City financial review commission starts work

Brian J. O'Connor
Detroit News Finance Editor

Detroit — A largely ceremonial first meeting of the board charged with making sure Detroit follows its post-bankruptcy restructuring plans outlined the wide scope and utlimate power the Detroit Financial Review Commission will wield over the city’s finances.

Meeting for an hour at Wayne State University, the commission heard from state legal authorities who outlined the board’s responsibilities to make sure Detroit balances its budget and meets new state requirements that require it to make sure it allocates enough money to pay its debt and pension fund contributions each year. If the city budget doesn’t, the new commission members were told, they can ultimately impose a budget on the mayor and city council.

Before the meeting, Mayor Mike Duggan addressed questions over the city’s burgeoning legal bills in connection with the bankruptcy. The city hasn’t had control over the legal team and Duggan fears the legal tab could soar as high as $200 million after starting out with an estimate of $96 million. As of the end of October, the fees totaled $144 million.

The city objected to the cost in court Tuesday and asked for more time to review the fees, saying that a big legal bill could endanger Detroit’s ability to balance it’s budget following the bankruptcy.

“It’s very concerning,” Duggan told reporters, without going into specifics. The city already is involved in confidential mediation over the fees, ordered by Judge Rhodes, which is scheduled to start Dec. 3 or 4.

The commission was established by the Legislature as a condition of the “grand bargain,” which sent some state money to bolster Detroit’s pension funds, as well as gathering donations from private foundations and the Detroit Institute of Arts to protect city-owned masterpieces from being sold off to raise money to pay creditors in the bankruptcy.

The nine-member board includes Duggan, City Council President Brenda Jones and John Roberts, the state budget director, with state Treasurer Kevin Clinton as chairman. In addition to those legally required appointments, there also are five members designated by the governor.

“It’s an honor to work on this commission and witness the rebirth of the city,” Clinton said at the start of the meeting.

While Duggan told reporters before the meeting he doesn’t see the commission as being adversarial, council president Jones struck a more assertive tone in her introductory comments when she said, “I look forward to getting our city back.”

Detroit has operated under a financial overseer, first with Kevyn Orr as a state-appointed emergency manager since March 2013, and then under bankruptcy for the last 16 months. The commission doesn’t officially start work until the effective date of the bankruptcy, which is expected to become official sometime before the end of the year, as the final details of the city’s exit are finalized. The bankruptcy plan was formally approved by Judge Rhodes Friday.

The meeting was attended by both Orr and Detroit’s new Chief Financial Officer John Hill, who will work closely with the commission. In fact, the CFO appointment must be approved by the commission and the CFO can’t be removed without the commission’s OK.

The commission will closely monitor Detroit’s finances for three years, including the creation of annual budgets and a four-year financial plan. The commission can reduce expenditures to make sure the city can make its debt and pension payments, as well as reviewing city contracts of more than $750,000 and any comprehensive bargaining agreements.

If things go smoothly, the commission would step back but continue to certify the city’s budgets and financial plans annually. However, if the city goes into deficit or violates other terms of the bankruptcy plan, the commission would automatically become more involved.

Valerie Brader, a senior adviser to Gov. Rick Snyder, outlined the commission’s immediate duties, including the immediate efforts to consolidate and restructure the city’s financial operations under CFO Hill and his office, as well as efforts to revamp the city’s dysfunctional technology across all departments, and a similar effort to streamline personnel operations.

Only a few citizens spoke during the public comments portion of the meeting, voicing concerns about the financial deal surrounding a new downtown entertainment district and new Red Wings arena, the city’s efforts to collect overdue water bills or shutoff customers, the need for new jobs and fears that development in midtown and downtown will push out long-time residents of the area.

“Folks like me have been here for 63 years,” said Marie Thornton. “Are we going to be displaced?”

Not on hand for the hastily called first meeting was former New York Lt. Gov. Richard Ravitch, who’ll act as the senior financial adviser to the commission and “special liaison to the state.” Ravitch is well-known and established in municipal finance, most prominently for his role with the New York State Urban Development Corp., which brought New York City back from the brink of its own bankruptcy during the city’s 1975 fiscal crisis. The commission members were announced by the governor’s office Monday.

“I think it went well,” said Lorron James, 31, one of the governor’s appointees to the commission. “I intend to read a lot and familiarize myself with the plan. I’m looking forward to getting started.”

The commission has scheduled its next meeting for Nov. 21

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Commission appointees

Members of the Detroit Financial Review Commission appointed by Gov. Rick Snyder:

■Darrell Burks of Bloomfield Hills, a former senior partner at PricewaterhouseCoopers, a certified public accountant and a specialist in business risk and internal control matters. He was selected on the recommendation from Senate Majority Leader Randy Richardville, Snyder’s office said.

■Stacy Fox of Detroit, who served as deputy emergency manager for the city under Emergency Manager Kevyn Orr. Fox is the founder and principal of the Roxbury Group, a Detroit real estate development and investment firm, and is senior vice president and general counsel for DuPont.

■Lorron James of Detroit, a vice president of the James Group International, an automotive logistics firm that also works on military contracts who also worked in the community affairs division for Major League Baseball’s Arizona Diamondbacks.

■Bill Martin of Ann Arbor, a former University of Michigan athletic director who founded his own real estate construction, development, and management firm in 1968, and has served as president of the Washtenaw Land Conservancy and on the board of the U.S Olympic Committee. Martin was selected after on the recommendation of House Speaker Jase Bolger.

■Tony Saunders of Detroit, who was a director at the financial and management consultancy Conway MacKenzie Inc. and spent 13 months as emergency manager for the city of Benton Harbor. Saunders also served as chief of staff for former Detroit City Councilwoman Saunteel Jenkins.