 Welcome to the University of Michigan Policy Talks at the Ford School Lecture Series. Today's event will begin shortly. My name is Cliff Martin. I'm the Events and Outreach Manager at the Gerald R. Ford School of Public Policy. I'd like to take this opportunity to remind you that the University of Michigan strives to create an environment which the freedom to express diverse viewpoints is valued and protected. This includes the freedom to oppose the views of others, but also the right of speakers and performers to be heard. Please respect this important value of our academic community. Finally, if you need assistance for any matter during today's event, look for these sunglasses, or see one of our events staff who are around the room. Thank you all for coming and enjoy the program. Good afternoon, everybody. Good afternoon and welcome. I'm Susan Collins, the Joan and Sanford Wildean of the Gerald R. Ford School of Public Policy. And it's such a pleasure to welcome all of you here for another Policy Talks at the Ford School. It's wonderful to see so many here in the audience, in particular a number of our friends from the law school. I'm also very pleased to welcome the University of Michigan's Detroit Center Campus who is turning on Viya Webstream. And I know that we have a number who are watching Viya Live Webstream from other places as well. Welcome. Before I begin this afternoon's program, I'd like to recognize Professor Barry Rabe and his staff at the Center for Local, State and Urban Policy close up for their efforts in coordinating this special event. I also want to thank the students of the Ford School's Domestic Policy Council who have been volunteering and have been extremely helpful in organizing our activities. Well, today it is my special privilege to welcome one of the University of Michigan's very highly accomplished alumni, Kevin Orr. Kevin Orr, in fact, comes from the University of Michigan family. I understand that his mother earned her master's degree in education from the University of Michigan, and he earned both his A.B. from the Department of Political Science in 1979, and then his J.D. degree from the University of Michigan as well. After graduating from the law school, he initially returned to his home state of Florida and joined a progressive Miami law firm often providing service pro bono. In 1991, he moved to Washington, D.C. to focus his energies on bankruptcy law and reorganization. He went on to become Acting Director of the Executive Office for U.S. Trustees, which is a federal agency which oversees the administration of bankruptcy cases. In 2001, Kevin Orr joined as partner with Jones Day. Since then, his breadth of experience has led to leadership assignments for several high-profile bankruptcy and reorganization cases, in particular Kaiser Aluminum and Chrysler. Well, last year, Michigan's Governor Rick Snyder appointed him to serve as Emergency Manager of the City of Detroit, and in fact, it was exactly one year ago today that Kevin Orr officially started this, which I think many would agree is his most difficult assignment. Across all of these experiences, he has had to make very tough decisions with outcomes that often affected the livelihoods of many individuals. Well, such decisions we know are inevitably controversial, and perhaps even more intensively so when one is breaking new ground, this is, of course, the largest municipal bankruptcy in the nation's history. As the Detroit Free Press has noted, he is someone who can deliver disagreeable news without being disagreeable himself. Well, we are very grateful to him for joining us today to provide an update and share his perspective about the critical issues and prospects for the city that we care so deeply about. And all of us, whether because of our livelihoods, our family, our love of music, our love of cars, all of us are concerned about the city of Detroit and about its future. As you may know, it's a city of many names. It's often called Motor City or Motown. What you may not know is that one of its names has been Renaissance City, and that is a name that I very much hope will return when we think about the city of Detroit. Well, before we begin, I'd like to remind our audience that if you have a question for Kevin Orr, please write it on one of the cards that was distributed when you came in to the room this afternoon. Ford School volunteers will begin collecting cards in about half an hour or so with help from Professor Elizabeth Gerfer and Tom Avaco from Close Up. Students from the Domestic Policy Council will then be reading your questions in the second portion of our program this afternoon. If you're watching online, please submit your questions via Twitter using the hashtag policy talks. And immediately following the lecture, we are very pleased to be able to have a reception. Kevin Orr will have a meeting with the press corps in the south corner of the room for a short period and then we'll come and join the reception. And so with no further ado, it is my pleasure to welcome Kevin Orr to the podium. Thank you, Dean. And thank you, fellow alumni and members of the University of Michigan community. You know, it's interesting. It's been a year since I started this job as everyone's saying on the anniversary. And if you told me that this year was gonna go as quickly as it had, I would have been surprised. When I first started the job, I was aware that Detroit had been in financial straits for some time. Demographically, since the 1950s, when the city peaked at 1.8 million people and it had been declining ever since year after year. In fact, from 2000 to 2010, the city lost roughly 25% of its population in one decade. It went from about 1.1 million to about 720,000. It now is approximately 700,000. So the decline has been demographic. But the decline has also been economic. Those of you who are from the city, who ride through the city, who read the stories about the city, have recognized for some period of time that a city that was the economic power of the nation, the arsenal of democracy, the motor city, the city who brought us the living wage, $5 a day with Henry Ford. A city for its day, even in segregation, thought of itself as being progressive when Henry Ford decided to create Inkster for his African-American workers and Dearborn for his white workers. A city who went through many labor strikes, but nonetheless truly emerged from the ashes as Cardinal Rashard spoke about. But to really try to get an understanding of the city, I began this analysis back in January when the law firm I was with was coming in to do a pitch to represent the city and its restructuring. And that analysis looked through a lot of data and it's all available. So the process that I'm involved with actually began almost two years ago. It began with the first Detroit review team, which started in February 2012. That review team issued a report which led to the consent agreement of the city in April 2012. Failure to meet certain metrics of that consent agreement led to the memorandum of Detroit reform for November 2012. That led to another review team on the status of Detroit in December 2012, which created a report in February 2013, which ended in a 21-page finding of facts about the status of the city and the declaration of a financial emergency on March 1st, 2013. So the arc of Detroit's analysis and recovery has been long and many of the stories and analyses about how we've gotten there have been written about for a long, long time. So I usually don't spend a whole lot of time in a retrospect of looking back as to how we got here. That's all available and it's been well publicized. In fact, one of the great books about it is Thomas de Gruze, The Origin of the Urban Crisis, Race and Inequality in Detroit. I'm sure some of you who are in the Public Policy School study it. It's quite informative. Chronicle lies as intentional and unintentional bases for where we are. What I try to do is to explain to people what we've been doing in this process, the restructuring process, and where we intend to go from here and then end with what hopefully is some sense of perspective about where the city's gonna go. So when I was first selected to be a candidate for the emergency manager, my initial response was, not only no, but hell no. I was firmly well ensconced in my petite bourgeoisie life as a partner in a large corporate law firm. I've been selected by that firm to go down to Miami and open up our new office. At that point, I think it was the 37th office in 18 countries, I believe. 