Snyder: Detroit's financial emergency over; Orr can go

Christine Ferretti
The Detroit News

Detroit — Gov. Rick Snyder has accepted a recommendation from Detroit's emergency manager that the city's financial crisis has ended and it should emerge from receivership.

The governor, in a Tuesday letter to Kevyn Orr, said he will terminate Orr's appointment and announce during a Wednesday news conference that the financial emergency in Detroit is officially over.

A hearing is scheduled Monday to determine Detroit's bankruptcy exit date. Snyder's letter notes that Orr's termination will take effect on the effective date of the debt-cutting plan, confirmed by the bankruptcy court.

The governor's decision comes after Orr submitted a five-page letter to Snyder and state Treasurer Kevin Clinton on Monday touting the city's "significant steps" to restructure its finances and operations.

"Over the past 16 months, the Chapter 9 process has allowed the city to take and implement critical steps towards restructuring its existing obligations and lay the foundation for substantial reinvestment in the city — that is, to correct in a sustainable fashion the financial conditions that prompted my appointment," Orr wrote, also noting Detroit's ability to shed $7 billion in debt and its plans to reinvest $1.7 billion into services over 10 years.

Orr's letter recaps the city's staggering challenges, including its inability to service its debt and provide core services to residents. He also lists the critical settlements, restructuring, oversight and funding commitments forged through bankruptcy, that he says will enable the city to retain its financial and operating recovery for years to come.

Under Public Act 436, only the governor can lift the financial emergency status.

Snyder, in a notice of termination dated Tuesday, said he's satisfied Detroit is on sound financial footing, its service delivery is improving and the crime rate is down.

"While there is clearly much more to do to ensure the citizens of Detroit have a necessary level of service, there is a remarkable improvement in the lives of citizens that clearly supports a finding that receivership should be ended upon the city's exit from bankruptcy," Snyder wrote.

Orr on Friday said it was his hope to finalize the city's exit from the largest Chapter 9 case in the history of the nation this week.

"Reaching the effective date of the plan of adjustment is a milestone, but it also is just one step in a journey," Orr wrote in his Monday letter to Snyder. "There remains much work for the city to complete and much yet to accomplish. I hope and firmly believe that the city's leadership can continue to build on the solid foundation the restructuring process has created for them."

"If the city takes advantage of this unique opportunity to shed the problems of the past and stays on the path that has been blazed in the restructuring, Detroit is poised to grow and thrive for the benefit of its residents and this state for many years to come," Orr added.

Orr has said he projects the city will have a surplus of about $100 million by the end of the 2015 fiscal year. It's a far cry from the $300 million-plus deficit the city faced when he took over last year, Orr said.

Detroit's ability to shed some of its debt in bankruptcy allows it to have a positive cash flow and adhere to smarter financial practices, he said.

But Mayor Mike Duggan has cautioned that the surplus is largely "one-time accounting issues related to the bankruptcy." It doesn't mean, that new additional cash is coming in — yet.

Moving forward, the city will take in about $1 billion in revenue annually, the city says, and spend $960 million-$970 million.