Reuters: Bankruptcy News: UPDATE 2-Michigan governor names bankruptcy attorney to run Detroit

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UPDATE 2-Michigan governor names bankruptcy attorney to run Detroit Mar 14th 2013, 21:08 Thu Mar 14, 2013 5:08pm EDT By Steve Neavling DETROIT, March 14 (Reuters) - Michigan Governor Rick Snyder on Thursday announced a state takeover of Detroit's finances, and he appointed a corporate bankruptcy expert who took a can-do attitude toward turning around the destitute city, calling it the "Olympics of restructuring." Kevyn Orr, an attorney best known for his work on the restructuring of Michigan-based automaker Chrysler, said he hoped to avoid a bankruptcy filing by Detroit, something that would rank as the biggest municipal bankruptcy in U.S. history. "Let's get at it and work together because we can resolve this, people of good faith. Don't make me go to bankruptcy court," Orr told a news conference, where he was introduced by Snyder and flanked by Detroit Mayor Dave Bing. Snyder's move amounts to the biggest state takeover of an American city in over two decades. Orr, who was officially approved by a committee of state officials on Thursday, is expected to assume financial management of Detroit on March 25. As the emergency manager, he will supplant the authority of Detroit's elected officials, both the mayor and the city council. Orr will have broad powers, including the ability to renegotiate labor contracts, privatize services and sell certain city assets. The dramatic move is the latest stage in the long decline of a city that was once the thriving center of the U.S. auto industry and the birthplace of Motown music. Once the fifth largest American city, Detroit now ranks 18th with 700,000 people. Snyder praised Orr, 54, as the right person for the job. "He's had a very successful career in restructuring and bankruptcy. He's one of the leading experts in the country," Snyder said. In addition to his work with Chrysler - for which Orr billed $1 million in fees during the first year of the restructuring of the smallest of the three major U.S. automakers - Orr has other Michigan ties. He received both undergraduate and law degrees from the University of Michigan. He is African-American, which some politicians have said could help him deal with community leaders in a city that is 83 percent black. The emergency manager will face the huge and controversial task of repairing the finances of a city in crisis. Detroit has run operating deficits for nearly a decade, is starved of cash and facing a crushing burden of debt from commitments such as pensions and health insurance. More than a third of Detroit residents are officially classified as living in poverty, and it has an unemployment rate of 18.2 percent, far above the U.S. jobless rate of 7.7 percent, according to government figures. Basic services such as street lights and police protection have broken down, and the city has suffered from mismanagement and political corruption. And although it was the auto industry that turned Detroit into a big city, it has not benefited much from the auto industry's recent recovery. General Motors is headquartered in the city, but only one major assembly plant, operated by Chrysler, is left inside the city limits. A former Detroit mayor, Kwame Kilpatrick, who was mayor for seven years until 2008, was convicted this week of two dozen federal charges of corruption and bribery for a scheme to collect kickbacks on city contracts for himself and associates. He could face up to 20 years in prison on some of the charges. "THE GREATEST TURNAROUND" Orr said if the emergency takeover of Detroit succeeds, "it will be one of the greatest turnarounds" in U.S. history. He said his contract as emergency manager was for 12 to 16 months, but he hoped to finish the job faster. It is rare for such a large American city to come so close to bankruptcy. The best known case was New York City, which was nearly forced into bankruptcy in 1975 after it ran up huge debts. The state of New York appointed an oversight board to guide its finances. The most recent major city to face such a crisis was Philadelphia in 1991, which was managed by the state of Pennsylvania for a time. Neither of those cities officially filed for municipal bankruptcy. Detroit city leaders have long opposed a state takeover, saying they were making progress on improving the financial situation. The mayor, a former professional basketball player and steel executive, said on Thursday he would work with the new emergency manager. A defiant city council had called on residents to fight the move, saying the state is usurping the right of Detroit residents to elect their own leaders. But council President Charles Pugh said on Thursday he would try to work with Orr. "Mr. Orr seems qualified and likeable. I'm currently reaching out to meet with him and let him know I think the City Council should have a significant role in restructuring and prioritizing for the city," Pugh said in a statement. Detroit could challenge the takeover in state court, but such attempts have failed in Michigan in the past. Michigan state law grants emergency financial managers broad powers. The manager could ultimately recommend that Detroit file the largest municipal bankruptcy in U.S. history. A law passed in December that will take effect on March 28 will boost the powers of the emergency manager, allowing the manager to terminate collective bargaining agreements with the city's 48 unions. Link this Share this Digg this Email Reprints

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