Orr’s plan ignores city’s strengths, sells citizens short
By T. Kelly
The Michigan Citizen
Emergency Manager Kevyn Orr submitted his Chapter 9 bankruptcy plan, Feb. 21, for the first time revealing his plans to pay down Detroit debt and restructure the city.
The Plan of Adjustment represents Orr’s outline “toward the City’s rehabilitation and recovery from a decades long downward spiral,” according to a press statement.
Activists say what is most significant in Orr’s plan is the transfer of assets, which includes Belle Isle, the Detroit Institute of Arts and Detroit’s Water and Sewerage department. The plan protects the banks, but does little to adequately improve city services or improve quality of life for Detroit residents.
Orr hopes to pay back much of the $18 billion he says the city owes in secured and unsecured debt. Community activists have disagreed with Orr’s $18 billion assessment. Six billion of that debt represents Detroit Water and Sewerage bonds which are due over a period of years and according to accountant Tom Barrow, should not be counted as debt. DWSD is an enterprise collecting its own funds.
Additionally, Wallace Turbeville of the progressive think tank Demos, said Orr’s debt assumptions are “simply inaccurate” and “irrelevant” to the city’s financial crisis. The city has cash flow problems, but not long term debt.
From the beginning, Gov. Rick Snyder said the emergency manager-led bankruptcy is to improve city services for Detroiters and address the financial emergency.
Detractors say the plan does little more than transfer Detroit’s assets. Economist Julianne Malveaux has called it one of the biggest wealth transfers in history. Malveaux has said this is particularly significant because it impacts a mostly Black city where elected officials have no power.
All powers reside in the emergency manager. According to the plan, Orr intends to invest approximately $1.5 billion over 10 years in the city’s infrastructure improving technology, police, fire and emergency medical services and dedicating dollars to blight removal.
“My concern from the reading that I have done thus far is a concern that I have had with all EMs across the state,” says attorney Herb Sanders. “There is a tendency to do significant cuts, but provide no plan for generating revenue by the municipality. “
Sanders says the plan, if implemented as is, will cause people to lose their homes and cars as a result of the city’s bankruptcy.
“We are indeed eliminating jobs that many of our citizens had that provide benefits and pensions. Many of those jobs will be outsourced and citizens will earn significantly less, decreasing our tax base,” he said.
Under Orr’s plan, the Detroit Lighting Authority, trash collection and other city departments will be privatized. Pensions will also be cut.
The plan pits groups of retirees against each other. If fire fighter and police retirees — without objection — accept Orr’s plan, they will get a 10 percent cut while general retirees will be cut 34 percent. The average retiree receives $19,000 a year, meaning retirees will be living on approximately $12,000 a year with additional cuts to health care.
Union organizers maintain the state constitution guarantees pension obligations and are currently suing on this basis. Orr and his former law firm are fighting these efforts.
General obligation bondholders would receive 80 percent on the dollar.
Fitch ratings agency considers Orr’s plan “hostile.”
“If this priority of creditors is upheld, Fitch expects this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan,” the rating agency said in a statement.
Representatives from the People’s Plan for Structuring toward a Sustainable Detroit, a coalition of 38 Detroit organizations, say the banks and financial institutions aren’t taking enough of a loss.
“Brought on by outrageous irresponsibility and greed for the corporate elite and the banks, the economic and environmental crisis engulfing Detroit and other U.S. communities is very real. However, it is clear to us the corporate restructuring bankruptcy and emergency management ‘solution’ being imposed by Gov. Snyder is bogus, wasteful of millions of dollars and without foundation in the rule of law,” reads the “People’s Plan for Restructuring Toward a Sustainable Detroit.”
Sanders says the focus of Orr’s disclosure are wrong. “The disclosure statement tends to be critical of the individuals who were the trustees for the pensions and suggests there were some things done that were unethical and should not have been done. But there does not appear to be significant, or any, criticism of the banks who were involved in the swaps or the COP deals that basically gave exorbitant interest rates, which, I believe, are the ultimate reason for the financial situation we find ourselves in,” says Sanders. “Those deals were borderline illegal or potentially illegal deals and that also concerns me.”
Activists criticizing the plan say the most significant changes in Orr’s plan relate to a transfer of assets. Under the plan, Detroit is losing:
-Belle Isle, which is now a state park and was transferred from the city for a savings of $6 million a year.
- DWSD, which may become part of a new regional authority that would make lease payments to the city. Oakland and Macomb counties have already had some preliminary objections to the deal.
- The Detroit Institute of Arts, which will no longer be owned by the city of Detroit. The art — valued at hundreds of millions of dollars — will be transferred, in a comprehensive settlement, to preserve city-owned art for the benefit of the region. It depends on Republican legislators approving $350 million for the deal.
“The biggest misnomer is why Belle Isle isn’t being leveraged as an asset,” veteran political analyst Art Blackwell. “It’s like you sold it, but got nothing for it. All you did was save maintenance costs, but it is an asset that could generate millions of dollars.”
Blackwell recommends retirees ask for Belle Isle to be “put back on the table” and have a private developer submit proposals with a 30-year lease since Detroiters have lost control of the asset anyway.
Blackwell also criticized the DIA deal saying, to again, lose control of the asset without an up-front payment doesn’t make sense.
“The $350 million payment should be up front rather than paid out over 20 years.”
Blackwell believes the Orr’s plan is “unimaginative” and does not “leverage asset value.”
According to some, the plan represents no significant improvement in city services:
- The newly formed Detroit Lighting Authority actually reduces the number of lights in the city from 88,000 to 50,000.
- Detroit Department of Transportation will — through rate increases — improve vehicle maintenance, but bus service will not expand.
- Forty million dollars will go to Detroit’s Recreation Department with $5 million of that going to downtown’s Hart Plaza. No new hires are planned for the department.
- Public Safety, a core component of city services, will receive just over $200 million in budget increases over the next five years. Funds will go to improve facilities, technology and equipment. Yet, the police department will only hire 250 more civilians. Fire department will have 45 new hires.
“What is left, if you don’t have the DIA, the Detroit Zoo, Cobo Hall, residency (requirement), transportation, public lighting? Now you don’t have Belle Isle, what have you got?” asks Blackwell.
Orr will also take on the city’s technological infrastructure, investing $150 million in improving the city’s technology platform. The 36th District Court will receive almost $13 million for technology and other upgrades.