Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Emergency Manager Orr: Detroit Nearing Municipal Bankruptcy
Author: Joel R. Glucksman
Date: May 30, 2013
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The once-bustling city of Detroit may be weeks from seeking municipal bankruptcy protection, according to the findings of a report from appointed emergency manager Kevin Orr.
Orr’s analysis reveals that the city is short of cash and faces the very real risk of running out of funds to maintain city services, pay employees, and fund retirement pensions and benefits. Detroit is currently facing $15 billion in long-term debt, as well as a growing deficit. Under-funded pensions are another factor making it difficult for city officials and the creditors to reach an accord. According to sources, reduced debt payments are the only available option for keeping the city afloat and avoiding the beginning of Chapter 9 municipal proceedings under bankruptcy law.
The emergency manager said he will know in roughly six weeks if creditors, unions, and other parties can reach an agreement that will allow for this debt reduction and sustain Detroit through the worst cash flow crisis that the city has ever faced.
In an interview with reporters, Orr was careful not to criticize city officials, but did say that Detroit’s current financial issues are the result of decades of mismanagement and neglect.
“What stands out to me is 40 years of dropping demographics, of reducing revenues – you don’t get the magnitude of neighborhood blight we have overnight – of no one having a plan or solution for that, of inviting, quite frankly, some class of residents to leave,” Orr said, according to the Detroit Free Press. “And they did. They literally went across 8 Mile and started building buildings in Southfield. Without a vision for what you want your city to be three, five, 10, 20, 30 years out, the totality of those circumstances drove us here.”
He noted that while the city’s financial picture was worse than he expected, decisions about bankruptcy will not be made for another 30 to 60 days.
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