Detroit's Emergency Manager: 'There's Just No Money'

Jul 22, 2013
Originally published on July 22, 2013 8:02 pm

Detroit's emergency manager, Kevyn Orr, defended his decision to take the city into bankruptcy. The most contentious issue regarding the city is what bankruptcy protection could mean for the pensions of some retired city workers.

In a blunt interview with All Things Considered's Robert Siegel, Orr said that saying retirees will receive no money is false.

"We're just talking about adjusting them to today's realities," said Orr.

Robert pressed him on a number: Will it mean that former city workers will receive 50 percent, 75 percent of what they thought they would get?

Orr refused to give a number. Robert also asked him about complaints that the city is reneging on contracts it had made with its workers, who are not to blame for the financial mess the city is in.

"Workers are caught with that reality, but also they voted for the leadership of some of their pensions," said Orr. Essentially, he said, "the birds have come home to roost."

Robert followed up: "So you're saying the residents of Detroit should be held accountable for the people they elected all those is years?"

Orr replied: "No I don't want to be quite that harsh in my assumption. I'm just saying there were many indicators and warning signs that could have been corrected over a number of years and I don't want to blame the victim, Robert.

"But I want to say, it doesn't matter what happened in the past. A retrospective, looking behind us isn't productive, what matters is where we are now."

And that means the city is drowning in financial obligations.

"There is no money," Orr said. "It doesn't matter what I say, it doesn't matter what we look back on, there's just no money."

Much more of Robert's interview with Orr will air on today's All Things Considered. We'll post the as-aired version of the interview later today.

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Kevyn Orr, the bankruptcy lawyer who is Detroit's emergency manager, joins us now. Welcome to the program.

KEVYN ORR: Thank you, Robert. Thank you for having me.

SIEGEL: And let's start with that big chunk of Detroit's debt that consists of unfunded pension liabilities. They are pensioners, as you say, they worked under contracts that guaranteed their benefits. Should they now assume that those guarantees are trumped by fiscal necessity?

ORR: No, not necessarily, Robert. I mean, we're very sympathetic and empathetic to their plight. What we're talking about, in our proposal, is only the unfunded portions of those pensions; and the general service fund may have a little bit more underfunding than police and fire. So that's the portion we're really talking about.

There's a lot of talk about there's going to be no pensions, and that's not true. Those pensions actually have assets in them. We're just talking about adjusting them to today's realities.

SIEGEL: Adjusting them downward by 10, 20, 30 percent?

ORR: We don't know yet. I mean, that's part of the dialogue we have to have - are the calculations, and there are various ones that go into determining the value of a pension and what the liabilities are going to be in the future. But it appears it's going to be the necessity for some level of adjustment. We just don't know how deep.

SIEGEL: Is there any level that you would find outrageous? I mean, 50 percent cuts in pensions, is that out of the question, off the board?

ORR: No. I sort of have to divorce myself from any preconceived notion. I mean, it's just a question of the math and dealing with the realities of where they are now. You know, over the past couple of years, you know, between the way the pensions were handled and some of the investment decisions that were made and frankly some underfunding by the city, we're just left with a mess and that's a whole bunch of people's faults but that's just a reality today.

SIEGEL: You've said that there've been warning signs of Detroit's demise for 60 years. Sixty years covers the working careers of most of the city's pensioners. If they'd been told when they first went to work, you'll have a pension, but maybe not, or maybe not as much as we say now, Detroit may not have had any employees all these years. Why can't they say, look, I gave my labor, part of the deal was a pension and that's the level we negotiated?

ORR: You know, that's a very common sort of a response, but, Robert, when we say 60 years, the demographic decline, the ups and downs of economic cycles, but more acutely, just say in the last decade or so, not paying attention to the funding levels that you were going to need and making decision even within the pension funds themselves that turned out to be not so appropriate.

So there were many times in that timeframe to adjust and to react, as you know, Robert, between - you know, economic cycles run seven to 10 years and you adjustments. And unfortunately, for a whole host of reasons, a number of people did not make appropriate adjustments and left us with the situation we have today.

SIEGEL: But I'm sure you hear from pensioners that, you know, you're talking about mayors and councilmen and state legislators, not about the workers themselves.

ORR: Well, you know, the workers, in a sense, you're right, you know, they're sort of caught with that reality, but also they voted for the leadership of some of their pensions. I mean, Robert, you've done stories on Detroit before and you've heard about numerous members and sometimes the attorneys representing them ended up going to jail for graft.

So these were indicators that even the most casual observer, but certainly someone who is interested in the pension process, you know, probably should've looked at it a little bit harder and wondered how they were being managed and then, unfortunately, birds have come home to roost now.

SIEGEL: So you're saying the residents of Detroit should be held accountable for the people they elected all those years, is what you're saying?

ORR: No. I don't want to be quite that harsh in my assumption. I'm just saying there were many indicators and warning signs that could've been corrected over a number of years. And I don't want to blame the victim, in a sense, Robert. But I want to say it doesn't really matter what happened in the past. I mean, a retrospect of looking behind us isn't productive.

What matters is here's where we are. In unfunded health care liability, we're at 5.7 billion. In unfunded pension liability, we're at about 3.5 billion. There's not money. It doesn't matter what I say. It doesn't matter what we look back on. There's just no money.

SIEGEL: Can you tell me, do you foresee at least a transitional period for Detroit during which the state is doing its borrowing on behalf of the city? That is, can Detroit go from bankruptcy to borrowing, or do you need some interim condition where the credit of the state of Michigan will have to be invoked to get any new borrowing done?

ORR: No. I don't foresee that, Robert. I mean, we've already reached a settlement with some of our prior lenders that enhances our credit worthiness and our cash flow. And even as I speak, we're working very closely with some of our existing creditors to rehabilitate the city and some of them are already considering that that will make the city more credit worthy. So I'm operating on the assumption that hope is not a plan, nobody's going to come in here, that we have to stand on our own.

SIEGEL: But just for the record, you're not credit worthy now, are you, in Detroit? Isn't it pure junk, Detroit bonds right now?

ORR: Well, our bond ratings have been lowered, that's true, but to the extent we have increased cash flow, we're already seeing some lenders come in and talk to us about possible other funding.

SIEGEL: At what rates...

ORR: So there is some credit worthiness.

SIEGEL: What rates would you have to pay to borrow money?

ORR: Well, no, at competitive rates, believe it or not, Robert. I mean, Robert, you have to understand. Lenders are remarkably rational. If you can pay your bill and you're rehabilitated, they want to make sure that they - that's business. That's good business and that's what we're aiming for.

SIEGEL: Kevyn Orr, emergency manager for Detroit's finances. Thank you very much for talking with us.

ORR: Thank you for having me. Transcript provided by NPR, Copyright NPR.