Sheriff Deputies block the entrance to the City Hall offices during Detroit protest against dictatorial fascist rule by bank-backed leaders Gov. Rick Snyder and EM Kevyn Orr. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
Detroit bankruptcy, Kevyn Orr's doubts discussed weeks before EM was hired, e-mails show
9:03 PM, July 22, 2013
By Matt Helms
Detroit Free Press Staff Writer
Weeks before a state financial review team found Detroit’s fiscal condition so dire that Gov. Rick Snyder would soon appoint an emergency manager, discussions behind the scenes indicated that an orderly Chapter 9 bankruptcy for the Motor City might be the best option, according to e-mails reviewed by the Free Press.
The e-mails — obtained by labor activist Robert Davis in an ongoing lawsuit against the Snyder administration over whether emergency manager Kevyn Orr’s appointment violated state open meetings laws — show that a top Snyder aide had approached Orr and his law firm, Jones Day, in January and were urging Orr to take the job.
The e-mails also show that Orr expressed reservations about becoming the emergency manager in Detroit under Public Act 436, the Michigan law the Legislature quickly enacted late in 2012 after state voters in November repealed the previous version, Public Act 4. Orr indicated the Legislature’s hasty approval of the replacement law could be considered an end-run around voters who had rejected it, the e-mails show.
Discussions with colleagues show that one Jones Day lawyer told Orr that bankruptcy in Detroit was likely, and preferable to the political fight that appointing an emergency manager would bring.
“It seems that the ideal scenario would be that Snyder and (Mayor Dave) Bing both agree that the best option is simply to go through an orderly Chapter 9,” Jones Day lawyer Dan Moss, who worked with Orr on Chrysler’s 2009 bankruptcy, told Orr in a Jan. 31 e-mail. “This avoids an unnecessary political fight over the scope/authority of any appointed emergency manager and, moreover, moves the ball forward on setting Detroit on the right track.”
That e-mail was sent weeks before a state-appointed review team lead by state Treasurer Andy Dillon completed its work and publicly released a report on Feb. 19 that chronicled a city collapsing and its leaders unable to change course as debts and liabilities mounted. Snyder used the report to justify appointing an emergency manager, saying at the time that he hoped to avoid a bankruptcy in Detroit.
A separate January e-mail from Moss to Orr shows that they discussed providing a larger national context for the work Orr and Jones Day would do in Detroit, saying that “making this a national issue is not a bad idea.”
“It provides political cover for the state politicians,” Moss wrote. “Indeed, this gives them an even greater incentive to do this right because, if it succeeds, there will be more than enough patronage to allow either Bing or Snyder to look for higher callings — whether cabinet, Senate or corporate. Further, this could give you cover and options on the back end to make up for lost time here.”
A spokesman for Orr denied the e-mails revealed anything untoward.
“The e-mails mentioned by Mr. Davis show nothing more than the proper due diligence between the city, a potential vendor and a candidate for emergency manager,” spokesman Bill Nowling said. “The notion that a Chapter 9 filing was a forgone conclusion is absurd. Kevyn Orr held more than 100 meetings with creditors, stakeholders and unions in the last three months before deciding that the best course for restructuring the city was to seek federal bankruptcy protection.”
Snyder spokeswoman Sara Wurfel said the governor “has been transparent and visible throughout the process and in reaching and sharing his decisions. That record speaks for itself. All laws have been closely followed. Gov. Snyder acted to do everything possible to avoid the need for an emergency manager for the city of Detroit in the first place, and then to avoid the need for a bankruptcy filing.”
Good faith, or just a show?
Taken together, the e-mails offer an extraordinary glimpse into the private discussions taking place as state and city officials braced for a state intervention in Detroit that ultimately led to the largest municipal bankruptcy filing in U.S. history last week, with Detroit buried under $18 billion-$20 billion in debts and liabilities. Orr has warned unsecured creditors that they could get back less than 10 cents on the dollar and told city retirees and workers that Detroit has no money to make up for billions in underfunded pensions and health care.
