Detroit Must Reorganize

The city is not organized properly. An Emergency Manager is overseeing the largest municipal bankruptcy in history and at the same time overseeing the operation of a city having a geographic area greater than San Francisco, Boston and Manhattan combined. No one on this planet can handle both tasks at the same time. Below is a start of a proposed revision of the city's organization chart.

In addition, the Mayor needs to further delegate responsibility and authority to the people reporting to him. As Ronald Reagan said of the Soviet Union, "Trust, but verify." The organization chart below needs further work.

Rationale of Emergency Manager Law

Here is why I believe the Emergency Manager law makes sense and should remain in place for Detroit. The primary argument opposing the law is it takes away the constitutional rights of citizens. I submit that the law creating an Emergency Manager is very similar to a citizen losing much of his rights when he disobeys the law. When a citizen is caught driving under the influence of alcohol he can lose his right to drive. When he is convicted of a felony he can lose his freedom and spend time in prison.

The same concept applies to school districts and cities. Both types of entities are created under the laws of the state of Michigan and are expected to comply with certain rules, regulations and laws. If the entity does not comply with the laws, including meeting certain standards, the state can take corrective action including putting the school district under the emergency manager law.

The rational for such a law is that every citizen of the city of Detroit is also a citizen of Michigan and therefore the state has some responsibility to look out for the best interest of its citizens. Below are questions and answers concerning the Emergency Manager Law prepared by Michigan State University.

Many people are upset because an Emergency Manager Law was turned down by the voters and then the legislature took the issue up and passed a similar law. I agree Snyder handled it poorly but the law was needed and Detroit indeed has an emergency. This may cost Snyder the election and I give him credit for doing what he believes was correct even if the result may be that he is a one term Governor.

Detroit Needs To Transfer Water and Sewer Department

It makes financial sense that the City dispose of the ownership of the Detroit Water and Sewage Department (DWSD). It is in need of significant capital improvements and it is too costly to operate.

The DWSD needs to make significant capitol improvements and it is not in position to do so. The cost of borrowing money by the DWSD is high because of its affiliation with Detroit. Time has also shown that the DWSD is not able to raise utility rates. The anticipated capital improvement program over the next four years totals $1.2 billion dollars, which the City does not have.

The tentative plan, created prior to Kevyn Orr, calls for the city to annually receive $50 million to transfer the DWSD's assets to a to be formed regional Authority.

Emergency Manager And Role Of Mayor And Council

Below is a bullet point description of the roles of Detroit's Mayor and City Council as per page 66 of the plan submitted to the City's Creditors on June 14, 2013.

• Mr. Orr acts in place of the mayor and city council.

• Detroit's local elected officials are prohibited from exercising any powers except as expressly authorized by PA 436 or as authorized in writing by Mr. Orr and subject to any conditions he may impose.

• On March 25, 2013 issued an order restoring the full salaries and benefits of the mayor and city council.

• On April 11, 2013, issued an order authorizing the mayor and city council to continue conducting the day-to-day business of the city, subject to limitations imposed by PA 436 and Mr. Orr's ultimate approval.

Slideshow Presentation of Detroit's Proposal To Creditors

All information below was taken from a presentation by the Emergency Manager of Detroit, Kevyn Orr, to Detroit's creditors on June 14, 2013.

Em plan 061413 horizontial 1

Key Objectives of Emergency Manager

Detroit - Emergency Manager

Key Objectives

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding his key objectives. These items are discussed on page 47 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

Provide incentives for businesses and residents to locate and/or remain in Detroit

• The city must grow to stabilize or pay creditors a meaningful amount of funds.
• This will require improvements in city services and tax reform to reduce the cost of living in Detroit to be competitive to nearby areas.

Maximize collections of monies owed the city

Provide affordable pension and health insurance benefits while restructuring the oversight of pension arrangements

Eliminate blight to assist in stabilizing and improving communities within the city

Reform the city's operations to improve efficiency and reduce costs

• This will require upgrading capital improvements including technology.

Maximize the collection of taxes and fees

Generate cash flow from the disposition of assets where appropriate

EM Plan: Revenue Adjustments And Tax Reform

Detroit - Emergency Manager

Revenue Adjustments And Tax Reform

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding plans for tax reform in the city. These items are discussed on page 79 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

Detroit needs to increase the amount of revenue it brings in in order to grow and better meet its obligations. Kevyn Orr is proposing the following actions.

Expanding The Tax Base

• Population growth will increase the base and that in turn will increase revenues.
• As the city provides improved services and more employees locate in the city, the value of real estate in the city will increase.
• Further, as vacant parcels of land become occupied so will the tax revenues increase for the city.

