Detroit — Gov. Rick Snyder made the unprecedented move Thursday to take control of the city's operations by selecting a Washington, D.C., bankruptcy attorney to become emergency manager for the state's largest city.
Unconvinced by the appeal by city officials earlier this week, Snyder said he believes Detroit needs outside help to fix the longstanding financial issues. The Republican governor introduced Kevyn Orr, a partner with the Jones Day law firm, as his choice to lead the troubled city.
Shortly after Snyder's announcement, the Local Emergency Financial Assistance Loan Board unanimously approved the selection of Orr to oversee Detroit's finances at a hearing in Lansing, as required by the 1990 financial emergency manager law.
Orr will begin March 25 and be paid $275,000 a year and have an "open-ended" contract. State officials hope he can complete his job in 18 months.
"This is not about asking anyone to step aside, this is about asking for all hands on deck," Snyder told the media during a press conference at Cadillac Place in the New Center area.
Snyder spokeswoman Sara Wurfel said Orr will begin an emergency financial manager job on March 25 and then becomes emergency manager under Public Act 436 on March 28 when the new emergency manager law takes effect. His salary will be paid from state funds from the Treasury.
Snyder emphasized Orr has a range of financial and legal skills that will serve the city well, Snyder said.
"He's one of the leading experts in the country, and I think we should be very pleased that we got someone of his high caliber to take this position," Snyder said of Orr. "I don't view this as an act of isolation.
"This is not about asking one individual to come in and turn around the city of Detroit. This is a problem that has now reached a true crisis point."
Orr, who appeared at Thursday's press conference with Mayor Dave Bing, said Detroit "is a beautiful city and a wonderful state that gave me my start. I feel compelled to do my part."
He called fixing Detroit's finances "the Olympics of restructuring," and he looks forward to the challenge.
"If we can do this, I would have participated in one of the greatest turnarounds in the history of this country," Orr said. "That is something I can tell my grandkids about."
Orr, 54, a University of Michigan law school graduate, helped lead Chrysler through its 2009 bankruptcy. He specializes in corporate restructuring, bankruptcy, litigation, appeals and legal recruiting and diversity. Orr said Thursday he would resign his partnership with Jones Day.
Orr, who according to bankruptcy court records made $700 an hour during the bankruptcy, was the lead attorney on convincing the court to allow Chrysler to abruptly close a quarter of its U.S. dealerships. Chrysler told 789 dealers on May 14, 2009, they had to close in a month and transfer unsold inventory to other dealers.
"I'm prepared to be the most hated man for a period of time, but some of that vitriol will abate," Orr said Thursday.
Earlier Thursday, City Council members decided against filing a lawsuit in a last-ditch effort to block the emergency manager from becoming the new boss at the Coleman A. Young Municipal Center.
Thursday's announcement is the conclusion to more than a year of political wrangling between city and state officials. A consent agreement forged last April detailing restructuring mandates of the city bureaucracy was moving too slow, necessitating the appointment of an emergency manager, Snyder said.
Orr's appointment Thursday makes him eligible to be grandfathered into the new emergency manager law that takes effect March 28. The law, Public Act 436 of 2012, will give Orr sweeping powers to sideline Bing and City Council members by eliminating their pay and fringe benefits and stripping them of their fiduciary powers.
Orr said he hoped to avoid confrontation with the city's unions and council members.
"Don't make me go to the bankruptcy court … I won't enjoy it," Orr said.
Snyder also praised Bing for his efforts to rein in the city's runaway spending.
"We need to do more, and we need to move faster," Snyder said.
Bing, a Hall of Fame basketball player, said he welcomed new "teammates" to City Hall and called on emergency manager opponents on City Council to join him.
"The bottom line here is we must stop fighting each other, and we must start working together," Bing said.
Also under the new law, Orr will be able to cancel or modify labor union and vendor contracts and sell city assets with the governor and state Treasurer Andy Dillon's permission. His bankruptcy expertise will likely be utilized to negotiate with the city's creditors to reduce Detroit's $14.9 billion in long-term debts and liabilities.
On March 1, Snyder declared the city was in a financial emergency and agreed with a team of financial experts who concluded city leaders had no viable plan in place to address the crisis. Dillon's financial review team said the city faces a $100 million cash shortfall during the next four months and has no plan to make $1.9 billion in debt payments during the next five years.
The city's 2012 deficit of $327 million would have really been $937 million if the city hadn't issued debt to pay its bills, according to the review team report.
The review team concluded Detroit's charter contains obstacles to reforming the city bureaucracy, triggering the need for an emergency manager with powers to bypass the charter.