300 sunny days, average 80 degrees in January. House out on Keebiscayne, convertible. It's good living. But when they called, the first question I'd ask myself was, are you willing to step out of your comfort zone to do something for public service? The great thing about being a Michigan alumnus is that Michigan's culture of service and commitment to the community, an uncommon school for the common man is part of what you take away from you when you're in this institution and you leave, is that you have a duty, a broader sense of self. And so I began to discuss it with my wife and with my then managing partner. My wife says something which was really sort of instructive. She said, you know, honey, she's actually a surgeon at Johns Hopkins in perinatology. And she said, honey, we'll be fine as far as you taking another job and commuting back and forth and being away from home and we have two small children, we'll be fine. She said, you know, you really have to answer this question for yourself. Because the thing you have to ask yourself is not whether or not you take the job now. What are you gonna say to yourself two, three, 10 years from now? When you heard a call to action, are you gonna answer it or are you doing it? There's no harm, there's nothing gonna befall you if you don't do it, but you have to look inside yourself. And then my managing partner said to me, Kevin, you're slated. You know, you're, I was one of the trustees for the firm's foundation. I was on the firm's advisory committee. I was the firm-wide hiring partner for four years worldwide. And he said, you're fine here at the institution. He said something very similar and then he got a little heavy on me. He said, you know, those of us who are fairly comfortable in our environment and frankly that's the vast majority of Americans. I mean, we live in air conditioned buildings in the summer and we live in heated buildings in the winter. There's seven and a half million people and billion people in this world. Some of them are people in our armed forces. Some of them are 18, 19 years old, have their whole life in front of them. What makes that individual jump on a grenade for his or her compadres? What makes that individual willing to sacrifice their life? Good, bad, right or wrong of what you think about any particular conflict on any given time, we ask these young people to put themselves in harm's way for what we, our elected leadership, says is our benefit. What makes them make the ultimate sacrifice? And all I'm being asked to do is still work in an air conditioned office in the summer and a heated office in the winter in a particular area of practice that I've been involved with for 33 years. So putting aside the fact that he shamed me, went a little heavy on it, okay, got a little thick, I had to think about that because at the end of the day all of us in ways small and large will be called to action. Sometimes daily, cut off in traffic, Christmas time someone doesn't let you get to parking space, you give them the finger salute, what do you say, say lovey, you go on. Or big ways, ways beyond your comfort zone. So after thinking about it and after understanding from an academic perspective the needs of the city, the $18 billion in debt, the fact that 60% of our fire calls either arson or non-emergency, the fact that our police rates were initially very long when someone breaks into your house as someone did to my mother's house three times in two months, it's a kid next door. They caught him one time up in the attic trying to find the alarm system, caught him coming out of the window. She's an octogenarian. What does she want when she calls the police? For someone to come, you wanna hear that siren the minute you hang up that phone, someone's on the way, help is coming. For a city where 20% of our housing stock, 78,000 units out of 320,000 are blighted. When I say blighted, I don't mean the gutters falling down or the shutters need to be painted. I mean 20 year old sycamore trees growing up through the foundation of the building. Those of you from the city have seen it graphically over the years. And anybody who wants to know it, you can drive around the city and see it. And this is a great American city, changed the way we lived. You look at the debt service. $6 billion in secured debt affiliated with the water department, but $12 billion on a $1 billion general fund budget. That means that the city stepped down and did nothing. No lights, no police, no potholes, nothing. For 12 years, a dozen years, it couldn't pay off the debt. If you took 200 million of those dollars, which is what we have average in discretionary budget for the city, and that means every jazz festival, celebration, Fourth of July, Winterfest, everything we do, in addition to regular operations, 60 years to pay off the debt. And that's including no interest, no compounding, 60 years. So it was clearly never gonna be paid. And here's the real gravamen of the problem. People talk about the creditor class, depending upon which side of the fence you're on to see they're unfair to the pensioners and unfair to the workers, or it's unfair to the creditors who've lent this actual real money, and they have actually Fifth Amendment rights against impairment of contracts, and they have property interests, and they really did lend the city $1.44 billion in 2005 and 2006. That's real money, even in today's dollars. But putting aside whichever side of the fence you're on, the real gravamen is $5.7 million of that was OPEB, other employee benefits, healthcare obligations that the city had promised and had made over the years. Another three and a half billion were pension obligations, which were supposed to be cured by the $1.44 billion that was borrowed in 2005 and 2006. Of the total amount, only approximately $2 billion is funded debt, that's owed to banks and bondholders. So it's really a case about the obligations that the city made starting in the early 50s, 60s, 70s, when I came of age, there were roughly 150 workers for everyone retiree back in the 60s and 70s. That's went down now to approximately two to one worker for every retiree. 50% of all domestic municipal state pension funds are underfunded. In some cities, we have an underfunding obligation of 3.5 billion, Chicago has 19 billion, and another billion due this year. This is an issue that is coming to fore demographically, economically, politically, kicking the can down the road, Lee, everyone has to say it for years. So we had to address it in some fashion. So when we came into the project, as I call it, we divided it up into threes. The first stage was an honest assessment to analyze the true nature, extent, death, and breadth of the process and the problems, and then to publish those and put those out. And we spent the first few months really trying to do that first with an initial report, 30 day report, then we had a June 10th meeting, then we had a June 14th proposal for creditors. And we just laid it all out, no cant, no gloss. Here it is, here's what we owe, here's what we find, here's the extent of the problem, here's what we can't pay. And to this day, a little bit less than a year, but almost a year later, no one's really taken the issue with the dollar numbers. No one's found new money, there's no pot of gold with a leprechaun, okay? There's no mona from heaven. It's real debt, real problems. So we wanted to get that out there as of June 14th. The next stage was plan design. What are we gonna do about it? In any restructuring in a business sense, it's almost easier, we've participated in large cases, Chrysler, Dana, others, but you gotta balance sheet, you have a product, you're trying to either save the company in a chapter 11, you're trying to dissolve it in a chapter seven, and if you're trying to save