TOPICS > Economy

Michigan Gov. Puts Detroit Under Emergency Fiscal Management

March 14, 2013 at 12:00 AM EDT
Michigan's Gov. Rick Snyder announced an emergency financial manager will take over Detroit's finances. The city has faced economic struggles as residents and businesses left for suburbs and it saw reductions in state aid. Margaret Warner talks to Gov. Snyder and Detroit's new financial manager, Kevyn Orr, about the plan.

JUDY WOODRUFF: Now, to Detroit, where the governor of Michigan announced an emergency state takeover of the city’s finances today.

Margaret Warner has our report.

MARGARET WARNER: It was once a bustling Midwestern city alive with people, the humming heart of the auto industry. But Detroit today is just a shell of that, with widespread decay and population loss. The 2010 census showed one person moved away from the city every 22 minutes in the last decade.

WOMAN: It makes me sick. I want to leave. I wish I had somewhere else to go, because I would leave and never come back.

MARGARET WARNER: Detroit is also the poorest major city in the U.S., running big annual deficits and $14 billion dollars in debt. All of that led Michigan’s Republican governor, Rick Snyder, today to declare a financial emergency and recommend the appointment of an emergency financial manager for the city, Kevyn Orr.

GOV. RICK SNYDER, R-Mich.: And if you look at the history of the city, this is a problem that’s been evolving for 50-plus years. This is a problem that now has reached a true crisis point.

In many respects, it’s a sad day, to say we have this day, but again I like to view it as a day of opportunity. This is an opportunity for us to work together.

MARGARET WARNER: Orr is a lawyer with the Washington law firm Jones Day. He’s best known for his work on restructuring Chrysler in its bankruptcy of 2009.

As emergency manager, he will have the power to renegotiate or even terminate the city’s labor contracts, privatize public services and sell some city assets. Detroit’s City Council has vigorously protested the move. But, today, Mayor Dave Bing said he will work with Orr to do what’s best for the city.

MAYOR DAVE BING, D-Detroit: Bottom line here is that we must stop fighting each other. We must start to work together, and so I’m happy that now I have got teammates. I have got partners that can help me do some of the things that need to be done in our city. Our citizens obviously deserve more than they are getting.

MARGARET WARNER: Orr faces huge challenges in doing that. Even police protection has broken down, and corruption has blighted city hall.

Just this week, former Mayor Kwame Kilpatrick was convicted on two dozen federal charges of corruption and bribery.

For more on the struggles facing Detroit and the way ahead, we’re joined now by Michigan Gov. Rick Snyder and the city’s soon-to-be emergency financial manager, Kevyn Orr.

Gentlemen, welcome to both of you.

Gov. Snyder, the mayor and the City Council last year put forth their own plan to get the city solvent. Why is it necessary to do this now?

RICK SNYDER: Well, Margaret, I appreciate them coming forward with a plan.

The issue was, is the plan wasn’t being implemented fast enough and wasn’t going to be sufficient enough to resolve the financial crisis. So it was helpful. I urge them to continue to work on their efforts on that plan, but what I would say is we need to do more. And that was really the point of adding an emergency financial manager.

And Kevyn’s background is fabulous for this. It’s really all hands on deck. We’re bringing additional resources. So let’s really turn around Detroit, because it’s an outstanding opportunity with a very bright future if we can address these financial issues. And we address these financial issues.

MARGARET WARNER: Mr. Orr, today at your press conference you called this job the Olympics of restructuring. What are your most pressing, immediate priorities? What do you have to do first?

KEVYN ORR, Detroit Emergency Financial Manager: Well, hello, Margaret. Nice to meet you telephonically.

The first thing I think we need to do is assure the citizens of Detroit that we are focused on their needs as customers and enhance city services. The reason I said it was the Olympics because we have got to deal with issues regarding employee and retiree benefits, as well as debt service, but we also have to provide services, key services to the citizens.

So my first order of business is to look into that and see how there are ways we can improve it, some of which are in the pipeline already.

MARGARET WARNER: But are you also — in terms of actually cutting costs, which is the huge problem you face, are you going to be looking at things like cutting city workers in a city with high unemployment, or renegotiating labor contracts, privatizing some city services?

KEVYN ORR: Margaret, everything is on the table.

I think, under these circumstances, the three things that everybody agrees — two things everybody agrees on, there’s a financial emergency in the city. Something needs to be done about it. The question is what.

And so we want to do is take a really extended and granular look at what can be done and what needs to be done, but everything is on the table. I want to make no decisions now, because I haven’t had an opportunity to look at everything, but we’re going to do what makes sense and what’s driven by the data.

MARGARET WARNER: Governor, the members of the City Council, who have opposed this, who appealed the decision, who are talking about going to court, say essentially that it’s undemocratic to take the power to run the city out of the hands of elected representatives.

What do you say to that?

