Bankruptcy lawyer appointed to save Detroit from fiscal disaster

A veteran lawyer who once worked on Chrysler's bankruptcy has been handed what may prove to be his toughest case yet: to bring Detroit back from the edge of financial collapse.

Michigan officials yesterday appointed the lawyer, Kevyn Orr, a partner in the Jones Day law firm, as an emergency manager to oversee operations in Detroit, one of the largest cities ever to receive such intervention.

"This is the Olympics of restructuring," Mr Orr said during a news conference in Detroit as he stood near Governor Rick Snyder, who chose him, and Mayor Dave Bing, who, like all city officials in such situations, will be forced to cede significant powers to Mr Orr under the state's plan to save the city.

Mr Orr described Detroit's problems - which include annual cash shortages, about $14 billion in long-term liabilities, and complaints by residents that broken streetlights are not replaced and that the police do not respond to calls - as "very challenging."

But he also struck an upbeat tone, saying that he hopes to someday reflect back on having participated in one of the nation's “greatest turnarounds”.

Oversight boards and receivers have for decades been assigned to help shore up some of the nation's most financially troubled cities, and more than 20 state emergency managers have been assigned in Michigan over the past quarter century. But the challenges - political, racial and economic - of running a city like Detroit are immense.

Its problems, arising in part by the decline of the US auto industry and the resulting loss of more than half of Detroit's population, have been decades in the making. But an emergency manager could get as little as 18 months to fix them.

"I think it'd be like a double root canal," Pat O'Keefe, a Detroit-area financial consultant who has dealt with municipal turnarounds, said of the assignment.

Under a revised state law governing emergency managers that will go into effect March 28, the same week that Orr is to begin his job, he will be granted sweeping powers to remake the city's financial plan, change labor contracts and sell city assets.

He will make $275,000 a year, nearly all of it paid by the state, and may choose to hire staff to be paid for by the city. Many of his decisions will trump those of elected officials, although some leaders - most notably Mr Bing - have indicated a willingness to collaborate with Orr.

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.