The architect of Detroit’s bankruptcy filing 10 years ago says it was the best fix for a broken city

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DETROIT (AP) — Detroit’s newly appointed contingency manager, Kevin Orr, stood up to reporters in March 2013 and issued a warning to the city’s creditors, unions, vendors, and others: “Don’t make me go to bankruptcy court. You’re not going to enjoy it.”

On July 18, 2013, a restructuring expert did just that, making Detroit the largest city in the United States to file for bankruptcy.

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What followed were months of negotiations, federal court hearings, and an unlikely rally of foundations to block the sale of city-owned art to help pay off debts.

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“Bankruptcy is a miserable process,” Orr, 65, told The Associated Press earlier this month, ahead of the 10th anniversary of the filing. “It puts everyone outside their usual path, their common spaces.”

Detroit was determined by a state-appointed review team to be in dire financial straits in 2012. Soon after, then-Michigan Governor Rick Snyder hired Orr — an attorney at the international law firm Jones Day — to shoulder the heavy burden of repairing a broken city. .

The massive loss of population that began in the 1950s and the decades-long decline in the auto industry and other manufacturers severely reduced Detroit’s tax base. Many neighborhoods were teeming with empty and burnt homes. Empty lots have become dumps for waste, used tires and even boats.

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Poverty, unemployment, and crime rates were among the highest in the country.

The city’s budget deficit was north of $300 million. In the months leading up to the bankruptcy, state-backed bond money helped the debtor meet the payrolls of its 10,000 employees. In filing for bankruptcy, Orr cited debts of $18 billion or more.

“This is a problem that has been developing for more than 50 years,” Snyder, a Republican, said during Orr’s introduction. “This is a problem that has now reached a real crisis point.”

In 2013, underfunded liabilities for pensions were about $3.5 billion. $5.7 billion was for health coverage for retirees.

Orr said the city previously had 20,000 workers and 10,000 pensioners. By the time of the bankruptcy declaration, these numbers had flipped with 20,000 retirees expected to pay pensions.

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“You can’t see the inverted yield curves and come to the conclusion that this is going to end well,” he said.

Furthermore, the city had very few assets that could be sold to pay off its debts. He has listed city-owned paintings and sculptures in the Detroit Institute of Art, parking lots, and the Detroit Water Department. He then warned that the artwork could be put up for auction to help pay off the city’s massive debt.

“It wasn’t a threat,” he says now. It was just: ‘Look, I have a crunch. I need money. We were getting initiatives, both domestically and abroad, to buy some art.”

Deep-pocketed foundations and the state stepped up and raised $800 million in what became known as the “Grand Bargain,” easing cuts to city pensions and putting the artwork in a charitable trust.

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Without a consensual solution with creditors, unions, and others to resolve the debt, “bankruptcy was the only means that could achieve the result,” said Orr, who is now the partner in charge of the Washington, D.C., office of Jones Day.

Detroit emerged from bankruptcy in December 2014 with $7 billion in debt being restructured or wiped out. The city now boasts balanced budgets, improved services, and pest control efforts that have resulted in the demolition of more than 24,000 vacant homes.

Before taking on Detroit’s problems, Orr advised automaker Chrysler (now Stellantis) and National Century Financial Enterprises in their bankruptcies. He counts his Detroit experience among his most important accomplishments.

“Perhaps, for me, (it was) more personally satisfying because it was for people and not companies or businesses,” Orr said. “It is, for sure, among the happily highest things I have ever been involved in.”

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