Mich. Gov., Detroit Emergency Manager Defend 'Difficult' Bankruptcy Decision

Detroit's Mayor Dave Bing and emergency financial manager Kevin Orr announced they were going forward with the largest municipal bankruptcy in American history, with the city facing up to $20 billion in long-term debt. Ray Suarez talks with Orr and Michigan Gov. Rick Synder about the path forward for Detroit.


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RAY SUAREZ: And we turn to the many questions about the potential consequences of having the city of Detroit file for bankruptcy.

KEVYN ORR, Detroit emergency financial manager: We have to do this in some fashion, and bankruptcy will let us to achieve that in some way.

RAY SUAREZ: Detroit's emergency financial manager, Kevyn Orr, was out today, defending the decision to file the largest municipal bankruptcy in American history. With the city facing up to $20 billion in long-term debt, Orr and Mayor Dave Bing took the plunge on yesterday.

MAYOR DAVE BING, D-Detroit, Mich.: As tough as this is, I really didn't want to go in this direction. But now that we are here, we have to make the best of it. This is very difficult for all of us, but if it's going to make the citizens better off, then this is a new start for us.

RAY SUAREZ: It's all a far cry from Detroit's storied days as the Motor City. In the 1950s, the population topped 1.8 million, with workers lured by high-paying auto jobs. But by the 1960s, the big three, GM, Ford and Chrysler, began shifting factories to lower-cost cities and faced growing competition from Japan.

The 1967 riots sent middle-class families rushing for the exits to ever-growing suburbs with better schools and lower crime rates. They left a city where property values and tax revenue steadily declined, as crime, decay and services worsened.

By 2010, Detroit's population stood at just over 700,000.

Kevyn Orr said it's long past time to do something.

KEVYN ORR: They're citizens who don't deserve a 55-minute response time, who don't deserve endemic blight and crime, who don't deserve no hope and future and just continued debt over debt and debt and borrowing.

RAY SUAREZ: The city's fiscal woes have been compounded by corruption run rampant under Mayor Kwame Kilpatrick. He was convicted last March 11 of racketeering and other federal charges. Two days later, Michigan Governor Rick Snyder declared an emergency and appointed Orr.

The financial manager insisted yesterday the city bent over backward to work with creditors, but could not reach agreement. Still, the bankruptcy filing left residents frustrated.

EVERETT COTTRELL, Detroit resident: Big old Detroit, they can't even handle they own business? That's sad.

LELAND HARRISON, Detroit resident: They have had enough time to straighten it out, so I guess, as they say, if you can't handle it yourself, someone else will.

RAY SUAREZ: Major creditors, pension boards and labor unions also grumbled.

In Washington, Steve Kreisberg of the American Federation of State, County and Municipal Employees put it this way.

STEVE KREISBERG, American Federation of State, County and Municipal Employees: The loss of pensioning could be extremely devastating for a number of city workers in Detroit. It's simply a matter of what they have been counting on. It's their nest egg. It's really their life savings.

RAY SUAREZ: Now, as the city waits, a protracted process begins in federal bankruptcy court. There is no immediate estimate on how long it will last.

And we're joined by emergency manager Orr and Governor Snyder.

Governor, you said today this is a debt that can be paid and will be paid. So what can bondholders and creditors expect?

GOV. RICK SNYDER, R-Mich.: Well, part of this process is to address the $18 billion in liabilities.

Detroit is broke. And so one of the benefits of bankruptcy -- and this was a very difficult decision to get to -- and we did everything possible to avoid it, but we're here now.

So this gives the city an opportunity to present a plan to say how to adjust its debts, in terms of saying, let's treat people fairly in terms of their creditors, and give them a promise that they know will get paid, rather than having a promise that can't be paid.

The second piece is, and very importantly, that I want to mention is it gives an opportunity to present a plan for better services to the citizens of Detroit. And that's absolutely needed. Response times for police in Detroit are 58 minutes. So in addition to just the liability question, which is a big issue on its own, we need to get better services to the citizens of Detroit.

That's who I work for, plus the nine million people of Michigan. They deserve a better answer.

RAY SUAREZ: Mr. Orr, you said there are no other opinions. Your annual budget is in structural deficit. Long-term debt is in the billions and you have been borrowing money to meet your budget. Was this bankruptcy inevitable?

