Governor Clears Detroit to Exit Bankruptcy

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December 10, 2014

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At Last! Gov. Rick Snyder has accepted a recommendation from Detroit’s emergency manager, Kevyn Orr, that the Motown municipal bankruptcy is over and the city is set to rise again. In a letter to city’s financial crisis has ended and it should emerge from receivership. Gov. Orr wrote back yesterday to accept Mr. Orr’s resignation and said he would announce today that the city’s financial emergency is officially over—meaning that he will use his unique authority under the state’s Public Act 436 to lift the city’s financial emergency status. The news comes as U.S. Bankruptcy Judge Steven Rhodes has scheduled a federal court hearing next Monday to determine Detroit’s official bankruptcy exit date—which will be the date Mr. Orr’s termination will take effect. In his epistle to the Governor, Mr. Orr wrote the city had taken “significant steps” to restructure its finances and operations, writing: “Over the past 16 months, the Chapter 9 process has allowed the city to take and implement critical steps towards restructuring its existing obligations and lay[ing] the foundation for substantial reinvestment in the city — that is, to correct in a sustainable fashion the financial conditions that prompted my appointment.” Mr. Orr noted the extraordinary challenges, including its inability to service its debt and provide core services to residents. He also lists the critical settlements, restructuring, oversight and funding commitments forged through bankruptcy, that he says will enable the city to retain its financial and operating recovery for years to come. In his announcement yesterday, Gov. Snyder noted: “While there is clearly much more to do to ensure the citizens of Detroit have a necessary level of service, there is a remarkable improvement in the lives of citizens that clearly supports a finding that receivership should be ended upon the city’s exit from bankruptcy.”

For his part, Mr. Orr noted that “[R]eaching the effective date of the plan of adjustment is a milestone, but it also is just one step in a journey…There remains much work for the city to complete and much yet to accomplish. I hope and firmly believe that the city’s leadership can continue to build on the solid foundation the restructuring process has created for them….If the city takes advantage of this unique opportunity to shed the problems of the past and stays on the path that has been blazed in the restructuring, Detroit is poised to grow and thrive for the benefit of its residents and this state for many years to come.” Mr. Orr is optimistic that the Motor City will realize a fiscal surplus of about $100 million by the end of FY2015—a sharp turnaround from the $300 million-plus deficit the city faced when I met with him just after his appointment in Detroit last year. More importantly, Mr. Orr said Detroit will realize a positive cash flow and it will have the benefit of established financial practices. Nevertheless, Mayor Mike Duggan was more cautious, warning that the surplus is largely based on “one-time accounting issues related to the bankruptcy,” and that it is unclear that new, additional revenues will be pouring over the transom yet, although the city is currently projecting it will realize approximately $1 billion in revenue annually, but spend in the range of $960 million-$970 million annually.

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