Sunday, March 24, 2013

Can a Major American City in Financial Chaos Be Saved by a Financial Czar?

Detroit and the Rest of Us Are Going to Find Out

That the city of Detroit is a civic and economic disaster is not subject to dispute.  The solution is.  The current population of Detroit had replaced a scandal ridden government with one headed by former NBA star Dave Bing.  Mayor Bing has done remarkable good for the city, but the financial hole was so deep that the state of Michigan gave up.  Under Michigan law the Governor can appoint a person with almost unlimited power to run the city, and that is exactly what Republican Gov. Rick Snyder has done.

Emergency manager Kevyn Orr 
doesn't rule out bankruptcy for Detroit.

Kevyn Orr, a bankruptcy attorney and partner at the law firm Jones Day in Washington, D.C., was named Detroit's emergency financial manager, a role that will give him sole, sweeping power to map the future of the city of roughly 700,000 residents. Republican Gov. Rick Snyder said he picked Mr. Orr for his interpersonal skills, legal and financial acumen and a 30-year track record of work on complex corporate restructuring efforts, including the 2009 bankruptcy of Chrysler Group LLC.

On paper Mr. Orr seems highly qualified.  And the fact that he is an African American should be positive element (although it really should be irrelevant, and one day maybe it will).  And Mr. Orr is approaching the job with some optimism.

Mr. Orr said he wouldn't rule out a municipal-bankruptcy filing by the city—which would be the largest such filing in U.S. history—but that he thought the restructuring could be done without one.

But the reworking of the city’s finances will take money, something Republicans are simply not going to provide.

Mr. Snyder has said there could be targeted state funding, but added, "The idea of bringing a lot of money into Detroit right now doesn't make a whole lot of sense."

So the expectation here is that the highly partisan Governor is simply setting up Mr. Orr and Detroit to fail.  So if the city does succeed and the state has not supported the new city manager, then the success will have come in spite of rather than because of the Republican controlled state actions.  But if success does come expect the Governor to take all the credit, and if failure happens, well Republicans will shoulder a zero amount of the blame.

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