RICK SNYDER: Well, if you look at it, the city is really a subset of the state of Michigan. We’re the sovereign entity here. And I’m an elected official. And I’m responsible to all the citizens of Michigan, Detroiters and non-Detroiters.

And I’m focused on improving the city of Detroit. So there is an elected official in charge of this process. The other thing is, is, if you go back to the consent agreement I worked out with the city in the past, with the mayor and the City Council, and we all agreed on a series of things that needed to be done.

And that’s one of the starting points for our continuing efforts, is to say here’s a list 21 different items that need to get done. A lot of those are still in process or need to get started. So that’s one of the things that clearly needs to happen. And we are all part of that process.

The other thing I would mention that was very exciting — and I was proud to have him there — was Mayor Bing was at the press conference …

KEVYN ORR: Absolutely.

RICK SNYDER: … to say this is about partnership. This is not about someone vs. someone else.

This is all of us getting focused in on the citizens, the customers in Detroit to say, how do we give them better services and how do we create a long-term environment of success? Let’s solve the short-term problems. Let’s grow Detroit.

MARGARET WARNER: Mr. Orr, you spoke today about wanting to have a team approach. But what are you — are you going to be taking the views of the members of the City Council who really oppose some of these potential steps into account, or can you just override them? Where’s the balance there?

KEVYN ORR: Well, I don’t think that members of — all the members of the City Council necessarily oppose some of these steps.

In fact, some of them were baked into the consent agreement that they agreed to. So the reality is that I’m just merely a creature of a state statute that allows me to expeditiously bypass some of the impediments to achieving the very goals that many of them have already agreed with.

What I would like to do, though, is as we have seen with the mayor, as we have seen with the governor, who’s taken a very courageous step in terms of declaring the emergency, this has been breeding for a long time. In fact, in 2005, there was a discussion of a restructuring.

What I would like to do is embrace everybody in that process to achieve some of the goals and measures that have already been identified in a collegial and hopefully expeditious way.

MARGARET WARNER: What is the time frame you have set for yourself, Mr. Orr? And if it comes to that, is bankruptcy, which is certainly what Chrysler did, is that an option?

KEVYN ORR: Well, Chapter 9 is a little different than Chapter 11.

But, yes, everything is on the table, including the possibility of a bankruptcy. The reason I keep emphasizing the need for all stakeholders to come together and try to reach a consensual agreement is because I think that would be more fair. I think it would be quicker. I think bankruptcy, specifically Chapter 9, could put a little finger on the table in terms of the powers that the municipality has vis-a-vis other stakeholders.

So I would like to get to an agreement fairly quickly. I have 18 months to do it under my appointment. I’m going to enter into discussions with interested parties as soon as I can and as soon as I can inform myself and make an assessment from there going forward.

It is my hope that we will be able to do this collaboratively, because the reality is New York and Philadelphia were able to do it that way. And other great cities, Baltimore and Pittsburgh, for instance, 10 years ago were considered in crisis, and look at them now. They’re thriving. There’s no reason Detroit can’t have the same outcome.

MARGARET WARNER: So, gentlemen, I would like to close by asking you both — and I will begin with you, Governor — is the underlying message here that when a city is in this much trouble of such long standing that really only an outside manager with, if not autocratic, than tremendous power, can really do what has to be done?

RICK SNYDER: That’s not necessary.

It’s a situation here where we have got at least 50 years of this problem growing. And a lot of people in good faith in the past have tried to solve it and have been unsuccessful. So the way I view it as is this is all hands on deck. This is not to exclude people. This is to say the mayor’s been working hard on this. A lot of the City Council have, many people in the community.

And let’s add all the resources we can. And this is another tool in the toolkit to bring the powers of the emergency manager and to add this level of expertise. Kevyn is one of the finest restructuring bankruptcy people in the country.

And let’s get them on board, let’s go, and let’s do this as a team to turn Detroit around, because it will be a fabulous outcome and an opportunity for Detroiters, for Michiganders and our whole country to see Detroit moving in a positive way.

MARGARET WARNER: Brief final word from you, Mr. Orr?

KEVYN ORR: No, Margaret, you know, this is — this is an issue and an opportunity whose time has come.

And, frankly, if we get everybody, as the governor said, pulling all oars, if you will excuse the pun, pulling together, we can get this done very quickly. I’m not unmindful, however, that I’m very comfortable in the bankruptcy courts in America, and they’re tremendously talented.

They handle cases concerning horse farms all the way to airlines. They would be able to provide some heft and certainly some impetus, but I’m hoping we don’t have to go that route. That sounds sort of odd coming from a bankruptcy practitioner, but that’s my goal.

MARGARET WARNER: Gov. Rick Snyder and Kevyn Orr, good luck and thank you so much.

RICK SNYDER: Thank you.

KEVYN ORR: Thank you so much, Margaret.

JUDY WOODRUFF: Our partners at Detroit Public TV and Michigan Public Radio have ongoing coverage of this story. You can find links to their reporting on our home page.