Emergency Manager Law and Detroit

Here is what is causing so much mistrust of the state by the citizens of Detroit as it relates to the emergency manager law and its application to the city.

“…After the hearing or the expiration of the 10 days in the case of no hearing, the governor confirms or revokes his determination. A confirmation will assign management of Detroit’s fiscal emergency to a Local Emergency Financial Assistance Loan Board composed of three state officials, including the treasurer, who are all Snyder appointees….” NBC News, March 1, 2013

This mistrust is exasperated when the Financial Assistance Loan Board is making decisions where both the state and the city have a direct and competing financial interest. The word “Local” is misleading. How can state officials look out for the best interest of the city and the state at the same time when the interest of the two entities may be in conflict?

This will be especially true during the upcoming Governors attempt to be reelected.

Snyder Screwed Up

As smart as Snyder is, he blew the creation and implementation of the Emergency Manager law. He was so successful in his private business career that he ignored important elements of being a leader in a  democracy; keep the citizens informed, citizens have a right to voice their concerns about what he is doing and when he fails to get his way do not trample on those who he represents.

I still believe Snyder is doing what he believes is right for the state and Detroit. What is wrong is how he has gone about trying to achieve what he wants. He still operates as if he is the CEO of a corporation where he handpicked the people he reports to, the Board of Directors. In a corporate entity, the Board tends to rubber stamp everything the CEO does.  This is not the case in a democracy. Citizens have rights including the right to be informed and the right to expect everything their elected leader does is above-board.

I have no doubt Detroit needs an Emergency Manager. Snyder made the mistake of thinking that his new Board of Directors, the voter, would rubber stamp everything he wanted and there was no need for him to waste time informing and convincing voters that it was the right thing to do. As a result of over confidence, his emergency manager law was voted down in 2012. He then scrambled and pushed the law through the legislature in the winter of 2012-2013. Continue reading

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 the 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. Continue reading

Cracks In The Emergency Manager Law

The implementation of the emergency manager law by Governor Snyder is flawed and perhaps so is the law itself. Coming from being the head of a major corporation, I am surprised the Governor does not see this.

Kevyn Orr has two roles as the Emergency Manager (EM). The first role is to oversee the restructuring of the City’s debts in a manner that puts the city in the best posture possible to fulfill its duties and responsibilities to its citizens and this may include bankruptcy. Mr. Orr’s duties in this role are transnational in nature; repair the damage as much as possible, cut deals with all the stakeholder creditors and leave. Orr has until September 2014 to get this done. Orr’s resume and background as a bankruptcy attorney is well suited for this task and I believe he is doing a good job.

The Emergency Manager’s second responsibility is to operate as a temporary Mayor or CEO of the city making sure the municipality is operating efficiently and meeting both the short term and long term objectives of the city’s citizens. Interpersonal skills are needed for this role. It requires the building of a team, motivating that team and setting up proper controls to oversee and monitor the results of the team.  It is in this role Mr. Orr and the Emergency Manager law itself is failing.

A CEO must have a long term vision of what he wants the city to be and he must have an incentive to get there. Kevyn Orr does not have the experience to identify and meet the long term objectives of the city. Further he does not have any incentive to get there. He knows he will be gone in 12 months and he knows he will not be looking for a job in the future to oversee any political body.

Below is a proposed revision to the organization chart of the city that was shown in the Detroit Free Press

Further, both roles require full time attention. The EM’s ability to perform both roles well are at risk because they are both competing for Orr’s attention. When time is short and your to do list is long it is natural to gravitate to those tasks that one is most familiar with. In this case Mr. Orr is neglecting the operation of the city…. http://lstrn.us/14yVur1 


Detroit: What Will Creditors Take

Orr will need to compromise with Detroit’s creditors and it will be in the City’s best interest to do so.

It is going to take leasing Belle Isle to the state, cutting a deal to unload the Detroit Water and Sewer Department, selling some assets at the Detroit Institute of Arts (DIA), having the creditors taking a haircut of closer to 30 cents on the dollar, restructuring the terms on the remainder of the debt and adjusting future retirement and health insurance benefits.  Some of the DIA assets should totally fund legacy costs already earned by the employees.

The real missing piece is there is no one talking about life after Orr. We have a city the size of Boston, San Francisco and Manhattan combined and a population less than 1/4th the size of these combined cities. Creditors will want to see a viable long term plan before making concessions. They are not going be be willing to reduce interest rates and principle balances while extending terms without feeling comfortable with the City’s new philosophy and leaders.