Review And Adjusting Tax Rates

• The city already has high tax rates that are near the statutory maximum.
• The city believes if income and property tax rates are lowered to levels at least equal to competitive municipalities the result could be the slowing down of the crippling population and job outflows from the city.
• The city needs to improve its rate of collecting taxes that are owed.

EM Plan: Restructure and Reinvestment Plan

Detroit - Emergency Manager

Restructure & Reinvest In City Government

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding plans to invest and restructure city government. These items are discussed on page 61 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

Overview: The City proposes to spend $1.25 billion over the next ten years to:

•  Improve the performance of the Police, Fire, EMS and Transportation Departments.
•  Fix urban blight
•  Modernize cities information technology systems
•  Fix the city’s electrical grid and lighting.

Key Public Safety Issues:

• Very high crime rates
• Obsolete information technology
•  Poor performance including low response times and low closure rates
• Inadequate staffing, low morale and lack of employee accountability

Summary of Objectives:

• Reduce response times to national averages
• Improve closure rates and first responder investigations
• Update and fix police fleet and facilities
• Modernize departments information technology
• Achieve compliance with federal consent decrees
• Reorganize departments and hold everyone accountable to maintain core responsibilities of policing.

Corrective Action Previously Taken By Detroit

Detroit - Emergency Manager

Corrective Actions Already Taken By City

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding cost saving decisions already implemented. These items are discussed on page 53 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

The following actions have already been taken by the city and resulted in an estimated $200 million per year in savings. Much of this savings caused hardships on the City's employees and residents.

Reduction of Number of Employees

• Since 2011 the city has eliminated more than 2,700 positions (from 12,302 as of the end of 2010 to approximately 9,560 as of May 31,2013)
• This results in an annual savings of over $100 million

Reduction in Costs by Revision of Employment Terms with the City in July 2012

• The result will be an estimated $102 million in annual savings from the following
• $25 million in wage reductions
• $59 million in retirement benefits
• $9 million in reduced pension costs
• $8 million in changes to work rules

EM Detroit: Available Assets To Sell

Detroit - Emergency Manager

Available Assets To Sell

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding other assets that the city has to assist in solving the financial crisis. The city is still evaluating how best to utilize these assets. These items are discussed on page 83 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

Detroit Water And Sewer Department

The city is exploring spinning off its Water and Sewer Department and creating a Metropolitan Authority that would operate it. As this occurs the city is expected to save $9-million per year. The new authority would be owned by the city and other municipalities in the greater metropolitan area.

Detroit-Windsor Tunnel

The city owns the U.S. portion of the tunnel and it is not likely that it can easily or wisely be converted into cash.

Belle Isle Park

It is anticipated the State of Michigan will lease the park resulting in saving the city $6-million each year in operating cost.

Detroit Institute of Art (DIA)

It is estimated the market value of the assets held at the DIA is between $12 - $15 billion. Here is a blog referring to a Detroit News article where the value above is mentioned.... http://lstrn.us/1pJjBA3

City Owned Land

It is estimated the city owns 22 square mile of land within the city limits having little value.

Parking Garages/Lots and Meters

The city and the Detroit Building Authority own approximately 10,000 parking spaces and 3,400 on-street meters. The city intends to market these parking related assets to private investors.

Joe Louis Area

The owners of the Detroit Red Wings are looking to build a new arena for the hockey team. The city is contemplating what to do with the arena once this occurs.

Detroit - After Emergency Manager

Detroit - Emergency Manager

What Happens After Emergency Manager

Below is a summary of a proposal made by Kevyn Orr to the creditors of the city of Detroit on June 14, 2013 regarding what happens in 18 months when Emergency Manager is done. These items are discussed on page 111 of the original document. The purpose of this post is to give you a simple summary of this section of the plan. Here is copy of entire plan.

Appointment Of "Transition Advisory Board"

• Governor to appoint an Advisory Board to monitor the affairs of the City prior to removing it from receivership 
• Board to consist of State Treasurer, the Director of the Department of Technology Management and Budget and one or more individuals at Governors discretion. 
• The Advisory Board would be empowered to do the following. 
• Require the city to annually convene a consensus revenue estimating conference for the ensuing fiscal year. 
• Require City to provide monthly cash flow projections and a comparison of actual and budgeted revenues and expenditures. 
• Review and Approve the City's proposed and amended budgets. 
• Review request by City to issue debt under applicable law. 
• Review and approve City's compliance with any deficit elimination plan; and 
• Perform any other duties assigned by the Governor at the time Transition Advisory Board is appointed. 

The Governor has the ability to appoint another Emergency Manager after the initial tenure is completed.