it in a chapter 11, you're trying to grow markets, you're trying to creativity, use joint ventures, patents, other assets you can use to give that company rebirth so that it can grow organically and reinvent itself. In a city, you're trying to provide services, and let me tell you how crucial these services are. We're down from a high of roughly 300,000 students, school children in a city of 50,000, and our school children ride our city buses. Back in November, I'm up near McNichols, UDC Mercy, there's a little girl, a little princess, it's got a little pink backpack on, she's cute as she can be. It's about five o'clock, November sun's going down, she's sitting on a bench, not a shelter on a bench in the cold by herself, maybe at first or second grader, and she's waiting for that bus. If that bus is late, she's out there in the dark, and in a city where 20% of your housing stock is blighted, there are monsters in the dark, there are assaults in the dark. Even when the bus comes on time, our young children of tender age are riding public transportation with adults, some pederous, some brutal, some older, meaner adults. So every time you hear the word city services, you think about that little princess, and you ask yourself, does she deserve a better level of services? There's only one answer, there's only one answer, of course, of course. But by the same token, you ask the woman who met my mother at the Presbyterian Synod out in St. Louis last year, she's from Detroit, she's an octogenarian, she raised six children on her own after her husband left her 46 years ago, stayed in her house, she's done nothing wrong, city worker, nothing wrong. She planned her affairs, she came to work, she did her job, she retired, and now she's in the fall of her life. She's not gonna go get another job. She has no means to supplement her income, effectively. She came up to my mom and she asked her, are you the or whose son is in Detroit? She said, yes. She started crying. She said, is your son gonna cut my pension? And my mother started crying. When she cried, she calls me. When your mama calls you, tend to listen. I love my mother very much. She said, Kevin, do you have to do this? And I said, mom, I don't wanna do it. But I'm here to make the hard call, that's my job. Said, if I don't do it, I risk victimizing that little princess so she won't get bus service. Her schools continue to degrade. Her housing stock will go from 20 to 25. We will have more potholes. The lights will not get turned on, 40% of them are off. We will not remove blight. We will not do the things, the adequate level of services that any municipality should be doing for its citizens. That is the purpose of a municipality, is to provide services to its citizens so that you can enhance the quality of life and the benefits that occur in a municipality so it can function in the ordinary course. So you have to weigh these issues. The alpha and the omega, the young and the old. The past and the future. Promises made, promises can't be kept. It's a tough deal. I never borrowed a dime from a pension fund. I never forgave a loan. I never forgave a defaulted loan and converted it to equity in a business that has no market value. I never deferred compensation or contributions to pension funds. We did that to $600 million on the city that we can't pay. Never did any of it. So the issues that we're talking about have been coming this way for 60 years. That's the assessment and the plan design phase. So we came up with a plan of adjustment. And even the nomenclature in bankruptcy is different. And restructuring is a plan of reorganization. In the chapter nine, municipal bankruptcy is a plan of adjustment because by definition, you're trying to adjust the debts of the municipality. That is what the framers of the constitution and of the bankruptcy code thought of when they were using the language to describe what we're trying to do. A plan of adjustment. Because principally what you're trying to do is adjust debts. Because that's what kills municipalities. Why is it important? We're at a crossroads. Not to cast dispersions anywhere, but cities have lives and deaths. Great city at one time was called Tombstone. One time Detroit was one of the four big cities in America. There was New York. There was Detroit. There was Chicago. And there was this little bitty town out on the edge of a desert called Los Angeles. And nobody really cared about it. It was one of the great American cities. Great architecture. We have the same fountain at Bell Haven. That's the designer of the Supreme Court. Bell Isle was designed by James Law Olmstead, the landscape architect for Central Park in New York. A great city. The reason we have the Detroit Institute of Art is because when the city was wealthy, not only would donors go abroad and buy art, the city bought art. Well, we're not there now. So what are we trying to do in the plan of adjustment? Four principal things. First and foremost, get the city to a point where it can provide the necessary adequate level of services for its citizens. It is a shame in any municipality in America that it is dark and 40% of your lights are out or that 20% of your housing stock is down. This is America. We have a high standard of living and it should be a high standard of living throughout the country. Number two, provide for pensions. The promises that were made that weren't kept. Number three, as required under statute 436, the state statute under which I operate because I'm a fiduciary in two capacities. I'm a state fiduciary under 436 and I'm a federal fiduciary under chapter nine. Provide for the city so they can go forward in a sustainable fashion so we don't have to come this way again. And here's the catch. Number four, to reach a consensual resolution with our stakeholders, both on the labor side and on the credit side. Now that's the heavy lift. The state of affairs, the requirements, the needs of the city, apparent. Nobody disputes it. Reaching a consensual resolution and getting someone to understand that they have to give up expectations, particularly those in the twilight of life, that's a difficult call. So we go to plan implementation, stage three. Part of it is going through the mediation process which is led by Judge Rosen, Chief Judge Rosen, Eastern District of Michigan. And part of it is overseen by Judge Rose. University of Michigan. Judge Rose. He's got a hard job. He's got to make decisions about proposals that I and my team make on a regular basis under the rubric of the bankruptcy code and determine whether it's fair and equitable, whether there's unfair discrimination, and whether or not whatever we propose will ultimately be feasible. Can it work? That's in the implementation stage. We'll be going through that process for the next six months and it's gonna be a quick process because there's no reason why it should not. The world is finite. We've described the problems. We're not gonna grow our revenue stream appreciably anytime soon. That billion dollars in the general fund budget is not gonna go to a billion five. The 700,000 people we have in the city, we hope to grow, but it's not gonna go from 700,000 to 1.2 million in the next few years. It needs to grow. So we have to assume a steady state going forward. That's just a state of affairs that we have to deal with. So we have a disclosure statement hearing coming up and that's whereby we'll put a plan out, which we hope to publish in the next few days, the final version. And at disclosure statement hearing, the court will make a determination as a matter of law, did we provide adequate information for an informed, interested party to make a decision as to whether or not to vote for or against a plan. The next date that's really material we're gonna have coming up is in July. The end of July 27th or so, we'll start the confirmation hearing. And that's gonna be a full blown trial as to whether or not the assumptions we made, the proposals we put out are adequate and feasible for the plan to be successful. After that, the judge has gotta take it up, go through all the evidence and I suspect it is going to be a huge volume of testimony and evidence that