DETROIT DISAPPEARS IF ORR SUCCEEDS
By Zenobia Jeffries
The Michigan Citizen
DETROIT — Nothing but the name will remain of the city of Detroit, if Emergency Manager Kevyn Orr succeeds with his restructuring proposals.
Many of Orr’s initial plans lack originality, coming from city employees, labor unions and plans of action from the controversial Fiscal Stability and Milestone Agreements.
However, his reliance on new authorities and regionalization will leave a city in name only with voters cut off from control of all municipal functions.
For years, the local organization Moratorium NOW! Coalition has been calling for a moratorium on debt service payments to the banks to improve life in the city. Orr agrees it’s the debt. How much and what to do about it is where he departs from Detroiters.
One of the first things Orr stated in his 128-page proposal to creditors June 14, was that the city would stop paying its unsecured debt obligations — current city workers, retirees and bondholders — in the amount of $2.5 billion.
The first payment — for pension-related certificates of participation — was withheld that same day in the amount of $39.7 million.
To avoid Chapter 9 bankruptcy, Orr has to reach an agreement with all the city’s approximately 150 creditors. A deal could be weeks away, or not.
For secured creditors, Orr proposes to restructure the debt with payments spread out and a lower interest rate of 1.5 percent. The collateral securing this debt is a dedicated revenue stream, such as casino payments. Unsecured creditors will be paid 10 cents on the dollar.
If a deal isn’t reached, outstanding debts will go through bankruptcy.
Orr’s measures, however, negatively impact city workers, residents and retirees.
Prefacing his proposal with dismal numbers of depopulation, disinvestment and home foreclosures, Orr stated, “The city cannot stabilize or pay creditors meaningful recoveries if it continues to shrink. Since the city will not generate sufficient cash to pay all liabilities, alternatives will have to be considered.”
If his plans proceed successfully, there will be a city of Detroit, but it will not represent the citizens nor function as a municipality. Orr proposes to:
- Cut, significantly, current city employees and retirees’ current and future benefits.
Orr says both the general retirement system and police and fire retirement system are underfunded by $3.5 billion. Not only have labor and retirees disputed his findings, they say state law protects their benefits and cuts to their pensions. Orr says he believes the federal court will not recognize the state constitution and suggests there is legislative relief.
- Cut 99.6 percent of health care benefits and use a combination of Obamacare, Medicare and other unspecified programs to “provide affordable pension and health care insurance benefits.”
- Regionalize the Detroit Water and Sewerage Department (DWSD). After 36 years of federal oversight, U.S. District Court Judge Sean Cox relinquished federal control three days after Orr took office in March.
Orr said his team has already met with surrounding counties that are DWSD customers to discuss creation of a regional authority. Similar to the Cobo Authority, all assets and secured debt will go to the new regional authority, which will make annual payments to Detroit — tens of millions of dollars. The legacy liabilities will be left with the city.
- Lease Belle Isle. Orr would revive a deal rejected by the elected city council. The state would extend a 30-year lease that would turn the park into a “state park” and save approximately $6 million a year. The state would charge an admission fee to drivers, except city residents.
- Privatize the lighting department. Over the next five- to seven-year period, the city’s Public Lighting Department customers will “migrate” to an alternative provider, while city maintains the grid. After year seven, a third party will operate and maintain the city’s grid (possibly DTE).
Currently with the newly created Public Lighting Authority, there are plans to reduce the number of working streetlights from approximately 55,000 to 46,000. Orr’s proposal for the Public Lighting Department is similar to the plan issued by the Bing Administration when lobbying for the newly created Public Lighting Authority. The city has a total of 88,000 streetlights. Orr says, “The city is considering alternatives to exit the electricity business.”
- Privatize or outright sell the city’s parking garages, lots and meters, and eliminate all related departments.
- Transfer the Detroit Department of Transportation to a Regional Transit Authority (SMART or another private carrier) and outsource some or all of operations. SEMCOG recently cut DDOT’s federal funding from 65 percent to 49 percent of the region’s allotment, although DDOT is the largest system in the area with the most ridership.
- Outsource payroll system. Orr says the system is antiquated. The city contracted with ADP in November 2012. The transition is expected to be complete in March 2014.
- Outsource 17 remaining recreation centers. Centers will be placed in a “Recreation Trust” operated by an independent board that will introduce “fee-based” service and include private foundations.
- Reduce vendor costs by 10 percent. Orr estimates a savings of $10 million annually.
- Overhaul the city’s grants department. The city receives approximately $293 million in grants related to its services each year.
Orr may invest in an overhaul of the administration of its grant management system, including centralizing oversight and support and standardizing information technology. He recently issued an EM order placing control of all grants in his hands. Orr may also appoint an auditor general.
- Overhaul of public safety infrastructure, operations and equipment. Implement a regional solution that integrates the City of Detroit with Wayne County, Detroit Public Schools, Wayne State University, Down River communities, etc. Orr says the cost of implementation is $5 million.
- Continue discussion on the sale of DIA art. Orr hit a nerve with suburbanites and the corporate elite when he indicated the city’s art was also “on the table.” The discussion led to the current legislation moving quickly through both state houses of government to take the DIA out of the equation of city assets to be liquidated.
- Increase efficiency of collections in the assessor’s office. Prior to Orr’s appointment, city employees from the assessor’s office presented a cost savings plan to the city similar to recommendations Orr says was made by “consultants” in 2011. The city employees’ suggestions were not taken nor have the consultant’s recommendations been implemented.
Residents and city workers alike can expect further cuts, outsourcing, privatizing, layoffs, etc. as Orr moves to implement his proposed 10-year $1.25 billion “investment” to “restore” city services and “fix” city government.
Reinvestment will go to upgrades in IT, public safety, public lighting and $500 million to fight blight. With each, “efficiency” control is taken from voters and their representatives to bodies, boards and authorities.
Orr says no decisions have been made regarding any particular city asset. The EM says he will continue to evaluate options that include entering into partnerships with other public entities, outsourcing, privatizing, transferring, leasing and outright selling of city assets.
Orr’s proposal reveals that litigation challenging the Consent Agreement and imposition of City Employment Terms on the DPD and DWSD workers could affect Orr’s ability to restructure.
Implemented before his arrival, Orr has made the following part of his plan:
- Increase in corporate tax rates, January 2012.
- Reduction in DDOT outsourcing in 2012 (save $15 million annually).
- Increase in lighting rates, January 2013.
Labor unions are to meet with EM Orr, as this paper went to press.
To view Orr’s proposal for creditors, visit www.michigancitizen.com/view-the-city-of-detroit-proposal-for-creditors