By Ben Atlas, Daily Staff Reporter
Published December 6, 2013
Right from the outset, Detroit Emergency Financial Manager Kevyn Orr spoke bluntly and honestly about the city’s condition.
“Hold your applause until you hear what I have to say,” he said, after being introduced as the keynote speaker at Friday’s fourth-annual Revitalization & Business Conference at the Ross School of Business.
In March, Orr was appointed by Michigan Gov. Rick Snyder to handle Detroit’s ongoing bankruptcy proceedings and to create a sustainable plan for the city's financial health. On Tuesday, a federal judge ruled that Detroit is eligible for bankruptcy — making its $18 billion default the largest municipal financial failure in U.S. history. The city’s insolvency has caused distress among Detroit residents, who are coping with reduced city services. Retirees who worked for the city also face steep cuts to their pensions, a sticking point of the judge’s ruling.
Orr opened the conference by giving an overview and progress report on Detroit’s recovery. He described Detroit as a city critical to the history of the state, country and world, as it was central to the origin of the organized labor movement, the expansion of the middle class and the birth of cars, commuting and transportation.
The most elemental component of the city’s financial distress, Orr said, is its rapid population decline. Once a city of 1.8 million residents in the 1950s, Detroit’s population is now just over 700,000 and the city has lost close to 240,000 residents in the last decade alone.
Compounding the population decline is Detroit’s physical enormity: the entire cities of New York City, Boston and San Francisco can fit inside Detroit’s 139-square-mile border. While the city’s revenue stream from property and income taxes has shrunk because of the dwindling population, the city remains as geographically large. Thus, the costs to maintain city infrastructure and services remain the same while the budget to fund it continues to shrink.
This dynamic has created a complex accumulation of challenges for the city to provide its essential services. For instance, the city can afford to keep just 60 percent of its street lamps lit on any given day — leading to a host of problems for law enforcement and emergency services.
“Turn a city dark, you will see crime,” Orr said. “It’s very simple.”
The city’s rising crime rate is also driven by “economic disparity, hopelessness and helplessness,” Orr said. Yet thanks to the city’s vast size and decreased police force, it often takes close to an hour for authorities to respond to emergencies.
Another persistent issue is the city’s bus system, which Orr says reaches its routes on time at just a 65-percent rate. The public school system does not have its own buses, so young children ride the city buses to and from school, enduring long wait times in the cold, unlit and crime-ridden streets — a combination that Orr worries is a detriment to education.
In addition to detailing the flawed distribution of services, Orr also outlined the extent of the city’s $18 billion in debt obligations, which, if not addressed soon, could make the financial situation even worse. Private enterprise secures $6 billion of that debt, and most of the remaining $12 billion is related to employment and retiree cost: $5.7 billion for health care costs for retirees, $3.5 billion for unfunded pension obligations, and $1.4 billion in bond debt used to pay into the pension system.
As difficult as it is to accept, Orr said the city has no choice but to readjust and reduce its financial obligations, meaning that many pensioners will not receive the retirement income they were once promised.
These tough choices underlie the enormity of Orr’s task. Unlike the bankruptcy and restructuring process in the private sector — Orr also represented Chrysler LLC when it filed for Chapter 11 in 2009 — there is a human element inherent to these proceedings.
Orr’s address laid the framework for the rest of the conference held by the Detroit Revitalization & Business Initiative, a student-run organization in the Business School whose mission is to help students learn about Detroit, engage with the community and commit to contributing to its revitalization.
“(Orr) really was able to connect the hard, cold numerical facts with the real human truths of the challenges facing Detroit,” Business graduate student Nirmal Deshpande said. “It puts what we’re learning here into a very clear context.”
The theme of Friday’s conference was “Growth and Regrowth,” exploring the new industries that will drive the city and investigating how to reinvigorate the traditional sectors that made the city strong. The conference, which was attended mostly by graduate business students, included panels on the intersection between education and business, as well as a forum for students interested in working in the city upon graduation.
“As a lot of us try to figure out where we’re going to settle, it makes you think twice about, ‘Do I want to go to Chicago, do I want to go to New York, (or) do I want to go be involved in a new revitalization (in Detroit),’” Deshpande said.
Faculty, as well as students, seemed to view Orr’s address positively.
Business lecturer Peter Allen said in an e-mail interview that he was impressed with Orr’s resolve to have a two-year budget and 10-year projection in place by the time his appointment ends 10 months from now, and was also pleased with Orr’s apparent willingness to work in concert with the city’s elected officials.
Emergency financial managers have been criticized by many for having too much power and being able to override the power of elected officials.
“Overall, if I were a Detroit investor, I would feel very comfortable making an investment today,” Allen wrote.
The attendees’ seemingly favorable reaction to Orr’s remarks reflect that, while unequivocal in his assessment of the city’s fiscal state, he was able to inject a dose of optimism as well.
“At the end of the day, there are two things I have to leave this process with,” Orr said. “A city that functions effectively and some semblance of hope that people who depend on these services to live, will be able to live out rest of their lives with some form of dignity and hope.”