And by Mr. Orr’s assessment, some of the city’s problems are simply described, if not simply resolved.

“The City of Detroit continues to incur expenditures in excess of revenues despite cost reductions and proceeds from long-term debt issuances,” Mr. Orr wrote. “In other words, Detroit spends more than it takes in — it is clearly insolvent on a cash flow basis.”

Steven Yaccino reported from Detroit, and Monica Davey from Wisconsin Dells, Wis.

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