the judge and his clerks have gotta pour through to make a decision. And when you think about it, everybody involved in this process has a heavy job. The mediators under tremendous pressure to reach the consensual resolution for the group of people that have enabled me to get the pensions to a level that I think I would not have had six months ago. We've been pledged $365 million from a group of 10 plus foundations, some of whom, all of whom had nothing to do with this process, some of whom have been in the city for the better part of a decade, but some of whom have not. Ford Foundation, Knight Rider, Skitter, Skillman. You go on to Kresge, Kellogg, Greater Southeast Michigan. $365 million, over a third of a billion dollars, gratis. Some of them did that as a profiling courage. Some of their own board members say, we do philanthropy, dollars that yield positive outcomes, we don't do charity, just don't give money away, okay? Some of them say we shouldn't be doing this at all. There's a moral hazard here because after all, we were told in 2005 and 2006 that that one 4.4 billion dollars was gonna cure the pension underfunding problem. And if they'd taken that money and invested it in a Dow Jones Industrial Index, or standard and pours from 2006 to nine, when the stock market was trading at 8,509,000, it's now at 16,000. They would've almost doubled their money and there'd be no pension underfunding. If they stopped some of the practices, the 13th check, declaration of self-funded rates of return in 2009, one of the funds lost 27%, they declared a rate of return of over seven, a 32% spread in one year. True story. Self-funded mandates. So many of the people are saying there's a moral hazard here. We shouldn't be doing it. But in a profile in courage, the foundation leader said no, this is a particular time in the history of America and we need to stand up and be counted. I thank them for that because otherwise, I was gonna be having a yard sale of DIAR, okay? And if you don't think that could happen, there are many sovereign wealth, Russian oligarchs, Brazilian millionaires who were calling and inquiring about it. If I didn't get that money, I was getting proposals, multiple proposals a week to turn Belle Isle into a gated community. One said, look, you don't have to do the whole thing just the north part where the golf course is. We'll gate it off, turn it into a private community. It's 1,000 acres of prime land. 1,000 acres at $100,000 an acre, $100 million city needs money. So we're trying to preserve assets. We have the state coming in with a settlement for $350 million and I'm sure those of you know this state. There are folks in the legislature who are saying why you read it in the paper, you hear it in the blogs. Why are we pouring money into Detroit? They made their bed, let them lie in it. So the state has said, look, we're gonna do this deal but we need a consensual agreement to get this deal done so we can get it through the legislature in town. And then we have $100 million coming in from the DIA benefactor community. All told from 2006 to now, $2.255 billion will have been given to Detroit to address this pension issues. So when I say sustainability, we can't do this again. This is it. So we need consensual resolutions. So that's where we are now, getting prepared to start the court process and push out the final stage of our plan. I am hopeful that our counterparties, particularly in the labor community, understand how crucial this is. There is a risk that if I don't get their agreement, some or all of this money could go away because it is all hinged, a conditioned precedent, is that there'd be a consensual resolution to the claims in this bankruptcy. And that will severely impair the 94% I'm trying to pay to our uniforms and the 72% I'm trying to pay to civil service employees. Now, what's at stake? If we get this right, we've restructured the city's balance sheet. But more importantly than that, there are things going on in the city right now that already show the interest in how quickly a city can turn. We have foreign investors from China who brought up three buildings in Detroit. They're putting their money where their mouth is. One investor from Hong Kong, very wealthy developer there, has brought up a number of properties along the East Jefferson Corridor and is looking at doing some development of an open use, public access, building over in Bella. We have over seven projects going in Woodward Corridor and just in the next two to three years, Detroit will have four major infrastructure projects ongoing in the city. We're so important international trade that the sovereign nation of Canada will spend $5 billion to build us a bridge. We have a welcoming center going in. We have M1 light rail. We have a new arena going in that's gonna close the space between downtown, midtown, and new center so that your sports center in Detroit is gonna be one of the most foremost sports centers that will rival Three Rivers Stadium in Pittsburgh if you've ever been there. We will be able to have event nights virtually year round in the sports cycle and that will drive business and development throughout that area, restaurant, pubs, entertainment. The city's on the move. It's got a lot of great things ahead of it, a lot of great interest and I can't tell you how many financiers Governor and I were just there in New York yesterday talking to a slew of it. Spent time with several investment banks after us who said, what can I do to help Detroit? How can I assist? Even in the midst of the bankruptcy, we have lenders lining up to fund us for our quality of life loans so we can put services out and for exit financing when we get through bankruptcy. So I'm not saying it's polyannish because at the end of the day it's still a tale of two cities. Downtown Midtown, New Center, thriving, 97% lease. Number of different activities if you're ever down there on an event night, it is a thing of beauty. But 139 square miles of city. 143 if you include rivers and lakes. Boston, Manhattan and San Francisco fit within our borders. City that was originally developed to be anywhere from three to five million people at 700,000. Almost 3,000 miles of sewer and water lines that have to be maintained. Some in areas that may have one or two houses in a block. So they're challenges. So I liken what I'm doing here to just a first step in a very long path or to use a metaphor. I'm the netoyer, right? Somebody had a party. They drank too much, they stayed too long, they partied too hard, they hung from the chandelier, they danced with the lampshade on their head, they trashed the joint, they walked out, left everything on the table. I'm coming in and cleaning the place up, washing the dishes, removing the table cloth, resetting the table, re-hanging the drapes and mopping the floors. But the leadership team behind me, Mayor Duggan and the city council, think about this, are working together. Council passed privatization of solid waste. I never thought in my life I'd be so excited about garbage. Talk about public policy. I am elated about garbage pickup. I wake up in the morning, drive around the city to see what garbage has been picked up. Also custodial services, we can clean up our buildings. But that's the grits, that's the grits of urban management and public policy is making things work, fixing potholes, repairing 75 sewer line breaks in the first week of the month. And I just had to be emergency manager in the worst winter in 130 years. Last time we closed the university, I was a sophomore here in 1978. I hope I'm not causing all the problems. But trying to get to this so that the city truly that dreams of better things rises from the ashes. So I could prattle on and on about Detroit because I'm passionate about the city. Someone asked me, what's on the anniversary? What's your biggest mistake? I said, my biggest mistake, I failed to appreciate the true grittiness and resilience of the people of Detroit. The city of Detroit, the municipality may be bankrupt, but the people of Detroit are not. The people of Detroit are resilient, they love their city, and they wanna fight for it to come back. And it