March 23, 2014

Report Card on Detroit Bankrupcy

"A year into his tenure as emergency manager of the largest American city to go bust, Kevyn Orr says he’s still confident that a post-bankruptcy Detroit will rebound from some of its gloomiest times.", Kevyn Orr confident of Detroit rebound from bankruptcy, Detroit Free Press, March 23, 2014

Orr is getting paid $250,000 per year. Do you expect him to say that Detroit is doomed after his contract is up? He is handling the bankruptcy well and handled the operation of the city poorly. Much of the failure on the operations side is Governor Snyder's fault.


The structure of reorganizing the city was faulty from the beginning. You do not put an an outside consultant/attorney with expertise in bankruptcy law in charge of the city. You put an expert in operating a city in charge and hire a bankruptcy attorney reporting to him to assist in addressing the problem. The city's operation was neglected for at least six months.

Further, Kevin Orr is a contractor of the city with an 18 month contract. It is not wise to give someone who is under a short term contract the unrestricted ability to hire other contractors to assist in the bankruptcy and city operations. This is poor internal control. When you have the ability to spend money of someone else you tend not to be frugal. No one is watching the hen house.

Orr has done a fantastic job of handling the bankruptcy. The Governor failed to set up a proper system to optimize the operations of the city during this 18 month period.

Update March 25, 2014**:: How does Orr expect the judge to rule on the bankruptcy soon when there is no resolution that anyone has articulated for the DWSD? The value of Detroit's water system is derived by what the system can provide to its customers. It is not the physical cost or value of the hard assets in the ground. Everyone agrees water is the asset. The question is who pays for it and who should "own" it.

Perhaps the best that Detroit can hope for is to come up with an agreement whereby the total price the suburbs must pay is determined over time by some predetermined formula of allocating cost and usage. Further Detroit is paid some down payment now and the final price is set at some future date that correlates to the repair of the system.

Orr is not being realistic to throw out some number and expect the burbs to accept it. They are not adequately in a position to access value at this time. Undoubtedly the creditors will want some portion of what is paid up front  .More

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