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Orr’s focus: Balance sheet, crime

Detroit Emergency Manager Kevyn Orr         PHREDDY WISCHUSEN PHOTO

Detroit Emergency Manager Kevyn Orr PHREDDY WISCHUSEN PHOTO

Analysis

For the first time since his appointment by Gov. Rick Snyder in March 2013, Detroit Emergency Manager Kevyn Orr agreed to sit for an interview with the Michigan Citizen.

Orr’s interpersonal and logical skills were evident in the nearly one-and-a-half hour interview.

Throughout, he reveals a view of the role of government that places an emphasis on accounting. Orr believes his work should be focused nearly singularly on the city’s balance sheet.

There are opposing beliefs. Coming from the Franklin Roosevelt policies of public investment and the Great Society visions of Lyndon B. Johnson, one school of thought affirms that in governance, a healthy balance sheet alone will not create a sustainable Detroit.

We’ve witnessed the fiscal and infrastructural deterioration of Highland Park, which has gone in and out of emergency management and is currently fighting another state takeover. Clearly, a healthy balance sheet, without any attention to the complexities of urban poverty is only a temporary solution.

“Cities do six things: public safety, public works, planning and zoning, finance and administration, taxes and collection, and parks and recreations,” said Orr, who is charged with creating the plan for Detroit to settle its debts and emerge from bankruptcy.

The EM is also charged with dispersing the city’s most significant assets, such as the Detroit Water and Sewerage Department, Belle Isle and the Detroit Institute of Arts.

Orr submitted his plan to the bankruptcy court last month.

According to his plan, he will raise fares for Detroit’s bus riders and grow revenue by strengthening the city’s effort to collect taxes from residents. Orr will not, however, reevaluate tax breaks or incentives for corporations.

He says he did investigate the option, but opening the deals would be too complex. His plan relies on reducing expenses by reducing legacy obligations and any revenue increase would come from an increase in collections and population.

The New York Times called his plan “unimaginative.”

Orr believes, despite his tremendous power as EM, it is outside of his role to focus on much beyond the city’s finances. He doesn’t see affordable housing or moratoriums on shut-offs — past city policy — within the spectrum of his responsibilities.

He is not, as he describes, an “ideologue.”

When asked about affordable housing, he responded, “Even if I wanted to, I’m not going to build that in the next seven months.”

Despite his disinterest in managing most city programs, Orr has focused on the Detroit Police Department. His appointee Chief James Craig reports directly to him — and not the commission as mandated in the city’s charter. He says he wanted the chief to be free to restructure the conflicted department. Orr says he gets daily reports from Craig and meets with him once a week. Under Orr’s exercise of emergency management, Mayor Mike Duggan has no authority over the DPD.

Clearly, Orr believes the best way to fix the city is to have a functioning city with good services and that structure will attract new residents and business.

“On the balance sheet side, if we make the balance sheet work for the city and we can get the buses running on time that means that citizens can get to their jobs on time, which helps facilitate their economic viability as opposed to getting docked for pay, having to miss a bus, not getting in and picking up their kids late from school, especially in the winter months when it’s dark outside,” said Orr.

When asked about a moratorium on utility shut-offs, Orr said he believes those polices are overreaching and part of the reason Detroit has needed up in a financial emergency.

He responded: “From my prospective, (as) many of the operations the city engaged in for years and years, people can make an argument for the 13th check. It gives people money at a time they most need it to celebrate the holiday season and also to pay for heating. But it ruined the pension fund. So my question would be to people…, ‘Do you want to continue to engage in practices that ultimately come home to roost and ruin your financial viability going forward, or do you want to address some of those practices so that won’t happen?’ You can continue doing what you’re doing, but then a city of 700,000 can (become) a city of 550 (thousand).”

It appears Orr has a fundamental belief not only that if the city works, its population will grow, but also if the market works, Detroit will be successful. More than once he showed that his idea of economic development and wealth building is allied with large and traditional corporations.

He is looking at development deals from Singapore for Belle Isle, and thinks the pension boards weren’t investing wisely and should have been more heavily invested in the stock market.

He also talked about how his plan and how the technology upgrades will help modernize the city.

“Detroit has to recognize you’re not just in competition with Chattanooga or Birmingham. You’re in competition with Malaysia, you’re in competition with Dusseldorf, and if you don’t modernize and put yourself in a position where you can attract not just residents but attract businesses and capital, you’re going to see that capital flight,” Orr said.

He continued, “I met with a German auto executive talking about Volkswagen’s decision to go south. He said one of the reasons they didn’t want to come to Detroit (is) because they viewed it as a conflict environment.”

It is his belief the biggest companies and financial institutions drive the economy and the benefits trickle down to the rest of us. There is failure to see it is precisely this model that has ravaged Detroit. Since the 1940s and 50s, Detroit has lost jobs and capital and has had persistent racial discrimination in labor and housing markets. Detroit is the example of this failed jobs model and no urban policy.

Economist Julianne Malveaux called Detroit’s emergency manager-led bankruptcy, “nothing but a wealth transfer.”

She said Orr doesn’t address the city’s key issues, and questions his inattention to larger policy questions such as residency requirement and incentives for the existing population.

“Emergency manager Kevyn Orr has provided detailed information without addressing the key issues properly,” Malveaux told the Michigan Citizen.

Critics of the emergency management and the EM-led bankruptcy have also questioned Orr’s tendency to criticize the pension funds but not the banks in Detroit’s financial crisis. Orr says he is focused on creating an achievable plan for the city and both sides — the pensioners and the bankers — are upset.

“There are two schools of thought: There’s my school that looks at the balance sheet and says, we can’t pay you what we agreed to pay you. And there are some people who think you should be able to take $1.5 billion and walk away from it,” said Orr. “Now, I will tell you, to the people in the banking community, when I go to New York and speak to them — and you read about it in the Bond Buyer, Wall Street Journal, any of the either groups — this is an anathema to them.”

Orr says at the end of the bankruptcy process, the city will still need to borrow, and he wants to maintain that capability.

“You can talk about affordable housing. You can’t pay that out of cash, you have to have bond issues, you have to have financing. You have to have loan guarantees, say from the federal government. You have to have a credit rating.

“In today’s society, the one thing you have to be able to do when we get out of all this is to be underwriteable and be financeable. So I’m trying to do a very careful balance.”

Yet, Orr is critical of the pension funds.

“If they’d taken that $1.5 billion in 2005 and put it in the Standard & Poor’s index over the past X number of years, they would have more than enough money to pay those pensions out,” said Orr. “But they didn’t. Thirty percent of the funds that were invested in GRS, were invested in private equity, real estate, direct investment for which they received no professional pension advice. Tens of millions, if not hundreds of millions of dollars have gone missing.”

Gov. Snyder in media reports has also been critical of Detroit’s pension systems and the need for professional management. He has been more critical of the General Retirement fund than police and fire but has stopped short of advocating for a takeover of the funds.

See Q & A here.

— Staff report

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