“Detroit was the Silicon Valley of the 1920s and ‘30s," Kevyn Orr (pictured above) told the students, scholars and practicing attorneys assembled March 31 for “Cities that Cope—Confronting Financial Challenges in the Urban Landscape,” a symposium at Maryland Carey Law organized by its Journal of Business and Technology Law. “It saved the world from fascism in the 1940s.”
However, by 2013, Detroit was broke and Michigan’s governor had just appointed Orr, the symposium’s keynote speaker and a partner at Jones Day, in Washington, DC, as the city’s emergency manager, to steer it through an estimated $18 billion bankruptcy proceeding, the largest municipal bankruptcy filing in U.S. history.
|3L Meaghan Murphy (center), executive symposium and manuscripts editor, talks with attendees at the 2017 Journal of Business and Technology Law event.|
As Orr pointed out, cities do not produce goods, services or capital as companies do. Instead, they make covenants with the people who live and work in them. In exchange for tax dollars, cities provide residents with public safety, health, and works; planning and zoning; and parks and recreation.
When the covenant is broken, the city becomes dysfunctional and people leave, taking their tax dollars with them, he said. The dysfunction was obvious in Detroit during 2013. Police in healthy cities, for instance, respond to an emergency call within seven to eight minutes on average; in Detroit, average response time was 50-58 minutes. Municipal fire trucks have a functional life of five to seven years in healthy cities. They wore out in just 16 months in Detroit, due to the large number of abandoned homes and frequent fires.
The city’s Chapter 9 bankruptcy filing brought private sector concepts to a public sector environment, Orr said, all with the goal of restoring services and market share—the population and the tax revenue—that goes with them. The three-step restructuring process of entry, assessment and reporting almost broke down in Detroit, he recalled. Both the creditors and the labor community agreed the city was bankrupt, but none of the parties were willing to make concessions until U.S. Federal Bankruptcy Judge Steven Rhodes intervened, requiring them to seek mediation. The process worked.
|Prof. Michelle Harner (center), Business Law Program director for Maryland Carey Law, joins keynote speaker Kevyn Orr (right), partner at Jones Day.|
Exiting from bankruptcy was challenging, too, Orr noted. Detroit had to demonstrate that its strategy was both feasible and sustainable in order to comply with federal and state standards respectively. At the same time, it also had to comply with multiple city ordinances and reconcile intense political pressure from competing constituencies.
Despite the magnitude of Detroit’s dysfunction, Orr is optimistic about its future. “Every city since the dawn of time has gone through renewal,” he argued. “Reinvigoration, growth, renewal is the lifeblood of a city, including Detroit.”
The Journal will publish a full discussion of Orr’s insights into financial challenges facing American cities in early 2018.