Dire Report on Detroit Is Offered by Manager [View all]

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Source: NY Times

An emergency manager assigned to lead this city back from the brink of financial ruin has taken his first detailed look at Detroit’s woes, and the picture of debt and disarray he paints may be bleaker even than earlier grim portrayals.

In a report to be presented to Michigan’s treasurer on Monday, Kevyn D. Orr, the emergency manager appointed in March to take over operations here, described long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.

And in the face of those fiscal troubles, Mr. Orr, a longtime bankruptcy lawyer, portrayed city operations in Detroit as in need of significant repair, including overhauls of the city’s Police Department and Fire Department, among others.

“No one should underestimate the severity of the financial crisis,” Mr. Orr said in a statement issued by his office on Sunday. “The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city’s finances and operations will allow Detroit to regain its footing and return to a path of prosperity.”

Read more: http://www.nytimes.com/2013/05/13/us/detroit-fiscal-problems-are-severe-report-says.html

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Detroit Free Press article to be printed Monday: "Detroit's 45-day report: Orr calls city 'dysfunctional and wasteful' after years of mismanagement, corruption"

Detroit will finish its current budget year with a $162-million cash-flow shortfall and doubts about the financial health of its pension funds, according to a new report by the city’s emergency manager that lays out the financial free fall in stark detail.

The report, mandated by the state after an emergency manager’s first 45 days in office, confirms a city in desperate shape, with costs for retiree benefits eating up a third of its budget and public services suffering as Detroit’s revenues and population shrink each year. That has led to deferment of payments and an accumulated deficit that would exceed $600 million were it not for borrowing practices the city has used to cover shortfalls.

A city that has taken out loans and moved money between funding sources “has effectively exhausted its ability to borrow,” said Kevyn Orr’s report to the state Department of Treasury, to be made public Monday.

Orr’s report, his first to the state since his appointment March 25, amounts to a status update on his efforts to get a handle on the depths of Detroit’s fiscal crisis. Beyond crystallizing the fiscal mess, it provided little new data or details on how Orr, a Washington, D.C., bankruptcy lawyer, plans to help stabilize a city on the brink of a municipal bankruptcy.

Among Orr's major goals:

■Hire a third-party expert to restructure the city’s fire and transportation services for an overhaul similar to one under way in the Detroit Police Department aimed at getting more officers on the street and out of desk duties

■Continue efforts to transition the city’s Lighting Department to an outside provider over the next five to seven years.

■Seek cooperation from the state and Wayne County on better ways to tackle blight and the city’s estimated 78,000 vacant structures, about 38,000 of which are in potentially dangerous shape.

■Review how city departments operate, eliminate redundant functions and consolidate where necessary.

■Bargain further concessions from the city’s labor unions and seek to reduce or eliminate health care plans for 28,500 city employees active or retired. The city’s post-retirement benefits liabilities exceed $5.7 billion, and given discrepancies in accounting and actuarial analyses, it’s unclear how badly underfunded the city’s pension systems are. Detroit’s pension and health care costs are undermined by the city’s lopsided ratio of retirees to active employees; retirees outnumber the city’s current work force by more than 2 to 1.