Michigan Governor Rick Snyder and Detroit emergency city manager Kevyn Orr speak to the press about the filing of a Chapter 9 bankruptcy, July 19, 2013, at the Maccabees Building, 5057 Woodward Ave., in Detroit. “There were no other viable alternatives,” Snyder said, who spoke of the 60 year decline of the city. Danyelle Morrow/The State News
Detroit — On Thursday afternoon, the city of Detroit –- once a mighty engine of prosperity — became the the largest U.S. public sector to file for Chapter 9 bankruptcy.
At a press conference Friday morning, Gov. Rick Snyder and emergency manager Kevyn Orr discussed the next steps in the motor city’s historical bankruptcy filing.
“In terms of the ‘why’, it goes back to 60 years of the downward decline of the city of Detroit,” Snyder said. “There were no other viable alternatives.”
The city government is the last major obstacle to jump starting growth in Detroit, Snyder said.
After brief remarks by the Governor, Orr took the podium, and started off by emphasizing that nothing is for sale, including Howdy Doody, which currently is on display at the Detroit Institute of Arts.
Orr said bankruptcy is the most fair route for the citizens of Detroit. Along with free cash flow flexibility, he said Chapter 9 gives the city a forum to bring in all parties.
A significant percent of the parties are unrepresented, including 19,720 retirees. Orr said he consequently requested the appointment of a retiree committee to aid the process.
About $3.5 billion of the debt is unfunded pension obligations.
Detroit’s pension fund currently is at 10 cents to the dollar. Orr, once again emphasizing fairness, said the figure is the only way to give unsecured parties some sort of recovery, given the reality of the budget situation.
With $12 billion in unsecured debt, “this is the best we can do,” he said.
“What was shocking wasn’t the numbers,” Orr said. “What was shocking was the tolerance of this behavior for decades … it is at best, unorthodox.”
“I know a lot of people are outraged at my appointment; I wish there had been a lot more outrage over the last 10, 20 years.”
Now, Orr must deal with 60 years of deferred maintenance in 15 months.
In terms of public services, Orr anticipates citizens of the city will see improvements in the next 30 to 40 days.
Although there are numerous estimates as to how much Detroit is in the hole, Orr, appointed on March 14 by Snyder to solve the city’s financial crisis, said the total debt likely is to be $18-20 billion.
Chapter 9 is a bankruptcy-protection filing categorically for municipalities to develop and negotiate a plan to deal with debt, according to U.S. Courts. A city may not file for Chapter 9 unless the state allows it to.
Yesterday afternoon, Orr recommended bankruptcy to the Governor, who then authorized the move.
Detroit has a population of approximately 701,475; a 25.2 percent decrease since 2000, according to the United States Census Bureau.
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