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Finance expert vows to put Detroit’s fiscal house in order
Michigan Gov. Rick Snyder has appointed a bankruptcy lawyer, Kevyn Orr, as emergency manager of Detroit. Orr is stepping into a situation similar to one he found in 2009 at Chrysler, which he assisted in restructuring and streamlining.
The Michigan governor’s pick to take control of Detroit will probably need every ounce of experience he gained helping Chrysler Group reorganize to create a plan for the Motor City to survive.
Kevyn Orr, a bankruptcy lawyer and University of Michigan graduate, was formally appointed emergency manager of Michigan’s largest city on Thursday after being introduced publicly by Republican Gov. Rick Snyder at a news briefing. In 2009, the Jones Day partner helped Chrysler win $4.96 billion needed to restructure and streamline operations by cutting 789 dealers.
“When I heard his name, I thought, ‘This is a great break for Detroit,’ ” said Spencer Overton, a law professor at George Washington University in Washington, D.C., and a friend of Orr’s. “Kevyn Orr brings so much to the table.”
Orr, 54, arrives with the city of 706,600 teetering on the verge of bankruptcy. Detroit ran up a deficit of almost $327 million last year and has $14 billion in long-term obligations. Growing gaps in services have frustrated residents while potentially rancorous union negotiations are approaching.
In all, not a dissimilar situation to the one he found at Chrysler in 2009, when it lost almost $3.8 billion.
With U.S. government backing, the automaker went through a bankruptcy in which Fiat took control of the suburban Detroit manufacturer’s attractive assets and the rest were liquidated. Chrysler’s net income soared to $1.67 billion last year, from $183 million in 2011.
Fixing Detroit will be unlike fixing an automaker, yet he’ll draw on that experience, Orr told reporters Thursday. He quit D.C.-based Jones Day to take the Michigan job. A native of Fort Lauderdale, Fla., Orr said he expects to complete his task within 18 months.
“I undertake a job that needs to be done, that has a fuse on it, and if I do a good job, I get fired,” Orr said. “Can I get the job done? I am highly motivated. I am all in.”
Chrysler, which when it entered court protection in April 2009 was the largest industrial bankruptcy ever, took 41 days to exit amid predictions it might take years.
“He quickly got attuned to the political dynamics of the Chrysler bankruptcy, and you will recall there were many,” said John Bozzella, who was the company’s vice president of external affairs. “He’ll need those kind of skills. He understood the political sensitivity well.”
Detroit may be Orr’s biggest challenge. The city has lost more than a quarter of its residents since 2000. Those who remain endure unreliable buses, inadequate police and fire protection and broken streetlights.
Orr said he’s a lifelong Democrat who’s prepared for controversy as protests of his appointment took place outside the Detroit building where he was introduced.
“In my business, you’re sort of the undertaker that walks up to the front door,” Orr said. “You might say I’ve been inoculated against the concept that people aren’t exactly happy to see me come along.”
Orr said he’ll meet shortly with Mayor Dave Bing, a Democrat, aides to Snyder and City Council members.
Alan Fein, a lawyer in Miami, called Orr, a former colleague, “an honest broker, and fair to the core.”
“He’s a great facilitator; he’s a smart guy,” Fein said. “He’s somebody who walks in the room and you want to know him and like him.”
Fein said Orr and his wife, Donna Maria Neale, have young children and a cat. Orr said Donna is a surgeon.
The family has a $1 million home in the D.C. suburb of Chevy Chase, Md.
On Saturday the Detroit Free Press reported Orr had two outstanding liens on the house for $16,000 in unemployment taxes. Orr said he’d paid the liens when he was made aware of them Friday, and called the problem “remarkably embarassing.” A spokeswoman for Snyder said Orr used “an outside tax accountant” for his family’s tax returns and blamed “an oversight related to a childcare provider unemployment insurance payment.”
Before joining Jones Day, Orr held several U.S. government jobs, including director of the Justice Department unit that oversees bankruptcy cases and trustees, according to Jones Day.
Orr said that while he’ll look for consensus, he’ll do what needs to be done. When some Chrysler creditors balked at cutting the company’s bank debt to $2.25 billion from $6.9 billion, his team took the automaker’s case to bankruptcy court instead.
In the briefing yesterday, Orr described bankruptcy as a “cudgel” weighted in favor of municipalities. He said he wouldn’t rush to use it.
“Let’s get at it and work together,” Orr said of state and city government officials. “Because if we can’t resolve this, people of good faith, don’t make me go to the bankruptcy court. You won’t enjoy it.”