As I’m sure you’re well aware of, Detroit is bankrupt. And though it makes for a dramatic headline, it means little in the short-term. It could be years before a decision on Detroit’s Chapter 9 bankruptcy filing is reached, as politicians, creditors, and lawyers duke it out in a bonanza of billable hours that’s sure to help fund the purchase of at least one Nissan Leaf.
No one is even sure how much money Detroit owes. The most common figure reported is $18 billion, arrived to by Detroit’s emergency financial manager Kevyn Orr after a comprehensive review of the city’s finances. However, that number includes billions in pension and healthcare liabilities that some believe Orr overstated. Apparently it all depends on what you believe is a reasonable expected rate of return for Detroit’s investments – Orr settling on presumably post-apocalyptic return rate, his opponents a sunny, pre-Michael Douglas 8%. Either way, Detroit is screwed financially, just maybe not quite $18 billion screwed, and that would make a difference in negotiations.
Orr’s credentials certainly are interesting. A bankruptcy expert, he successfully led Chrysler through Chapter 11 proceedings as an employee for the private law firm Jones Day in 2009. The guy knows how to downsize, and in 1990 the Miami Herald identified him as one of the city’s most eligible bachelors.
What’s not to love?
Orr is the sort of dyed-in-the-wool businessman we need running more of this country. He gets numbers, and he doesn’t let emotions cloud his judgment. He was officially “hired” to save Detroit, so that’s what he’s gonna do.
Michigan Governor Rick Snyder appointed Orr as emergency manager of Detroit under the state’s controversial Public Act 436 of 2012 in February, putting him in complete control of the city’s finances. It didn’t come as much of a surprise, then, when the city promptly declared bankruptcy about 4 months later. Snyder always claimed bankruptcy was a “last resort”, but by bringing in Orr he made it the inevitable outcome. He forced the city to play it’s hand and fold.
For what it’s worth, Orr maintains that his primary goal is to redirect Detroiters’ tax money back to underfunded city services, and that means cleaning house to reign in out of control deficits. In a populist move, in June he stopped paying a portion of the city’s debts and reportedly asked some creditors to accept as a little as 10 cents on the dollar for debts owed, a hard line stand for the average Joe and Jane. But, rest assured, he’s kept both sides of his mouth busy: he also told pensioners and city departments to expect cuts and recently invited New York City auctioneer Christie’s to take a look-see at the Detroit Institute of Art’s collection. Cold, hard logic dictates that bankruptcy won’t be fun, and the prospects look grim right now.
It’s impossible at the moment to say what bankruptcy will ultimately mean for Detroit, except that everyone concerned is in for a bit of shock. Detroit is dysfunctional to the extreme. Sometimes it’s like we forget that the houses really are crumbling, the unions really are getting killed, and that yes, the money really is gone. Any solutions will require drastic, painful measures.
The unfortunate truth is that the new Detroit that’s emerging from the ashes is more than a reinvention. It’s an act of desperation, a closing of a window, a faint, glimmering hope in the gloom. It’s potential gift is freedom – freedom from past burdens, past debt. Orr believes Detroit’s salvation is that the right people want to invest in that. At least that’s what he’s telling us.
I want to trust him. What other choice do we have? In Detroit, democracy has failed. Voter turnout has diminished to a trickle, and the city’s institutions are broke, literally and figuratively. Perhaps municipal bankruptcy is the ticket to salvation Detroiters have been waiting for.