Transcript: Press briefing Q&A with Detroit Emergency Manager Kevyn Orr on the Chapter 9 bankruptcy eligible ruling by Judge Steven Rhodes on Dec. 3, 2013

Partial transcript of press conference Q&A with Detroit Emergency Manager Kevyn Orr on the Chapter 9 bankruptcy eligible ruling by Judge Steven Rhodes on Dec. 3, 2013:

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Typically, in bankruptcy organizations, clean slate or fresh start is an opportunity to relieve ourselves as a city of the crushing debt burden that we have. As the judge mentioned in his ruling, approximately 40% of every dollar that the city takes in the general fund goes to paying legacy debts – pension obligations, some of which are unfunded or debts. That’s just not sustainable because in the next 3 to 4 years, that number is going to go to almost 65% – almost two-thirds. We have to relieve the city of that burden and that would be the clean slate. In other words, the city would get to a position that it could go forward and pay its bills as they become due in the ordinary course.

Question:
Did anything the judge say today change the course for you?

Detroit Emergency Manager Kevyn Orr:
No. The judge’s ruling was straight down the middle. I think I’d said before in various press opportunities, the issue of federal pre-emption and supremacy are things that I personally have been involved with throughout my career and consequently there are no surprises in that ruling. It’s pretty straightforward. I know it’s troubling to some people given the state law but this has happened in many, many areas many, many times. And as Judge Rhodes said virtually in the 30 years that I’ve been doing this type of work, there has not been a restructuring where some contracts are not adjusted. It’s just that the contracts here have a human dimension because they’re pensions. That’s very concerning.

Question:
…What happens to the citizens of Detroit?

Detroit Emergency Manager Kevyn Orr:
Well, hopefully, the citizens will begin and already have begun to see a better level of services return to the city so the city becomes more attractive place to live. In some capacity that’s happened. Right here in Downtown, for instance, the city thrives. We’re 97% leased. There are many projects. If you go down Woodward Corridor, you’ll see a number of new apartment buildings and lofts going up, a number of new mixed use constructions. So the city downtown is thriving. What we want to do is make sure that that type of reform is pushed out to the neighborhoods.

But equally important, I’d like to say this to the many city employees. We’re going to continue to pay salaries as they become due, pay all benefits, checks as they become due, and continue to pay our bills as they become due in the ordinary course. In fact, for the first time in many years, the city is actually paying its trade creditors and others on a 30-day net basis. We’re paying things on time. So it’s business as usual in Detroit but this determination gives us a better opportunity to go forward with that clean slate.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Those discussions are currently part of the mediation process being undertaken by Judge Rosen. We thank Judge Rosen and his team of mediators for that process and we hope we’ll be able to get to some more definitive numbers, specifically. But that process is somewhat confidential so I can’t give you a specific number. What I can say is that we hope that it’s consensual.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
No, it’s still on hold. We decided that it was best given some of the things that were going on with the exchanges that we extend that for two months and we’re still going to do that.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
March 1st.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
My legal team, aided by the attorneys that you’ve seen Bruce Bennett, David Heiman, Heather Lennox…and the other attorneys involved, we’re preparing a plan of adjustment right now. We’re going to work throughout this month, even over the holiday, to be able to produce a plan first, frankly, for our creditors and our labor partners so they get an opportunity to have a look and then publish that plan, actually file it probably within the first week of January.

Question:
Can you talk about the DIA? [Inaudible]

Detroit Emergency Manager Kevyn Orr:
You know, I’ve said – I was in this room, I think, on March 25th that everything is on the table and that remains true even now these 7 months later. We are at a point now where, as you know, Christies was hired to produce an assessment on the phase I or the approximately 500 or some odd pieces that comprise the higher pieces. We should be in a position to publish that assessment within the next week or two. That assessment will drive the discussion about what, if anything, we need to do with regard to the art museum. One thing that is helpful is that there has been an effort led by Judge Rosen with some members of the philanthropic community to see if there’s any form of contribution or other financial incentives that could help us address all of our creditor requirements and perhaps help us deal with the DIA solution. But that solution will be baked into the plan of adjustment that we will publish at the beginning of the year.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
You know, when I said I was very pleased, I very specifically stayed away from the word “happy” because I think there’s still much work that needs to be done, and one of them is the retiree issue. What I can tell them is we’re trying to be very thoughtful, measured, and humane about what we have to do. What I can tell them is that the reality is there is not enough money to address the situation no matter what we do. That is clear. Nobody is really disputing that. What I can tell them is that they have representation that we asked for and the city is paying for – we pay for the retiree committee – so that there are people there that can support and put forward their interests. But we’re going to try to do this in a very measured and thoughtful way but it has to be done.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, a month or so ago, we had the big meeting with our federal partners who came in and talked about increasing grants and a number of grants – CDBG, HUD grants, SAFER grants with the Department of Homeland Security, Department of Justice grants – and those are now starting to come into the city. In fact, there’s a new grant – new SAFER grant coming in to hire additional FTEs over at the fire department. Some people say that’s only for two years but it’s helpful no matter what help we get in that fashion. We’ll continue to work along that way with existing federal programs that are able to assist the city with its current needs.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, I think you’d have to be careful. People say affect the DIA. Let me say again – the Detroit Institute of Arts is a facility owned by the city of Detroit. The Detroit Institute of Arts’ corporation manages that facility for the benefit of Detroit. Those are Detroit assets. They’re different from pensioners which are obligees that we have as beneficiaries. So I don’t view it as binary balance. What I can say – and it’s something that the judge has mentioned in his decision today – we have to be fair and equitable in our treatment of all creditor classes, whether they’re financial creditors or whether they’re retirees, pensioners and the like, and that’s what we’re going to try to do.

