Orr discusses Detroit bankruptcy at U-M Law event

 EM says he ‘bent over backwards’ to reach agreement with city unions

By Katie Vloet
U-M Law School

Detroit is a once-great city that can embark on a renaissance—but only if it is allowed to restructure under Chapter 9 bankruptcy, Emergency Manager Kevyn Orr told Michigan Law students.

A frequent target of criticism by creditors and labor unions, Orr also signaled that his congenial approach to dealing with such groups may be coming to an end.

“We haven’t attacked because we’re trying to do this in an upstanding, decent, and forthright way,” he told the standing-room-only group of students and staff members on Nov. 7. “But this kumbaya moment is sort of coming to a close. ...I’ve bent over backwards, and we’re not getting anything in return.”

Orr’s talk came the same week as two momentous events in Detroit: the election of Mike Duggan — coincidentally, Orr’s 1983 Michigan Law classmate — as mayor of the city; and the end of Orr’s testimony in a trial that will determine whether Detroit is eligible for Chapter 9 bankruptcy protection.

Orr’s frank speech and question-and-answer session explained the decades of issues that led to the city’s financial crisis, and in particular the past 10 years or so of massive population declines and money mismanagement.

“Between 2005 and 2012,” he said, “the city borrowed $2.25 billion on a $1 billion revenue stream,” citing one of the more striking elements of poor financial planning. Due to the city’s aggregate debt, he said, a city with $200 million every year would need some 90 years to pay off its debt of $18 billion. “The city would die. There is no conceivable way this debt was ever going to be paid off,” he said.

Orr was appointed by Gov. Rick Snyder, ‘82, and was given the mission of restructuring the city within his 18-month appointment. In the years before Orr was appointed, though, negotiations already had begun with the creditors and labor groups, he said.

That’s why, he said, he gave the groups 30 days to negotiate with his office — a point of contention for labor organizations arguing before a bankruptcy judge that Orr’s office has not met the requirement of negotiating in good faith.

“I bent over backwards to try to reach agreement,” he said. “We have been attacked every which way from Sunday, and I’ve never returned fire.”

What he has been reluctant to bring up until now, he said, is the way the pension funds have been managed — the same funds whose leaders now are attacking his efforts to take the city into bankruptcy protection. For instance: The General Retirement System (GRS) pension fund (the one for city employees and retirees outside of the police and fire departments) has 30 percent of its investments in private equity, real estate, or areas otherwise not receiving any professional advice. “Of that 30 percent of investments that they’ve made, they’ve made investments in defunct hotels, they’ve subordinated their interest to 22 tranches of debt and various other real estate investments — hell, we own part of a private jet in the GRS pension fund,” Orr said. And of the $1.4 billion that the city borrowed between 2005 and 2006 to fund pension payments, he said, “we can’t find $700 million of it. Can’t find it.”

Indeed, the GRS funds have been the subject of increased scrutiny before and during the bankruptcy trial. The Detroit Free Press reported last month that the GRS board acknowledged in an affidavit that it gave out $756.2 million in excess earnings to active employees from 1985 through 2007. It gave $195 million to retirees during that same time period and sent $445.3 million back to the city. The newspaper also reported that the GRS board had distributed nearly $1 billion in controversial “13th checks” (one more than the 12 that employees and retirees are supposed to receive each year) to employees and retirees instead of reinvesting the excess earnings.

Even while discussing his frustrations, Orr remained unruffled throughout his talk at Michigan Law—a characteristic that even his toughest critics have acknowledged. He also indicated that he did not regret taking the difficult job of emergency manager, though he is acutely aware that “I will be the greatest flameout in contemporary history if I muff it.”

It’s a long way from the self-described young socialist who first attended the University of Michigan as an undergraduate in the late 1970s, intent on fighting the man (“now I am the man,” he laughed). Following law school, Orr joined Arky, Freed, Stearns, Watson and Greer in Miami, where he rose from litigator to shareholder. In 1991, he joined the litigation department of the Federal Deposit Insurance Corporation and then the Resolution Trust Corporation, where he became the assistant general counsel for complex litigation and bankruptcy. His duties included serving as the agency’s chief lawyer responsible for the Whitewater investigation. He worked for the Department of Justice as deputy director of the Executive Office for United States Trustees, and later was the director of the United States Trustees Program.

In 2001, Orr joined Jones Day and was the Firmwide Partner for Hiring and Diversity. His responsibilities also included counseling and representation of Chrysler LLC with regard to its bankruptcy, in addition to many other high-dollar and high-profile cases. He recently had been chosen to open the firm’s new Miami office and to receive what he described as a “significant percentage” on a winning case; he left both the opportunity and the money behind when he accepted the emergency manager position in March, with hopes of spurring a revitalization of the city, which he firmly believes is possible.

“When I was first approached with the [emergency manager] job, my response was not only ‘no,’ it was ‘hell no.’” But he reconsidered, ultimately deciding that it was an opportunity to give back—and he encouraged the students in the room to do the same.

“Many of your peers outside of this institution won’t have the opportunities you’ll have, so, in a sense, you have an obligation to give back. That’s essentially what drove me back into public service,” he said. “If people with your education and your opportunities don’t weigh in at critical times, then what are we as a people?”

The event was sponsored by the student group JDs in the D and the Office of Alumni Relations, and supported by the Office of Student Affairs.


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