May 30, 2014 at 1:00 am

Daniel Howes

Time of essence in Detroit bankruptcy case

Howes and Finley, Day 2
Howes and Finley, Day 2: Business columnist Daniel Howes and Editorial Page Editor Nolan Finley talk about Brooks Patterson's tiff with his own party and Kevyn Orr's tenure as Detroit EM, at the Mackinac Policy Conference.

Mackinac Island

Detroit’s carefully planned bankruptcy calendar is getting squeezed, raising fears that Emergency Manager Kevyn Orr could be ousted in late September before the historic case is completed.

U.S. Bankruptcy Judge Steven Rhodes is expected to rule Friday on a creditor request to delay by one month the start of the July 24 confirmation trial, effectively claiming the margin of error Orr and the city’s legal team built into a bankruptcy strategy pegged to the end of his 18-month term.

“I’ll adhere to the judge’s schedule and what that requires,” Orr said in an interview Thursday at the Detroit Regional Chamber’s annual Mackinac Policy Conference here. “We want to see this to conclusion.”

Translation: Orr is prepared to stay on the job past his term if the case realistically could be wrapped up two to four weeks later; if the case is not delayed even further; or if the Snyder administration could persuade Mayor Mike Duggan and two-thirds of City Council to delay a vote to send Orr back to where he came from, as permitted under the state’s emergency manager law.

Gov. Rick Snyder declined to “speculate,” as he put it to The Detroit News, about options being considered to manage Orr’s exit should the bankruptcy not be concluded as hoped. But sources close to the situation say the Snyder administration likely would seek agreement to extend Orr’s tenure by weeks or appoint him to a board planned to oversee the city after it exits Chapter 9.

Less likely, according to ranking sources familiar with the situation, would be Snyder appointing Duggan emergency manager. The move would pose serious political problems for Duggan, who campaigned for removal of the EM as soon as possible, and likely would imperil his productive working relationship with Council President Brenda Jones and her colleagues.

Bottom line: It all depends. On a situation changing daily. On Rhodes, whose management of the case repeatedly demonstrates intent to move the case quickly, but not at the expense of creditors’ rights and risks of appeal. On Duggan, who’s made no secret of his eagerness to see Orr go so he can claim the full complement of mayoral powers. On council, whose members are almost uniformly opposed to the emergency manager.

“When the time comes, I would expect all parties to weigh the options and do what is in the best interest of Detroit,” Council Member Saunteel Jenkins said in an interview at the Grand Hotel. “I would imagine some kind agreement where he could continue as a consultant. If we’re close to getting it done, we need to find a way to get it done and in a timely manner.”

If such creditors as Syncora Guarantee Inc., a Bermuda-based bond insurer, get their way, the city’s bankruptcy case won’t be done in anything approaching a timely manner. Its continuing demands for massive tranches of documents and more time to review them looks increasingly like a delaying tactic to push the case beyond the end of Orr’s term, tipping it into a political minefield that could scuttle the delicately crafted “grand bargain.”

That’s not all. State Senate approval of nearly $195 million toward the $816 million grand bargain could be slowed should Rhodes order a delay in the trial, influencing how and whether a majority of the city’s retirees vote to approve settlement offers sent to them earlier this month.

Add the real chance that talks between the city, Oakland, Macomb and Wayne counties to form a regional water authority may yet fail, risking confirmation of the city’s “Plan of Adjustment” even more. Altogether that could imperil the deal — financed by a dozen foundations, donors to the Detroit Institute of Arts and state taxpayers — to bolster city pensions and protect the DIA collection from creditors.

Should the grand bargain fail and should assumptions of a water deal not be realized, the financial implications for retirees are significant. More than 3,350 Detroit retirees living in Oakland County would lose $9.2 million in annual income, estimates obtained by The News show, or $92 million over 10 years. Macomb’s 3,039 Detroit retirees would lose $8.7 million in annual income, or $87 million over 10 years.

The hit to state taxpayers would be even greater, according to the white paper being circulated among state officials. A failed grand bargain likely would force sharply lower pension payments, costing state taxpayers $192 million in social service payments over 20 years — roughly equivalent to the value of the Detroit rescue package awaiting action by the Senate in Lansing.
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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.