Detroit emergency manager steps up pace in city restructuring

Reuters News
Posted: Jun 27, 2013 6:38 PM
Detroit emergency manager steps up pace in city restructuring

By Nick Carey

(Reuters) - Detroit's emergency manager issued a flurry of announcements on Thursday addressing union contracts, power distribution and an errant council president as he steps up the pace of efforts to tackle the city's massive $18.5 billion debt problem.

Kevyn Orr stripped City Council President Charles Pugh of his authority and pay, terminated two union contracts that were about to expire so as to allow room to renegotiate them and announced an agreement with power company DTE Energy Co. to take over power distribution to local institutions, including the public school system.

In a statement, Orr said the power distribution operations of Detroit's Public Lighting Department have run at an average annual loss of roughly $30 million for the past five years and that DTE would be better placed to take them over.

"The 100-year-old PLD system has not received any investment in nearly a decade," Orr said. "Exiting the electric business and letting a recognized expert such as DTE run it is a sensible course of action to take."

DTE spokesman Alejandro Bodipo-Memba said the agreement should result in "significant improvements" for the 115 institutions and businesses affected.

Orr was appointed by Michigan Republican Governor Rick Snyder to try to tackle Detroit's finances and create a sustainable model for a city whose population of 700,000 numbers not much over a third of its peak more than half a century ago.

On June 14 he made a proposal to creditors that would pay them pennies on the dollar and defaulted on a $39.7 million payment on certificates of participation. He has said a number of times that he would like to avoid bankruptcy for Detroit, but will file for Chapter 9 bankruptcy protection if need be.

Douglas Bernstein, a partner at law firm Plunkett Cooney in Detroit suburb Bloomfield Hills, said Orr's moves on the union contract and power distribution were common sense moves.

"Orr is just doing what he needs to do," he said. "He's checking off the things that need to get done and what he's doing makes sense."


The emergency manager also announced Thursday that letters were sent on June 25 to provide notice that contracts with the American Federation of State, County and Municipal Employees (AFSCME) and the Detroit Police Lieutenants and Sergeants Association would be terminated on July 6.

Those contracts were about to expire and under U.S. labor law, if Orr had failed to terminate them they would have rolled over for year and he would have been unable to negotiate new terms until next year.

Edward McNeil, assistant to Albert Garrett, who heads AFSCME in Michigan, said "this is just standard practice."

"If either side wants to change the terms, this is what you do," he said.

McNeil said the AFSCME contract in question only affected 911 operators, which account for 100 of the 2,000 employees the union represents in Detroit.

In his statement Thursday, Orr said it is possible "new terms could be issued in the future as part of the city's restructuring efforts."

John Beck, a professor of labor relations at Michigan State University, said that signaled a willingness to negotiate.

"That is kind of an olive branch and it shows he would like to talk before he dictates terms," Beck said. "These people are important to the fabric of the city and you want them on your side for years to come if you want to succeed."


The only move by Orr on Thursday that unrelated to his task of trying to restructure Detroit's finances was the decision to strip Charles Pugh of his salary and powers.

Pugh missed the last two council meetings and on Tuesday said was taking medical leave for up to four weeks.

Orr had ordered Pugh to return to his $77,000-a-year job by the end of the business day Wednesday or resign.

Calls to Pugh's office were not returned. He disabled his social media accounts last week.

Pugh will be paid through July 7. He will keep his health care benefits until he leaves office on December 31 at the end of his term.

Two members of the City Council have also announced plans to leave after the end of this week. Their departures and Pugh's loss of authority will bring the council down to six acting members.

Mayor Dave Bing has announced he will not seek re-election this year. While Orr's powers as emergency manager mean that he is the ultimate authority in the city, Bing and the City Council still run the city day to day. The loss of several members will make it difficult for the council to conduct business.

(Editing by Dan Grebler)