will. Because that's the true nature of the American spirit. And I'm just proud and humble to be a small part of it and have been given this opportunity. So that's the end of my prepared comments. I had hoped, at the beginning of my speech to exercise a point of personal privilege in public speaking, the five Bs, be brief brother, be brief. But I've gone on for a while. So I'd be happy to answer any questions about what we're doing or anything else. Thank you. Hi Erin. The first question we have is from Twitter. To whom are you accountable? People of Michigan, people of Detroit, Jones Day? Well Jones Day are my attorneys. I'm not accountable to them, they work for me. And that's the good thing, they get to be like a client, like how much this is costing me and you go away and do this, that's lawyering. So that's a different experience for me. I'm accountable to everyone else though. I'm accountable to the state through the chief executive officer, the governor. I'm accountable to the people because ultimately what I say we're trying to achieve will either work or it won't. And think of this, I'm accountable to my namesake. If this works, great. If it doesn't, I'm one of the biggest flame-outs in the history of mankind, okay? So I have a number of levels of accountability and I feel that every day. And that's why we're working as hard as we can to turn this thing around. I can hear you. My name is Emma Mack and I'm a second year student at the Ford School and a policy analyst with CLOSO. Why does it appear that the city isn't making a greater effort to collect back taxes from businesses and corporations? One of the Detroit newspapers reported a year ago that the illiches owe millions in back taxes. Specifically, what is happening to collect that money which would greatly help the city? Yeah, there's much discussion about particular taxpayers and two things about that. Our CFO is a gentleman who was executive director doing DC control boards and he is well regarded and well known throughout basically the country for his skills and we've been looking at our collection rate. The reality is, let me answer that in two ways. One, although everybody thinks there are all these taxes to be collected, there's a level of diminishing returns where for instance for some of our property and income taxes, those houses are vacant. You're never gonna collect that tax. That's just gone money. Two, there have been a lot of allegations for some of our corporate taxpayers that they owe it but we've done an investigation for instance in that particular instance, there are issues regarding statue limitations as well as tenants of sufferance with regard to some of their properties that prohibit us from going further. So we've assessed it, that's part of my charge is to increase the collection rate as best I can and look at past collections but a lot of that is already water under the bridge. It's a handled municipal financial crisis. From your perspective, how could Michigan's emergency manager law be improved to be more democratic or result in better outcomes for citizens? Well, I hear this question a lot about democracy and I said this I think on day three. Receiverships are, for those of you who have a legal background, receiverships are essential to law as Black's law dictionary or Blackstone. I mean the first financial crisis was a 1632 tool above crisis where some of those were put into receiverships. So the concept of an enterprise, public, private, whatever being put into receivership is pretty central to law. In fact, if you look at it, if we've been coming this way for 60 years, this is 18 months, it's a snapshot in the history of where we've gotten to what we need to get done. And if you look at it in a longer timeframe, the length of time that Detroit reform has been going on when the city had a chance to save itself for whatever reason that didn't occur. Now, second part of your question is how can emergency manager law be changed? This isn't in my interest to say it, but I actually think that there could be a length of time to after you roll out any plan, either legally or otherwise, that you make sure that it takes, that there's muscle memory behind it. So maybe a manager needs to have a little bit more runway to make sure that new patterns are being properly attended to. I'm more comfortable about that concern here though, because I think Mayor Duggan is actually a classmate of mine at Michigan in 83, class of 83 JD. Mayor Duggan and the city council are acutely aware that all of us are under a microscope with this thing. And if I get my job done right and leave him with a better balance sheet and ledger and opportunity, then frankly, preparing the new dinner and setting the new table I talked about, that's on him. And people are gonna be watching that very closely. How do you see the role of social entrepreneurship and innovation versus the role of big business in Detroit's revitalization? Sure, I'll see a role in anything regarding Detroit's revitalization. I mean, I'm good with Hans Farms, which is an area where we took some urban property and turning into urban farming. I'm also interested in people getting involved in any aspect they can for revitalization, whether it's job share and other things, absolutely. Can you explain the concept of creditor class and how an emergency manager decides who must be paid back first and in what amount? Yes. Classes of creditors are fairly common in bankruptcy. In fact, that's a central tenet of bankruptcy laws that there's a concept called absolute priority that depending upon where you are is either secured or having a priority over a subordinate creditor that your interest cannot be subordinated without your will. It's a function of the constitution, no unreasonable takings without deprivation due process of law, fifth amendment, so on and so forth. Part of the way you determine classes of creditors in bankruptcy is you look at their organic documents. For instance, when we look at our water and sewer bonds, that class of creditors bought into a revenue stream that comes from an enterprise, the water and sewer department. And their bonds have a dedicated revenue stream to be serviced by water and sewer revenue, so they are a secured class of creditors. Other creditors that have valid liens, for instance, some of our swap counter parties who took a lien on some of our casino revenue are also secured interest, and so they're treated differently. Classic is the general obligation class of creditors. Some of you may have been reading in some of the financial publications that there's an implied covenant of good faith and fair dealing when it comes to playing what's called your geo bonds. Anytime as a lawyer you hear the word implied, that sort of falls right along the lines of policy. That means you don't have a mortgage, okay? That means you don't have a security agreement. That means you don't have a collateral pledge, a letter of credit, you're unsecured. And that's the scheme set out in the bankruptcy code. So the bankruptcy code helps to find which classes of creditors exist, and then we administer it accordingly. Do you believe gentrification is a necessary evil for the city of Detroit to prosper? Well, you know, this is a, I'm gonna be careful with the word necessary evil because there's some people who think it's a natural consequence of things. If you look at Bedford's sign, Brooklyn, at one point, you can talk to the local Native Americans as to whether or not they believe in gentrification, or you can talk to the original Dutch settlers as to whether or not they believe in it. I mean, communities have lives. What I do believe is that cities need growth, development, and tax revenue, and I think there is a fine line that you have to be very careful with, and making urban centers accessible to all parties while at the same time providing the adequate revenue stream so you can provide the services that are necessary. If you don't have that growth and development, Washington, D.C., for instance, was also went through a financial emergency, but now some of the areas, U Street, Shaw, Cardozo, Syrssum, Corta, some of the most dangerous areas, when