Davis, who shared the e-mails with the Free Press, said they call into question whether Orr, Jones Day and the state actually believed at any point that a bankruptcy was avoidable. Davis said he questions the commitment of Orr and Jones Day to negotiating out-of-court settlements because the law firm stood to make millions more in legal fees once the city filed for bankruptcy.
Unions and lawyers for the city’s two pension plans have accused Orr of not negotiating in good faith, essentially providing a take-it-or-leave it offer and not accommodating disagreements. Orr said last week that he did bargain in good faith but was met with lawsuits and public statements of opposition.
That e-mails show such early discussions about a Chapter 9 bankruptcy “proves that, all along, he was not bargaining in good faith, and that, ever since January, Chapter 9 was the plan,” Davis said.
Both Snyder and Orr have said repeatedly that the goal was not bankruptcy but negotiated settlements with creditors outside federal court. Those talks, Orr said, broke down amid opposition from major creditors and lawsuits filed in recent weeks against the state by city retirees, city workers and pension funds opposed to cutting retiree benefits.
According to the e-mails, top Snyder aide Rich Baird told Orr in January that he wanted Jones Day to represent the city with Orr as EM. Orr replied that he would be glad to work with the city, even if not as EM, saying, “I and the firm are committed to working in lockstep with the city.”
Bing hired Jones Day with City Council’s approval in April.
But Orr expressed reservations, the e-mails show, worrying about the impact moving to Detroit without his wife and two children would have on his family, and what leaving a lucrative position at Jones Day, one of the nation’s top law firms, might mean for his career.
Bing part of exchange, too
Bing, too, was involved in early discussions. The e-mails show he and Baird worked on a 12-point plan that would shape Bing’s role as mayor under an emergency manager.
E-mails before Orr’s appointment show Bing proposed keeping his executive team, with their pay and authority intact. Bing also sought support for his initiatives to improve public safety, lighting, recreation, the city’s bus system and blight removal, and to keep regional transportation funding for buses at a decades-long split of 65% for the city and 35% for the suburbs.
For his part, Bing would appear at a March 25 news conference announcing Orr’s appointment, pledging support for him and encouraging the community to back the emergency manager process. Bing, the e-mails say, also would support Orr’s recommendations on the city’s finances in the context of the mayor’s wide-ranging Detroit Future City plan to reshape and downsize Detroit to deal with a shrinking city.
Bing’s proposal also supported an expedited plan to have the city lease Belle Isle to the State of Michigan to run as a state park.
Bing said allegations that he colluded with the state on an emergency manager are wrong. He said he met once with Baird after it became clear that an EM was inevitable and that Orr was the state’s preferred candidate.
“The die was cast, as far as I was concerned,” Bing told the Free Press on Monday. Preparing a cooperative relationship with Orr “made more sense to me, instead of constantly fighting the concept of an emergency manager. ... Let’s see how we can maximize what we could do together. Fighting it was not going to resolve our problems.”
Bing said he did not get many of the key things he sought in the early talks. For one, in late April, leaders of the Southeast Michigan Council of Governments changed the funding split for $42 million in federal transit money to 51.5% for the suburbs and 48.5% for the Detroit Department of Transportation, a change that cost the city $7 million a year. Bing said Snyder’s administration had pledged to support maintaining the earlier split but did not do so before the SEMCOG vote.
Bob Warfield, Bing’s spokesman, noted that the proposed state lease of Belle Isle still has not come to fruition, and that the state and Orr have either forced out several key members of his staff or hired them for other positions. They include William (Kriss) Andrews, who Bing said is on his way out as program management director for the city, replaced by former Detroit City Councilman Gary Brown, and Chief Financial Officer Jack Martin, whom the state appointed last week as the emergency manager for Detroit Public Schools.
Bing said he was never under the impression that a bankruptcy filing was inevitable.
Snyder, Orr and Dillon told him “they wanted to do everything they could do avoid bankruptcy,” Bing said. “But they chose one of the most renowned bankruptcy lawyers in the country to be emergency manager. I’ll let people think what they want to about that.”
Contact Matt Helms: 313-222-1450, mhelms@freepress.com, or on Twitter: www.twitter.com/matthelms
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