March 14, 2013 at 7:47 PM ET
Michigan Governor Rick Snyder on Thursday appointed bankruptcy and restructuring lawyer Kevyn Orr as Detroit's emergency financial manager in a state takeover of the city that could ultimately lead to Detroit filing for the largest municipal bankruptcy ever.
Orr is a bankruptcy expert who represented automaker Chrysler LLC during its successful restructuring. He will take control of Detroit's beleaguered finances, including a $327 million budget deficit and $14 billion in long-term debt.
Orr's appointment also makes Detroit the largest U.S. city to have its finances placed under state control.
Orr is a partner in the Jones Day firm, a Cleveland-based law and restructuring company that also will serve as Detroit's restructuring counsel.
Detroit has lost a quarter-million people during the previous decade. It's been paying month-to-month bills with bond money held in a state escrow account. City workers also have been forced to take mandatory unpaid days off.
The decision caps more than a year of back and forth dickering between city officials and the state government over how to fix the city's crumbling finances.
Orr told Reuters in an interview that he's hoping to revive the city's financial health quickly. He also said he didn't think a bankruptcy filing would happen right away.
"My contract runs from 12 to 16 months," Orr said. "But I'm hoping to get this job done quicker. I'll be here as long as it takes. I'm committed."
"Hopefully (bankruptcy is) not imminent at all," Orr said.
As the emergency manager, Orr will supplant the authority of Detroit's elected officials, both the mayor and the city council. He will have broad powers, including the ability to renegotiate labor contracts, privatize services and sell certain city assets.
The dramatic move culminated a long decline of a city that was once the thriving center of the U.S. auto industry and the birthplace of Motown music, but has seen its fortunes sag and deficit rise. Once the fifth largest American city, Detroit now ranks 18th with 700,000 people.
"Today, I am confirming my determination that a financial emergency exists in Detroit," Snyder said at a press conference, accompanied by Orr and Detroit Mayor Dave Bing.
In addition to his work with Chrysler -- for which Orr billed $1 million in fees during the first year of the restructuring of the smallest of the three major U.S. automakers -- Orr has other Michigan ties. He received both graduate and law degrees from the University of Michigan.
The emergency manager will face the huge and controversial task of repairing the finances of a city in crisis. Detroit has run operating deficits for nearly a decade, is starved of cash and facing a crushing burden of debt from commitments such as pensions and health insurance.
More than a third of Detroit residents are officially classified as living in poverty, and it has an unemployment rate of 18.2 percent, far above the U.S. jobless rate of 7.7 percent, according to government figures.
Basic services such as street lights and police protection have broken down, and the city has suffered from mismanagement and political corruption.
A former Detroit mayor, Kwame Kilpatrick, who was mayor for seven years until 2008, was convicted this week of two dozen federal charges of corruption and bribery for a scheme to collect kickbacks on city contracts for himself and associates. He could face up to 20 years in prison on some of the charges.
It is rare for such a large American city to come so close to bankruptcy. The best known case was New York City, which was nearly forced into bankruptcy in 1975 after it ran up huge debts. The state of New York appointed an oversight board to guide its finances.
The most recent major city to face such a crisis was Philadelphia in 1991, which was managed by the state of Pennsylvania for a time.
Neither of those cities officially filed for municipal bankruptcy.
Detroit city leaders have long opposed a state takeover, saying they were making progress on improving the financial situation. The mayor, a former professional basketball player and steel executive, last week said it was futile to resist a state takeover and he would try to work with the emergency manager.
A defiant city council has called on residents to fight the move, saying the state is usurping the right of Detroit residents to elect their own leaders.
"We fought for everything we have. How do you stand on the sidelines," Councilman Kwame Kenyatta said on Wednesday in a fiery speech on civil rights at a council meeting.
Detroit could challenge the takeover in state court, but such attempts have failed in Michigan in the past.
Michigan state law grants emergency financial managers broad powers. The manager could ultimately recommend that Detroit file the largest municipal bankruptcy in U.S. history.
A law passed in December that will take effect on March 28 will boost the powers of the emergency manager, allowing the manager to terminate collective bargaining agreements with the city's 48 unions.
Reuters and The Associated Press contributed to this report.