KEVYN ORR: Oh, I don't know if it was inevitable, Ray, but it certainly was a very difficult decision and apparent.

When you have a $386 million operating deficit on a $1 billion general revenue budget, you can't sustain that. So, in some fashion, something had to be done. This is 60 years of deferred maintenance that's been coming our way. And we have to make a judgment call.

RAY SUAREZ: You're talking about some really severe losses to those the city owes money. Could this have meant less pain to all the stakeholders if it had been done earlier?

KEVYN ORR: Well, certainly, we have tried to stay away from retrospectives and wondering.

But you can't delay these kinds of decisions and this kind of obligation and not expect it to just get worse. It just exacerbates, gets worse and worse and worse.

And frankly that was in large part the reason that I made my request to the governor to give me the authority do so, and that the governor apparently agreed with my request that it was time to address this, because otherwise, Ray, it just gets worse.

RAY SUAREZ: In recent months, were negotiations possible that might have restructured debt, reach some agreement, with creditors avoiding bankruptcy?

KEVYN ORR: Well, we reached some agreements with some creditors, and those discussions are ongoing, in fact. And we hope to reach additional agreements with other creditors and stakeholders even in this process. There has to be a solution to where we are either consensually or through the court process. But we're hopeful that we can do that consensually.

RAY SUAREZ: Governor, back to you. Will Detroit continue to weigh heavily on the finances of your state? This is not over for Michigan, is it?

RICK SNYDER: Well, the way I view it as is, is Detroit is critically important to Michigan's future.

Michigan is the comeback state right now, but Michigan is on a path to being a great state again. But to do that, we need to trade on the path of being a great city again. And this is a very important step in making that happen.

To step back from simply the financial pieces of this, tremendously good things are going on in Detroit today, in terms of the business community, in terms of jobs being created in downtown and midtown Detroit, in terms of young people moving into the city.

There's 90 percent-plus occupancy in the city. We need to look at improvements in the neighborhoods. Good things are going on there. This is about solving the city government's financial issues service issues. And that's the last obstacle to go.

And, beyond that, when we get this resolved, I think Detroit is going to be poised for outstanding growth and a bright future, which is great for all of Michigan.

RAY SUAREZ: You have got other distressed cities in your state and there are other distressed cities around the country. Are they watching the massive bankruptcy closely, and might it get heart harder for cities to borrow and will it drive up the cost of borrowing?

RICK SNYDER: Yes. This is one of the questions.

There's a lot of speculation on both sides of that question. But I would step back to say I was hired by the citizens of Michigan, including the 700,000-plus wonderful people in Detroit, to get a better answer for them.

This can's been kicked down the street for years and years. Enough is enough. So, my focus is, is they deserve better services. And this is the way to do it. This is the way to address the debt question.

This is the way to have Detroit grow, and that is an illustration that I hope the country can look to say, isn't it about time to see one of our great cities become great again?

RAY SUAREZ: Mr. Orr, what will this bankruptcy mean for Detroiters? Are there some services that will simply have to go away or things that people were accustomed to that the city can just no longer afford?

KEVYN ORR: No, actually, Ray, on the contrary.

What Detroiters should expect is that services are going to get better. We're already focusing on lighting, blight, police services, health, safety and welfare concerns, and frankly bringing up the level of services for the 700,000 residents of the citizens -- of the city of Detroit to a level that should belie a city of this nature, a great and storied city.

There has been so much deferred maintenance here, it's just time to get at it, Ray, and make it better for all of our citizens.

RAY SUAREZ: But can you do that without selling off the family silver, without selling assets like the island and parks and the art collection?

KEVYN ORR: Sure. Sure, the wedding china and grandmother's silver.

No, we want to stay away from those concepts. I think we can fix the solution with the proposal we made on June 14.

It addresses some of our legacy costs. It gives us an opportunity to have long-term initiatives over the next 10 years to address some of our blight, health, safety and welfare concerns.

And that proposal was made without the necessity of looking into some of the assets of the city, if you will, that should remain for when this city is the great city that it is, and it will be even better in the years to come.

RAY SUAREZ: Kevyn Orr is emergency financial manager of Detroit. Rick Snyder is governor of Michigan.

Gentlemen, thank you.