I came in 1991, when I came in 1991, the 7th and 9th Street quarter was still built, burned out from the 68 riots. Well, those areas are now part of the Verizon Stadium and some great growth. So there's a healthy balance, but you have to think in the lives of municipalities, they need to grow and they need tax revenue. I don't know if it's a necessary evil, but I know you need tax revenue. Detroit's problems require a regional fix. Have we squandered an opportunity to attain that fix by having a bankruptcy eternity in charge rather than a skilled politician? Bankruptcy necessarily looks internally within Detroit and its creditors, whereas a politician could look for solutions regionally. Well, that's a good question. I don't think so. I think one of the first things that I did when I came into the city was a delegate authority back to the city council and the mayor so that they could have a political dimension in the city, and I also thought that statute 436 has specific requirements for them to do under the statute, and the current mayor, I delegated authority to him, is very active in terms of what he's doing. So we're trying to work together in partnership. I think there's a role for the political actors and at the end of the day, the ultimate political actor for the state is my boss, the governor, and he is highly focused and highly involved in the process as well. This is another question from Twitter. How will your blight removal efforts differ from prior efforts from past administrations? We have money. I think every administration for probably since Kavanaugh and Roman Gibbs, as well as Coleman Young, has been concerned about blight. You know, when I first came to the city, one of the things I read was the number of plans that the city had regarding blight remediation and reform, but none of them had the funding necessary to really get to it. And part of what we're trying to do with this restructuring is think of this, if we get this right, we will leave this mayor and the city council and maybe their successors in coming years for the next 10 years, roughly $150 million a year on average to deal with city services and blight remediation. That's 15% of the general fund budget and no mayor in the past half century has had that kind of money. So that really is providing the resources to get to the problem and that's pretty crucial. What model is the city using as a template to create efficiencies and city operations? Well, there are many models. I mean, there are models regarding lean processing that you can use in city operation. There's also returns and study models that you can use in terms of efficiencies and you can even borrow models, for instance, in a privatization from other communities. One of their models, the Cincinnati Indianapolis model, is that you give the existing workers who maybe unionize or not a chance to bid on the outsourcing of contracts to match prices if they can or another. So we're using a number of different models and processes. While I was making some of our own, I think it's a little unfair, perhaps, to some other municipalities to look at their models. I mean, I think the bankruptcy is a tremendous tool, it's traumatic for some people, but it's really a unique tool that allows us to shed a lot of debt that you otherwise would not be able to do. So I'd caution people to look at this in your case studies and going on about how much of a model this process is going to provide. This is another question from Twitter. What contributions do you envision from the Southeast Michigan academic community and how can we maximize that impact? I think that the parties that are studying the city now as a case study, but as well as using their knowledge to analyze what the city needs going forward and the model need to continue doing that in the out years. There's one other contribution I think they need to make. If we get this right and we leave the city with the resources that it needs in the coming years, some of the forces that are tempted by the honeypot that are drawn to it are still there in the city. And you're gonna need some significant post-emergence discipline to make sure the city stays on course. In New York, they had a municipal assistance corporation that lasted for 33 years, 1975 to 2008. In Washington DC, you had to report out a balanced budget for four years before you could get out of emergency oversight by the DC control board. I think part of what the academic community has to do here is to make sure that the city is elected officials as stakeholders, as benefactors, as civic activists, as people stay true to the opportunity they've been given and call them out if they're not. So it needs to be a steady examination, a steady review and a true discussion if that doesn't occur. I'm hoping it does. Every day you encounter numerous character attacks from the community that you are attempting to help. How do you stay motivated? You know what, it's part of, if I'm not being attacked, I'm doing something wrong. You know, I've gotten to the point that when it starts getting quiet, I'm wondering if I'm messing up some way. If you think what you're doing is right and you believe in what you're doing and you understand it objectively, that's all part of the game. This question's from Twitter. What is the biggest single thing the Obama administration could do to benefit Detroit in 2014? Yeah, that's a political question. The Obama administration has done a wonderful job. Sean Donovan, Tony Fox, Eric Holder and others came into the city last fall, as a matter of fact, they made a commitment to assist the city in every way it can. For instance, they've contributed over $300 million in grants to the city in prior years and released $35 million, I think, in 2012 funds and another $33 million in 2013 funds and that's real money. They're also assisting the city in terms of finding the right people. For instance, the summer IT tech meeting, we had a meeting, just for instance, with the chief technology officers in Louisville, Boston, New Orleans and there's two other cities I'm not remembering right now and just hearing their stories, we eventually, the mayor, Mayor Duggan, eventually went and recruited one of them, Beth Niblock, to come up from Louisville to assist the city. Why is that important? In New Orleans, from technology fixes and efficiencies since Hurricane Katrina on a $500 million general fund budget, they were able to reap $70 million of savings within 12 months. That's real money that can be reallocated. So, both in grants, both in assistance in kind and both in focus on the city, they've been there for a long time. This is another question from Twitter. What lessons from being a Michigan student do you lean on in your current job? Every bit. You're looking at a guy that grew up in Fort Lauderdale, Florida, has fit his summers in Fern Park, Winter Haven and Alton Mountain Springs, running barefoot through the red clay streets. My granddaddy, the Reverend Eugene Jasper Awa became Aura when we came north as Aura down home. My granddaddy used to have a little church behind the lake and they had three alligators in it. And as kids with my cousins, we'd go swimming in the lake and alligators are cold-blooded so they would sun themselves, to warn themselves. When you saw two alligators instead of three, somebody had to get out of the water and watch the water for the other one. And when you only saw one, everybody had to get out of the water. So, you're looking at a kid who by no means was destined to have some measure of success and opportunity that I've had. And I chalked that up entirely to the University of Michigan, both undergrad and law. It taught me a new way to think. It gave me different opportunities. It exposed me to friends, two of my groomsmen. I went to law school with one of the other groomsmen. My best man and I went to college together. I'm mazen blue through and through. In recent years, Benton Harbor, Detroit, Flint, Highland Park, Inkster and Pontiac have all been targeted for emergency management or placed under an emergency manager. All of these are black majority municipalities. Other Michigan municipalities that are eligible