DETROIT—Michigan’s governor has appointed an auto-industry turnaround expert to steer Detroit back from the brink of ruin.
The one-time symbol of America’s industrial became the biggest U.S. city to be placed under state financial control.
Kevyn Orr, a partner in the Cleveland-based law firm of Jones Day, who represented Chrysler during its successful restructuring, will have broad powers to control all spending, including renegotiating labour contracts, selling off assets and even suspending elected officials’ salaries.
“We can rise from the ashes,” Orr told a news conference. “This is a beautiful city and a wonderful state that gave me my start. I feel compelled to do this job.”
Under state law, his appointment is to last 18 months.
But Orr doesn’t expect the turnaround to take nearly that long.
The job “has a fuse on it,” he said. “And If I do a good job, I get fired. I am highly motivated. If we work together, we can get this done significantly shorter than 18 months.”
Detroit is saddled with a $327-million budget deficit and more than $14-billion in long-term debt—a morass that developed slowly during the decline of the auto industry, the exodus of a quarter million people from 2000 to 2010 and outright mismanagement at city hall.
At the height of its manufacturing boom, in 1950, Detroit was home to 1.8 million people.
The 2010 census put the population at 713,000.
Some estimates now place it below 700,000.
The city has been making ends meet on a month-to-month basis with the help of bond money held in a state escrow account.
The city has also instituted mandatory unpaid days off for many city workers.
When he met with Gov. Rick Snyder, Orr said, he called the manager job “an unsung hero task.”
Mayor Dave Bing and the City Council, who fought the prospect of an emergency manager for months, will keep their jobs, but the manager will decide all financial matters.
And only the manager will have the power to authorize the city to pursue bankruptcy.
A state-appointed review team previously determined that Detroit’s cash deficit meant the city would have to either increase revenues or cut spending—or both—by about $15-million per month for three months starting in January to “remain financially viable.”
Shortly before Orr was hired, Bing announced that Detroit had chosen Jones Day as the city’s restructuring counsel.
According to Jones Day’s website, Orr has practiced law in business restructuring, financial institution regulation and commercial litigation since 1984.
He has served as the chief government legal officer of a failed financial institution and a special master to oversee the operations of a real estate development firm.
Orr also has represented health care financier National Century Financial Enterprises in its bankruptcy.
The 1983 University of Michigan Law School graduate is a member of the American Bankruptcy Institute and serves on its law review advisory board.