Governor, emergency manager defend Detroit bankruptcy

Less than 24 hours after Detroit filed the largest municipal bankruptcy in US history, the two men behind the historic action -- Michigan Governor Rick Snyder and Detroit Emergency Manager Kevyn Orr -- defended the move in an interview with Reuters.

While insisting the state had no plans to bail out the city, the Republican governor pledged that Lansing would become a 'partner' with Detroit on specific projects such as public safety and parks.

Orr, meanwhile, said suburbanites were already rallying around the city, even as he conceded that municipal unions may never fully support the initiative.

Reuters: What impact will Detroit's filing have on the borrowing ability and interest rates for the state and other Michigan municipalities?

Snyder: Detroit is a unique situation . . . $18 billion in liabilities.

The system is set up where each jurisdiction should be borrowing on its own capacity.

And so, as a practical matter, it should not impact on the surrounding municipalities.

Reuters: Now that Detroit has filed, have you changed your mind about what role the state needs to play in the process? Do you have support from Republicans? Snyder: If you're asking, are we going to bail out the city of Detroit, the answer is no.

Neither the federal government nor the state of Michigan should bail it out.

There are $18 billion in liabilities.

To simply put more money into a situation -- where? Towards $18 billion? It's not going to work.

The real thing that we can do -- and we are doing very actively, and I think is critically important -- is we're being a strong partner in particular projects that improve the life and the quality of services to the citizens of Detroit.

We're doing blight removal, we're doing things in public safety, we're doing things in parks, we're doing things with education.

The list goes on in terms of things we're partnering with the city on.

Reuters: How do you get suburbanites, especially white suburbanites, to buy into the city's plight and to consider pitching in and being part of its recovery?

Orr: I don't know if it's a white or black issue.

I've actually heard a lot of support for Detroit, irrespective of someone's hue or colour.

Frankly, the suburban community, many of whom are customers for the (city's) water department, have already been supporting the city.

I think everyone throughout the state wants to see this city thrive.

This is a very storied and historic city in America.

I think people of good faith have already bought in.

They just want the problem resolved.

Reuters: How do you keep thousands of Detroit retirees on your side if you kill or drastically cut their pensions?

Orr: I don't know if we're going to kill their pensions.

The issue we're talking about is the unfunded aspect, the unfunded pension actuarial liability.

In other words, how much money is missing from the pension fund to meet their anticipated obligations in the coming years?

It's going to be very difficult for some of them to recognize this has to be done.

But we don't have a choice.

We have about $12 billion in unsecured debt, and $9 billion of it has to do with healthcare and pension liabilities.

We've got to get at that in some fashion or another.

Reuters: When General Motors and Chrysler went through bankruptcy in 2009, one of the keys was getting the union buy-in. Why does it seem so different with Detroit's bankruptcy? Why does it seem like the unions are so hostile? And what can you do to get them to work with the city on this process?

Orr: First of all, there are different (bankruptcy) chapters. . . . You have different issues.

They're not exactly parallel.

But to get to the gist of your question, how do you get the union -- I'm not sure we're going to get them completely bought in.

But we have to get them partly to the point of recognizing there's no other way.

We can't pay benefits with money that's not there. It can't be done.

Snyder: I think everyone is tired of watching Detroit go downhill, of having this continuation of saying things are only getting worse.

Without this action taking place, Detroit was going to continue to decline every single day.

And getting the stability and getting the growth makes a tremendous difference.

Image: Detroit Emergency Manager Kevyn Orr waits to address the media during a news conference; Photograph: Rebecca Cook/Reuters