for emergency management have not been targeted. What is your comment on the apparently discriminatory application of emergency managers? Well, I'm gonna take issue with apparently discriminatory. I'm gonna stick to Detroit. The data that I saw in Detroit left no impression in my mind that it was needing some TLC and some emergency management. In fact, one of the ways I got here is I opened my big mouth during a pitch where 24 law firms came in to represent the city and I was on the pitch team that came in from the Jones Day law firm. And when they asked a question you think to the emergency manager, I said, absolutely, I think you're way beyond the time. I've read your material, your background material. This is a waste of time. You need to get these services out. Enough has gone on for too long and whoever that poor schmuck is, I'll work cheek by jaw with them. They ended up calling the next day. So my view is that it was well required for Detroit. I understand some people think that there's a discriminatory animus. I haven't seen any indication of that. I would encourage people who believe that way to go look at the objective analysis of the cities. How do you think you, as the emergency manager, affects the legitimacy of the mayor of Detroit? Do you think your presence and power undermine the role of the mayor? Not in the least. Be quite honest with you. I think the mayor and I, first of all, are working together quite nicely. I think the other thing, as I said before, my role is just a snapshot in the history of the city. That will be turned back to the mayor and the city council with a much improved budget. I think it actually enhances the difficulty in which he had nothing to do with it. The difficulty that the city has gone through will leave them with that opportunity and I think that's consistent with any other receivership. Think of this, in chapter 11. You file chapter 11, the shareholders of corporations, often time, billions of dollars gets wiped out. I think many of them feel similarly disenfranchised, but they don't have a choice. This enterprise gets returned back to the shareholders. It's a little different. The Michigan Municipal League argued last week that the state of Michigan's cuts to local government revenue sharing are at least one of the key reasons that cities like Detroit, Flint, Pontiac, and others are in fiscal crises. In your opinion, how much of a role do the state's cuts to revenue sharing play in Detroit's fiscal problems? I'd be careful with that analysis. If you go back and look at the pro-ratta share for the city of Detroit, it's not exactly unbalanced at all. Detroit gets a fair amount of revenue share and that revenue share accounts for about 17, 18% of our budget, so my view of it is, Detroit can always use more, and I want to make clear so no one misunderstands that somebody wants to give us more revenue share, we are more than willing to take it, but I haven't seen an indication that the cuts have harmed the city. I think the city's debt service and legacy obligations have harmed the city. I've heard a lot about, quote unquote, creating a new Silicon Valley in southeast Michigan. What role do you see the technology sector playing in the revitalization of Detroit? Huge. We already have a tech center and tech corridor going in, and if you think of it this way, Detroit in the 2030s and 40s was the Silicon Valley of the nation. If you're an engineer or a science major, you wanted to be in Detroit. Think of the effort that went in during the war effort, and there were several instances, one was New York, one was Detroit, one was out in Los Angeles in aerospace, right? Okay, and Detroit was at that core. Bringing some of that back with some of the leaders we have now with Tech Town, which you have in the city. In fact, what you're gonna see in a couple of weeks, not I mean to step on the mayor's news, but Detroit has been going through an analysis of all 320 of its residential units. We've inventoried everyone, it's never been done before, and you'll have a picture, location, and status of every unit throughout the city, and they're gonna roll that out soon. That technology, both the hardware, the software and the programming was done in the city of Detroit, and it's done nowhere else today, and that's just a start. This question comes from Twitter. Do you think the city will be ready to govern itself by September, or will Governor Snyder appoint a new emergency manager? I'm gonna stay away from what the governor's plans are because that assessment has to be made at that time. What I'd like to think is that the process that I have to go through should be done by September, and the city will be prepared to go to the next stage, which is post-emergence of post-implementation. General obligation bonds have always been backed by the full faith and credit, that is the taxing power of the borrowing government. Detroit clearly has maxed out its taxing capacity, but the state of Michigan could certainly raise taxes to pay off the city's general obligation bondholders. Since the state has taken over local control to fix Detroit's problems, why shouldn't general obligation bondholders expect the state to also fulfill the city's obligations? Three reasons principally. Geo bonds, first of all, have been backed by the full faith and credit, but as I said before, there's no pledge, there's no document, there's no agreement. Essentially, that's wrapped up in the underwriting of the financial instrument when you make an investment. If you lend money to your cousin, like I do from time to time, you need to think of that more as a grant as opposed to a loan, because you may not see it back, okay? Jimmy, you know who I'm talking about, too. So if you do a geo bond, you're getting the benefit of your bargain is that that is an unsecured investment. Number two, the state has obligations, but it can't be in privity with every bondholder, in other words, have a bilateral relationship with every bondholder because that's home rule. People get the inner into debt, they get to make decisions. The reciprocity of that is they have to deal with the consequences of those decisions going out of it. And number three, the reality is the geo bond market, which has been talking about this as some sort of allegory for an assault on geo bonds around the nation. It's way overblown. The city will be underwritable and be able to stand on its own feet based upon only one color, and that color is green when this is all said and done. So I appreciate the sentiment of some of it. As I said at the start, they're those on the bond side and they're those on the labor side. You know, the mark of a good settlement is when you leave and everybody's ticked off at you. Sorry. What are some of the ideas to create new jobs in Detroit? There are many ideas to create new jobs. In fact, the mayor and his economic development director have ideas, for instance, in blight remediation, you can take a portion of those and actually have deconstruction. You can give people jobs. You can have job training, but think of this. The four major infrastructure projects that I talked about that are coming to the city, each one of those is a job opportunity. Each one of those, and I'm gonna talk about a job opportunity now. I'm talking about a job opportunity for your seventh, eighth, and ninth graders. Because those jobs, those construction projects are gonna be going on for years. So we have a lot of jobs coming to the city. We have a lot of opportunity for people to train for those jobs. It's do they have the planning and foresight to get themselves in a position so they can take advantage of those opportunities? This question comes from Twitter. Why should families move to Detroit? Slew of reasons. We have, Detroit has some of the nicest housing at the lowest entry point of anywhere in the world. When I started coming here, I was looking over at Boston Edison and East Indian Village and Indian Village. You can get a house, their coach house is the size of my house at home. For a fraction of the cost of anywhere else. Number two, the city is going to come back and the city is going to thrive, it's already