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Motor City Out Of Bankruptcy

Dec 10, 2014

Detroit officially exits bankruptcy

Gov. Rick Snyder, Detroit Emergency Manager Kevyn Orr and Detroit Detroit Mayor Mike Duggan.
Credit Michigan Public Radio Network

At the stroke of midnight, the city of Detroit officially exits of bankruptcy. Governor Rick Snyder has signed the order terminating the city’s emergency manager, and officially transferring control to the mayor and the city council.

The action is something of a formality since Detroit Mayor Mike Duggan has had control over most day-to-day operations for months now.

“It’ll be great not to have to go through the legal proceedings that’s been consuming so much of our time, but the reality is tomorrow’s not any different from today,” Duggan said to reporters at a news conference.

Duggan says right now that means dealing with things like arranging the purchase of body cameras for police officers, getting winter snow removal plans in place, picking up the trash, and getting the busses to run on time. 

In recent weeks, Emergency Manager Kevyn Orr’s role has been wrapping up the final details of the bankruptcy and, with the exception of some pro forma administrative matters, he says that’s done.

“The city will be out of bankruptcy,” he said. “I will no longer be the emergency manager. I will be unemployed.”

The bankruptcy deal – dubbed “the Grand Bargain” -- with the city’s creditors and retirees erases $7 billion in debt and frees up $1.4 billion dollar over the next 10 years to invest in services.

Governor Snyder, who signed the law and the orders that set the bankruptcy in motion, says he was pleased that everyone was able to come together to avoid lengthy litigation.

“And I think we’ve got an outstanding outcome, far better than people’s expectations and, now, most importantly, we have the city poised for a new chapter, a new chapter that’s about the growth of the city of Detroit after decades of decline, and that’s extremely exciting,” he said.

Wayne State University student Sukie Kaur lives in Detroit’s burgeoning Mid-Town section. She says the end of the bankruptcy means the city can start anew with a “clean slate” and the promise of more stability.

“To me, I hope that more businesses come downtown and midtown and start expanding this way and more people start moving from the suburbs to mid-town and downtown Detroit and start bringing their small businesses here because that’s what will make the economy grow.”

“It’s great to be excited that this is over, but in some ways, it’s only the beginning of a longer process, too,” says Eric Scorsone, a municipal finance expert at Michigan State University.

“It’s going to be one of the most important events in the history of the city, I think, when we write the history books, because the city’s really on a new path now financially that it has not been in decades and I think it gives the city a real chance to have an economic recovery.”

He says now the city will have to balance its budget relying less borrowing, stabilize its revenue stream, and provide the services that will make Detroit a city where people will want to live, open a business, or visit.

To ensure that, a financial oversight board will have veto power over budget decisions by the mayor and city council. As time goes by, the board’s authority will diminish as city officials show they can balance the books.

But, Scorsone also says because the nation’s largest municipal bankruptcy ever seems -- at the outset, at least -- to have set the city on the right path, that makes it bankruptcy a more-viable option for other cities in financial distress.

“I don’t think we’ll ever see a lot of municipal bankruptcies, but I do think there may be a few others and it may not be right now, it may be in the next recession.”

But Governor Snyder says, as far he’s concerned, Michigan is one and done when it comes to local government bankruptcies.

“Bankruptcy is a last resort, so no one should be planning to say, I want to go into bankruptcy,” he said. “This was a truly unique situation.”

There are 16 other local governments and school districts in Michigan in financial trouble and are under some stage of state oversight. Detroit’s school district is one of them, and Snyder says getting the district out from under emergency management is overdue.  He says the city of Flint should also exit emergency management in coming months.