Detroit Mayor Dave Bing (left) and state-appointed emergency manager Kevyn Orr (right) take part in a news conference in Detroit. Detroit Mayor Dave Bing (left) and state-appointed emergency manager Kevyn Orr (right) take part in a news conference in Detroit.
Detroit - Detroit's emergency manager voiced confidence on Wednesday that the city should be able to emerge from bankruptcy before his term expires in October 2014, and possibly without having to borrow new money.
Even so, Kevyn Orr, the bankruptcy expert who was appointed in March to a post that gives him almost unlimited power over Detroit's finances, warned that the path back to financial health will not be painless.
If the city does win court approval to proceed with the Chapter 9 bankruptcy filing it made last month, virtually all of Detroit's creditors will see payments on their bonds reduced, he said.
“We may need a little bit of cash, or we may be able to stay cash-flow free-and-clear without borrowing anything for the purposes of the bankruptcy,” Orr told Reuters in a wide-ranging interview. “The schedule we're on, we should be able to get this done in 14 months, so I don't anticipate a need for me to stay on.”
But he said that even investors in the city's general obligation bonds will be required to accept reduced payments as part of the bankruptcy process. “Most unsecured debt in bankruptcy gets a haircut,” Orr said. “That's just what happens.”
General obligation bonds, which are backed by tax revenue, have long been considered the safest class of municipal debt.
Orr, who was appointed emergency manager in Marcy by Michigan Governor Rick Snyder, a Republican, is trying to tackle Detroit's $18.5-billion in long-term debt.
US Bankruptcy Judge Steven Rhodes is to rule on whether Detroit is eligible for Chapter 9 protection in a trial to begin on October 23. Orr expressed confidence that the bankruptcy filing will be approved.
He said talks with Detroit's neighbouring counties over the creation of a regional water and sewage authority were progressing well, with the suburbs keen on playing a role in the new authority. He ran through a long list of possible assets the city could sell, including its airport and parking meters.
The city said on Monday that it has hired famed auction house Christie's to appraise the city-owned portion of the Detroit Institute of Art's 60 000-piece collection, a move that Orr said was mostly to determine what exactly the collection contains. But he left open the option of selling off some of the DIA's works.
“Whether you have to sell grandma's heirloom china and your wedding silver is a big issue,” Orr said. Detroit “shouldn't have to sell that stuff, but it's not a resolved issue by any measure”.
Orr also addressed one of the biggest concerns, what will happen to pension benefits for Detroit's public employees in the bankruptcy proceedings. The city's retirees outnumber the active workforce by more than two to one.
Orr said current retirees in particular could argue that they should receive more than current, younger workers who have decades left in their careers.
“Frankly there's some validity to that kind of argument,” he said. - Reuters