Cuts for retirees; tens of millions for consultants
By T. Kelly and Z. Jeffries
The Michigan Citizen
“No matter who you go and get, ain’t nobody cold as this.”
– Kanye West
DETROIT — Emergency Manager Kevyn Orr stopped paying the city’s bills in early June, letting city debt grow. At the same time, he is paying his former law partners and consultants millions from an alleged cash-strapped city.
To date, Orr — with the aid of six City Council members Charles Pugh, Gary Brown, Saunteel Jenkins, Kenneth Cockrel Jr., Andre Spivey and James Tate — has committed the city to spending $22 million for “restructuring” (see sidebar “Costs of restructuring”). For the first two weeks of work, Jones Day billed the city $498,949.21 for attorneys making up to $1,000 an hour. For work in the month of April, Orr paid Jones Day $870,779.91.
Under bankruptcy, the fees are likely to rise.
“According to the unconscionable contract the City of Detroit has entered into with Jones Day, the cap has now been removed with the bankruptcy filing and Jones Day can, and surely will, bill up to $1,000 per hour/per attorney for their work involving the bankruptcy,” said mayoral candidate Krystal Crittendon in a news release on the announcement of the bankruptcy filing.
Meanwhile, Orr’s proposal is to treat retirees as unsecured creditors and pay them 10 cents on the dollar while reducing their health care coverage, leaving them with Medicare and the healthcare network created by the Affordable Care Act.
The banks appear to get a better deal. Bank of America Corp. and UBS AG have reportedly agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities. Moratorium Now has called for a freeze on payments to the banks that negotiated these pension swaps in 2005 just before the economy tanked. “Illegal, fraudulent and predatory,” are descriptions of the swaps used by the group.City residents and workers see the restructuring as nothing less than a coup.
“There is a decision out there that whoever’s been running it don’t need to be running it any longer. And the citizens in the city of Detroit ought not be able to choose who’s their leaders,” said Al Garrett, president of AFSCME Council 25, at a press conference July 22. Garrett said the city’s crisis is not a financial crisis as much as it is a moral one.
Union officials say the state has contributed to the financial crisis in the city while, at the same time, ignoring proposals from workers on how to save.
“In 2002, the state of Michigan shared revenues with the city of Detroit of about $333 million a year; that number is now $173 million a year. That $333 million 10 years ago, in adjusting for inflation, would now be $450 million,” said AFSCME official Steven Kreisberg at the press conference.
Ed McNeil, union negotiator, told the press that “there were 33 unions that came to the table in order to reach an agreement with the city of Detroit in December 2011. That agreement would have saved the city $180.2 million.”
Mayor Dave Bing never presented that proposal to City Council. His refusal led to the consent agreement, the Financial Stability Agreement, approved by five of the six aforementioned council members. The consent agreement was supposed to save the city from emergency management and bankruptcy. It added additional levels of bureaucracy and costs which Orr has retained and which will add to the overall restructuring costs.
Unions say Orr never attempted to bargain in good faith.
“When Mr. Orr came in as emergency manager, I personally sent Mr. Orr a letter and followed it up with an e-mail and had a letter personally delivered to Mr. Orr. We couldn’t get into his office and the letter was taped to the door,” said McNeil.
“Since then, Mr. Orr has not reached out one time to talk with me or AFSCME Council 25 … It’s time for people to know that there are inconsistencies and they’re being disingenuous with the people of the city of Detroit, as well as the taxpayers in the state of Michigan.”
Kreisberg, director of collective bargaining and health care policy for AFSCME, is also having trouble getting information out of the emergency manager’s restructuring team. In a July 3 letter to Brian West Easley of Jones Day, Kriesberg expresses concern “about the unavailability of non-pension related information.” He asks for the basis and assumptions for the data and projections Jones Day and Orr are making.
Restructuring costs add to city budget
By T. Kelly
The Michigan Citizen
DETROIT — In the name of “restructuring the city,” Emergency Manager Kevyn Orr is committing the city to a minimum of $22.003 million in additional spending. Following is a partial listing of financial advisers, law firms and consultants — most not located or paying taxes in the city — being paid as part of the “restructuring team:”
(The state pays the EM $275,000 salary)
Chief Finance Officer
Chief Operating Officer
$220,000 (plus staff)
Plus Financial Advisory fee
Ernst & Young
$ 9.3 million
Financial Advisory Board
Nine members at $25,000 each plus their hotel, meals, travel expenses
$ 3.35 million Plus expenses
Plus $150,000 a month
$ 1.8 million
Plus $150,000 a month
Transmission Maintenance Construction LLC
In addition, there is the interim budget director, deputy budget director, Budget Department employees and Finance Department employees.