Snyder and Dillon have said city leaders have been too slow to implement the consent deal, a process slowed by lawsuits and political infighting over turning Belle Isle into a state park.
Earlier this week, city officials made a last-ditch effort to stave off a state takeover in an hour-long hearing. Officials told Chief Deputy State Treasurer Mary MacDowell they are continuing to make progress under the consent agreement signed last April with the state, saying 20 of 25 initiatives are completed or are in the works.
While reforms didn't move as swiftly as they had hoped, the city officials insisted Detroit is on the right path.
City Council aides also pitched giving the city's program manager, a position created under last year's consent agreement, more power to implement financial reforms under the new emergency manager law that takes effect March 28.
"If an emergency manager would come in then he would do the same stuff we're already doing," Council President Charles Pugh said Wednesday. "We made a case the governor has tools to put people in place to be able to allow the reforms to happen. Fixing these things is not going to happen right away. An emergency manager cannot come in and immediately fix these things."
Once the nation's fourth largest city, Detroit was hailed as an industrial hub with nearly 2 million people. Today, after a half-century of population loss, chronic mismanagement and inadequately funded city services, the move solidifies the city's standingas a model of urban decline.
Municipal bankruptcy expert Douglas Bernstein said he doesn't think the appointment of an emergency financial manager is evidence that Detroit has hit rock bottom, but it is an acknowledgement of dealing with the longstanding issues.
"To take hold of the financial challenges is a big realization that the city hasn't done in the past," Bernstein said. "Really, this is the first serious step as rehabilitation rather than plugging another Band-Aid on the problem."
Bernstein added the new emergency manager needs to begin assembling a team, which requires getting city leaders on board. The emergency manager also needs to assess the numbers from the consultants that are already in Detroit.
"There is a lot of good the elected officials can do in this process and you've got to be willing to listen. Ultimately, he's in charge when a decision gets made," Bernstein said. "It's a big undertaking. It's really a short time from. Whoever it isn't going to have the luxury of an abundance of time to start a plan and start implementing it. (But) you can chip away at efficiencies by getting the minor stuff out of the way."
Thursday's decision makes Detroit the only major city in the country to operate under some sort of state control. In Michigan, Benton Harbor, Allen Park, Ecorse and Flint as well as Detroit, Muskegon Heights and Highland Park school districts currently operate under emergency managers.
That makes it a hot-button issue for critics who note nearly two-thirds of the state's African American population is under state oversight.
In November, voters rejected Snyder's first emergency manager law in a statewide referendum, with 2.3 million voters — or 52 percent — voting "no" on Proposal 1.
But the Republican-controlled Legislature quickly passed a replacement law during December's lame duck session that allows City Council to vote by a two-thirds majority to remove the emergency manager, with mayoral consent.
"Regardless of the governor's decision, I really hope that democracy remains in tact," said Brandon Jessup, who led the effort to repeal Public Act 4 last year.
"If it's his decision to lose democracy in any way, the people of Detroit are going to rise up. We will fight to restore democracy across the state."
Sen. Coleman Young Jr., D-Detroit, added an appointment of an emergency manager for Detroit is going to disenfranchise city residents.
"It's really quite frankly going to destroy democracy in Detroit," said Young. "It's going to be one big fire sale in terms of our assets. I don't see this being successful at all."
A few people gathered outside Cadillac Place to protest their opposition to the governor's decision Thursday afternoon. A separate group is expected to protest in Lansing.
The Rev. Charles Williams, who is leading the effort for the local branch of the National Action Network, said the protests are only going to ramp up from here. Williams is advocating for nonviolent civil disobedience, but said it's likely people are going to make it difficult for entry into the Coleman A. Young Municipal Center.
Other actions could include shutting down and occupying city buildings and more traffic slow-downs, Williams said.
"Folks will do whatever they need to do to get their voices heard," Williams said. "It's not a one-hit wonder. We're not going to demonstrate and go way. We're going to stand up for democracy. An emergency manager is anti-democratic and a challenge to voting rights."
Orr, a Democrat, said as a bankruptcy attorney, he's used to not being met with open arms.
"In my business, you're sort of the undertaker who walks up to the front door," Orr said. "I'm rarely welcomed."
Isaiah McKinnon, who sat on the first review team, said he met with Orr earlier Thursday and was impressed. He said Orr must attack the city's crime issue as his top priority.
"I do believe (Orr) is going to make tremendous change and do the things that have to be done," McKinnon said. "We're in a crisis situation. Based upon the people that I talked with in the city, we don't care who is, but somebody has to come in and make these changes for the city. This is it right now.
"People have to feel safe. They want to feel safe in the city. If they can feel safe, they will want to come back to the city."
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