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Detroit to Appoint an Emergency Manager

Author: Joel R. Glucksman|March 28, 2013

Detroit to Appoint an Emergency Manager

Michigan Gov. Rick Snyder announced Thursday at a news conference in Detroit that he was committed to sending an emergency manager to oversee Detroit’s finances as the city struggles to avoid seeking bankruptcy law protection under Chapter 9 of the Bankruptcy Code.

Snyder will recommend the appointment of bankruptcy lawyer Kevyn Orr as the emergency manager, since the city’s finances remain in a dire state with no immediate hope of lawmakers coming to a solution.  Orr is an experienced bankruptcy professional who worked on the team that handled the Chrysler bankruptcy restructuring.  As the emergency manager, he will be tasked with assessing the failing city’s finances and developing a plan to repair them. If his analysis shows that no recourse can be taken to get its finances back on track, he will have the authority to implement a bankruptcy filing under Chapter 9 of the Bankruptcy Code, which is the provision specifically for municipalities.

Detroit has faced operating deficits for almost 10 years, has few cash assets, and faces climbing debt from state employee obligations, such as pensions and health insurance, Reuters reports. Fund mismanagement has also been cited as a core reason for the city’s failings. Some services, such as street lights and police protection, have been significantly scaled down, despite the city’s high crime rate. In addition, Detroit has an unemployment rate of 18.2 percent, well above the 7.7 percent national rate, the news source added.

Although city lawmakers have voiced their opposition to a state takeover of its finances, they have failed to make progress. Once in place, the emergency manager can renegotiate labor contracts, sell city assets, privatize services, and take over roles and responsibilities traditionally held by the town’s mayor and city council. If the manager urges Detroit to file for bankruptcy, it will become the largest municipal bankruptcy filing in U.S. history.

Detroit to Appoint an Emergency Manager

Author: Joel R. Glucksman

Michigan Gov. Rick Snyder announced Thursday at a news conference in Detroit that he was committed to sending an emergency manager to oversee Detroit’s finances as the city struggles to avoid seeking bankruptcy law protection under Chapter 9 of the Bankruptcy Code.

Snyder will recommend the appointment of bankruptcy lawyer Kevyn Orr as the emergency manager, since the city’s finances remain in a dire state with no immediate hope of lawmakers coming to a solution.  Orr is an experienced bankruptcy professional who worked on the team that handled the Chrysler bankruptcy restructuring.  As the emergency manager, he will be tasked with assessing the failing city’s finances and developing a plan to repair them. If his analysis shows that no recourse can be taken to get its finances back on track, he will have the authority to implement a bankruptcy filing under Chapter 9 of the Bankruptcy Code, which is the provision specifically for municipalities.

Detroit has faced operating deficits for almost 10 years, has few cash assets, and faces climbing debt from state employee obligations, such as pensions and health insurance, Reuters reports. Fund mismanagement has also been cited as a core reason for the city’s failings. Some services, such as street lights and police protection, have been significantly scaled down, despite the city’s high crime rate. In addition, Detroit has an unemployment rate of 18.2 percent, well above the 7.7 percent national rate, the news source added.

Although city lawmakers have voiced their opposition to a state takeover of its finances, they have failed to make progress. Once in place, the emergency manager can renegotiate labor contracts, sell city assets, privatize services, and take over roles and responsibilities traditionally held by the town’s mayor and city council. If the manager urges Detroit to file for bankruptcy, it will become the largest municipal bankruptcy filing in U.S. history.

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