on the way. So you have an opportunity to get in during that process. Number three, it's a pretty active and neat place, particularly downtown to live. So I think for all those reasons, it's an opportunity for people to come back to the city. When the dust settles in Detroit, to which city do you expect to be called to next? In other words, where do you see the next major municipal bankruptcy occurring? Well, the two parts that question. Number one, I will not be called to another city. Dr. Donna Neal or has made it clear to me that that will not happen. I need to go home and take out the garbage and walk the dog. So I'll be on my way to that. Number two, I can't handicap of any city is going to be called to bankruptcy. Frankly, if I had hoped when I started this process that some of our creditors and stakeholders would reach consensual agreements without need for bankruptcy, the one cautionary tale I'm hoping that comes out of this process is that other municipalities learn that hope is not a strategy, delay is a waste, and that three, you get much further, much quicker without the expense that we have to go through for professionals to resolve your problems collegially as opposed to in a bankruptcy. When you look back on what you've accomplished in Detroit and what you hope to accomplish, what do you think will be your proudest moment? My proudest moment is probably years out. I mean, I am fairly confident that we're gonna deal with the balance sheet issues. We're gonna get some agreements in. We have a great case. We've been adjudicated, eligible for bankruptcy, and now it's our job to make the case for why our plan of adjustment should be approved. But the real story that's gonna be told is not whether or not I get to rationalize the balance sheet going forward. It's gonna be what this city looks like in the years to come. And think of this, think of this. Detroit's at a crossroads. It can be stable like some great Midwestern cities. Cleveland, 390 some odd thousand, nice and stable. Has a good light rail system coming through it. Has great sports teams, but it's where it is. Or it can grow. Baltimore and Pittsburgh thriving. 15 years ago, Washington D.C., everybody had written it off. If you go to Baltimore and Pittsburgh now, you would not have walked down to Inner Harbor in the 1990s. You can't walk down there now because it's too crowded. So Detroit has that opportunity, and we'll see, I'm pretty confident it should. It should have every opportunity, but we'll see if that happens and then I'll make a decision about whether or not this was the right outcome. The emergency manager is not responsible for schools. Determined to new residents. Should it be? Well, the schools have an emergency manager. So I don't think that this process should be because you get out of the city, but there is an emergency manager for the schools now, and he's doing a bang up job trying to straighten that out. There's been a lot of talk of development in the downtown area. How about the development of neighborhoods that seem to be neglected time and time again? In your opinion, how do the rest of the neighborhoods develop? Well, that's a good question. I mean, I'm highly confident about the downtown is already developing. In fact, frankly, one of the things we have to be a little careful with is a bit of a bubble because there's so much interest coming into the city because there's a lot of liquidity in the market. We're fortunate to be at one of those times now where the market's turning around, the capital markets, and there's a lot of money out there looking for a place to land, and people who usually have a lot of money have to make their money work for them. So they look for places to put it with a significant amount of upside, and that's happened in other cities. But you're absolutely right, the questioner about the neighborhoods, the other 130 or so mile of the city. Now, one of the things the mayor and the city council are gonna do is to try to reinvent pockets of the city. In fact, everybody coming out of a program on the west side recently to try to stop the blight to get people in their homes. The mayor said in the state of the city they're coming up with a program in thereafter whereby they're gonna give certain people alone to buy the home. Other financial institutions are willing to give them a loan for a down payment, but you have to stay in the house for a certain number of years to get the benefit of a loan as it regresses over say five years. You lose a certain amount each year. That's attracting people in so you have the neighbors come in, but think of what else it does. You have renovation, roofing, carpentry, beautification, pride of ownership. All of that generates both neighborhood development, but also job, economic opportunity, and growth. It's a long way to go because it's a big city, but that's how it starts. This is gonna be our last question. What advice do you have for our students? Well, first, you've made the right decision. There are few institutions that are as unique and special to me at least as a university in Michigan. Number two, go where the wind blows you. Take every opportunity. Never feel comfortable where you are. I was very comfortable in my prior life, and this was a bit of a concern for me, but I'm very comfortable now in this job. I've earned my stripes, I've paid my dues, and I can see the light in the tunnel, and it is not a train. So be willing to take the opportunity. Number three, be a risk taker. Throughout my career, one of the things I did when I went into the practice of law is as one of my partners told me in my first term, Kevin, you take the widow makers. That's the type of cases and matters that nobody wants to work on, they're in the back of somebody's credenza, you know, they've got a lot of dust and bobbles on it, nobody, why? Two reasons, one, most of the time people want to get it off of their desk, so you get it, and you get to handle it. Number two, and here's the secret, it's all upside. If it's a train wreck, it can only go one way, okay? And if you're able to do something with it, guess who gets the credit? So take the risk, seriously. Take the widow maker, take the hard decision. You know, when I was at the RTC in federal government, a little case came in in 1992 called White Waters, Madison Guarantee Savings Alone, and at that time in the RTC, our delegations of authority in Washington D.C. were 75 million, any institution below 75 million, we went at sea, but we took this one up because it was called a hot topic. The reason it was a hot topic, there was this guy who was the governor of a little state out in the middle of the country called Arkansas, and somebody said he might end up being president, his name was Bill Clinton, okay? And when I took that, it was just supposed to be a two month investigation of this little Madison Guarantee Savings Alone that we were gonna write off because it wasn't worth our time when we were reorganizing the Savings Alone crisis. That turned into a six year investigation with independent counsel Fiss, independent counsel Starr, House Majority, House Minority, Senate Majority, Senate Minority, you never would have thought it, but one of the things that that process did is when I got to the Chrysler case, I was comfortable being a witness June 10th, 2010 on the Chrysler case and dealer restructuring because I'd already done the groundwork of congressional relationships and the other job. So take the difficult things, it's only gonna expand your bandwidth, it's very neat to you and if it doesn't kill you, it will make you stronger and hopefully that'll still lie in true still here. Won't kill me and make me stronger. I would like to thank our guest for his thoughtful and very candid, informative remarks. I'd also like to thank all of you for joining us and for all of your questions. I hope you'll stay and continue the conversation. There is a reception over in that side of the room, but please also let our guest have his time with the press corps, which would be over in that corner before he joins the reception. Again, thank you very much for joining us. I hope to see you at other policy talks.