Detroit 700,000 US$ 327m US$ 14bn
spent more than it earned last year of liabilities in pensions for retired city workers II, the city’s population has been steadily shrinking and it now stands at only 700,000.
Snyder declared a financial emergency and appointed Orr last month after a state review showed Detroit ran a deficit of US$ 327 million last year and has unfunded liabilities of more than US$ 14 billion because of retirement plans for former city employees.
The decision to appoint Orr, who spent more than a decade as a specialist in bankruptcy law at multinational law firm Jones Day, suggests that the Republican governor is after radical solutions.
‘‘ He has absolutely done the right thing,’’ said Bruce Katz, an expert on US cities at the Brookings Institute.
‘‘ The fiscal situation is dire, and at some point in the life of a city, these sorts of actions are warranted.’’
It is not an opinion shared by everyone in Detroit. The breadth of Orr’s powers has catapulted him above Detroit’s mayor, Dave Bing, provoking fierce criticism that the declaration of a financial emergency is undemocratic.
The American Federation of State, County and Municipal Employees, a local union, is suing to overturn the appointment.
The hostility underlines the precarious path that Orr will have to tread in a job that comes with a US$ 275,000 annual salary.
A week into his 18- month term, restructuring experts say his most urgent task i s to ensure that basic services — including health, education and police — are delivered.
‘‘ You’ve got to get the buy- in from people,’’ said Jim Spiotto, head of bankruptcy law at Chicago law firm Chapman and Cutler. ‘‘ The city needs a cash flow to pay for the basics. That i s a significant challenge in a city where the politics complicate the fiscal and economic picture.’’
Katz said the need to keep the lights on would quickly confront Orr with the connected, but more complex, challenges of trying to turn Detroit around.
While the city’s population has fallen over the past 50 years, it has done so unevenly, requiring the city government to provide basic services to pockets of people over a significant geographical area.
About 25 per cent of Detroit’s housing has been left empty, according to figures from Detroit Future City, a plan for the city drawn up by some local residents and businesses.
‘‘ You have a shrinking population in a very large land mass,’’ says Katz. ‘‘ How do you deliver services?’’
Part of Orr’s answer to that question will stem from where he sees the majority of Detroit’s residents living a decade from now.
Katz believes far more will be in the city’s centre, where efforts should be focused on attracting businesses to create jobs and increase tax revenue.
Juggling Detroit’s pressing shortterm needs for cash while drawing a map of its long- term economic future will not be easy. Orr acknowledged as much at a recent press conference, where he described the task as the ‘‘ Olympics of restructuring’’.
Besides Detroit’s residents and politicians, Orr also needs the support of the city’s bondholders, who have lent it almost US$ 4 billion since 2005.
Experts forecast that Orr may try to negotiate with bondholders to extend the time Detroit has to pay back the debt.
As recession gripped the United States in the first half of 2009, the White House chose to restructure General Motors by making the company file for bankruptcy protection.
It was a process mediated by a court and, critically, relieved GM of immediate pressures to pay creditors as it worked to restructure its debt and rein in its financial obligations. At the worst, Orr could do the same to Detroit.
‘‘ It’s the nuclear option,’’ says Spiotto. ‘‘ It will be an admission that everything else has failed.’’