Bankruptcy lawyer appointed to save Detroit from fiscal disaster

US city is largest ever to receive such intervention


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.

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.

For now, Mr Orr said he was hopeful that he could move quickly, perhaps faster than expected. Solutions, he said, can come "as quickly as anybody is ready to make a deal."

Mr Orr's appointment, which had been many months in the making, drew mixed and sometimes muted reactions in Detroit. The City Council, which had contested the governor's decision to bring in an emergency manager, decided in a closed-door session yesterday not to pursue its challenge further, said Charles Pugh, the council's president, although he added that legal challenges by other groups remained possible.

Mr Orr was praised for his experience with financially troubled businesses and for overseeing bankruptcies and guiding restructurings.

He also has worked at federal agencies including the Federal Deposit Insurance Corp. He was also part of a legal team involved in bankruptcy proceedings on behalf of Chrysler in 2009, and he pointed to the resurgence of US automakers as a good omen for Detroit.

He said he was resigning his post at Jones Day, where he was recently named to lead the firm's new Miami office.

Mr Orr (54), who received his law degree from the University of Michigan and has served as chairman of his law firm's diversity task force, is black - a fact that some in Detroit, whose population is nearly 83 per cent African-American, said was likely to temper the racial tension that many anticipated after Mr Snyder declared the financial emergency.

Outside the building where Mr Orr was being introduced, a group of protesters chanted and marched in the cold, one carrying a sign in the shape of a coffin that read: "RIP They Are Killing Detroit Over Our Dead Bodies."

Critics have said that the state's intervention is an undemocratic seizure of power. "Fundamentally, this is unconstitutional," said Josh Mack, a retiree who was among the protesters.

But Mr Bing, who had contended that the city did not require an outside manager but accepted that Mr Orr's appointment had grown inevitable, said residents were no longer particularly interested in who was in charge.

"I don't think that they care at this point who the mayor is or who the City Council is," Mr Bing said yesterday. "They want things fixed."

Diane Markus, a Detroit resident who works as a receptionist, briefly watched the protests.

"The City Council had a long time to do something, but what did they do?" she said. "I mean, I don't like this, but maybe something good will come out if it."

New York Times