Question:
Are you on track for leaving on time? [Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, we hope to stay on track. This eligibility ruling, you know, I likened it to taking a very long trip. We had our map out. We had the tankful of gas and the car was in the driveway. We’re now heading down the road. But we’ve got a long road ahead. You know, we could have a flat tire. There could be some detours but we’re on track to keep our schedule to meet the requirements under the statute that ends basically at the end of September 2014.

Question:
[Inaudible]…How soon before Detroit is a better city? A city that people want to move to? A city that’s not just that doesn’t feel safe but is actually safe? How soon before Detroit is relatively back on its feet in your honest opinion?

Detroit Emergency Manager Kevyn Orr:
Well, two things. As I said, I think Downtown and in some areas of Detroit, you’re already seeing that. I mean, Downtown has a 97% lease rate. You couldn’t move here if you wanted to. And you’re seeing a tremendous amount of construction and interest into the city. The real issue is how do the neighborhoods feel – the other 130 miles of city going out. And that’s why we’re so focused on dealing with blight issues, lighting, policing, garbage collections, solid wastes, so on and so forth.

But I will say this in direct response to your question. It’s something that Attorney General [Eric] Holder said at the meeting we had with the federal government representatives a month or so ago: One of the things we need to do is to recognize first and foremost that we’ve been marching our way here for 60 years. That’s two generations. To put it bluntly, there were no computers during that time. It’s going to take some time for us to dig ourselves out of this predicament and out of this situation citywide. It’s a lot of city. It’s very large. So what I would ask is that there be some perspectives and gain in terms of dealing with the time frame that’s involved to deal with the magnitude.

I am hopeful that between the lighting demonstration projects and the blight projects that we’re doing, every area within the city will see a demonstration of what the city will look like but it’s going to take us some time, perhaps with blights somewhere between 2 to 3 years, but some other issues – generating income, tax collection, so on and so forth – some period of time.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, as we said, we’re looking at any and all transactions that make sense for the city. Right now there are negotiations ongoing regarding a transaction authority for the water department. Here again the city would continue to own all the pipes, the switches, the lines, the capital infrastructure of the water department but an authority would be in place to actually run the department for the city’s benefit and pay us some form of compensation – rent, if you will – for that benefit and that compensation would go into the bucket for creditors. Those discussions are ongoing. It is my understanding they are going relatively well. They are, however, complicated and will take some time. And in fact, I’m meeting with our advisors tomorrow on the status of those discussions.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, one of the things that we’re obligated to do under 436 – the state statute – is provide a 12-year budget and 10-year projections and we’re in that process now. Our projections more or less are flat-line and include an assumption – it’s an assumption – that the population has more or less stabilized where it is at approximately 700,000. It may vary from 685,000, 697,000 but 700,000 or so. If, in fact, residents see enhanced services, better quality of life, a safer city, they may actually go up. But we have to assume that under the best set of circumstances, that population will remain stable, so we’re making that assumption in our projections.

Question:
[Inaudible]…You have a new mayor coming in…Tell us a little bit about the talks that you’ve had with him. I mean, what will his role be with you or without you?

Detroit Emergency Manager Kevyn Orr:
No, I’m hopeful the role with be with me…The mayor-elect and I have had several discussions that have been quite favorable, I might add. Certainly, he comes in with a significant amount of knowledge of restructuring and city structures, and I hope to work with him to enhance services for the citizens of Detroit.

Question:
[Inaudible]

Detroit Emergency Manager Kevyn Orr:
Well, you know, we’re not quite there. Like I said, we want to put out our plan first and give our creditors and our labor partners the opportunity to look it over. And as you all have heard several weeks ago, we were able to reach an agreement with our EMT union…on some labor terms for a new collective bargaining agreement and we’re in active discussions with several of the uniformed unions about another settlement regarding collective bargaining agreements. So hopefully – and we keep saying this and I want to emphasize to everyone out there – this eligibility ruling is a start for us but it’s also an overture, it’s also an invitation that we really – irrespective of whatever legal tactics any of the parties have to take with an appeal or what they have to say for public consumption; by now it’s fair to say that I’m used to that…

 

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