Michigan Gov. Names Bankruptcy Attorney to Run Detroit

Kevyn Orr
Kevyn Orr

In the biggest state takeover of a U.S. city in more than two decades, Michigan Gov. Rick Snyder on Thursday named a lawyer with deep expertise in corporate bankruptcy as Detroit's emergency financial manager.

Kevyn Orr, a partner in the Washington law firm Jones Day and best known for his work on the restructuring of Chrysler after it filed for bankruptcy protection in 2009, will assume financial control of Detroit, the nation's poorest major city.

In this capacity, Orr supplants the authority of Detroit's elected officials, both the mayor and the city council. His powers include renegotiating labor contracts, privatizing services and selling city assets.

The dramatic move marks a watershed in the long decline of a city that at one time was the center of the U.S. auto industry and the birthplace of Motown, but that has seen its fortunes sag and deficits rise. Once the country's fifth-largest city, Detroit now ranks 18th, with a population of just 700,000.

"Today, I am confirming my determination that a financial emergency exists in Detroit," Snyder said at a press conference, accompanied by Orr and Detroit Mayor Dave Bing.

Orr has ties to the state other than his work with Chrysler (for which he billed more than $1 million in fees), having received his law and graduate degrees from the University of Michigan.

He is also African-American, which some politicians have said could help him deal with community leaders in a city that is 83 percent black.

Orr faces the task of repairing the finances of a failing city. Detroit has run operating deficits for nearly a decade, is starved of cash and carries a crushing debt burden from commitments such as pensions and health insurance.

More than a third of Detroit residents are officially classified as poor, and it has an unemployment rate of 18.2 percent—far above the national rate of 7.7 percent, according to government data.

The city has difficulty providing basic services, including police protection, and it has suffered from mismanagement and political corruption.

Kwame Kilpatrick, who was mayor from 2002 until 2008, was convicted this week of two dozen federal charges of corruption and bribery for a scheme to collect kickbacks on city contracts for himself and associates. He faces up to 20 years in prison on some of the charges.

It is rare for a major city to come so close to insolvency. The best-known case is New York, which was nearly forced into bankruptcy in 1975 after running up huge debts. The state appointed an oversight board to guide its finances.

The most recent large city to face such a crisis was Philadelphia in 1991, which Pennsylvania managed for a while.

Neither city officially filed for municipal bankruptcy protection.

Detroit leaders have long opposed a state takeover, saying that they were making progress on improving the city's finances. Bing, a former professional basketball player and steel executive, said last week that it was futile to resist a takeover and that he would try to work with Orr.

A defiant city council has called on residents to fight the move, saying Michigan is usurping their right to elect their leaders.

"We fought for everything we have—how do you stand on the sidelines?" Councilman Kwame Kenyatta asked Wednesday in a fiery speech on civil rights at a council meeting.

Detroit could challenge the takeover in state court, but such attempts have failed in Michigan in the past.

Michigan law grants emergency financial managers expansive authority, and a law to take effect March 28 will boost those powers, allowing Orr to terminate collective bargaining agreements with the city's 48 unions.

If Orr ultimately recommends that Detroit file municipal bankruptcy, it would be the largest in U.S. history.