The Name of the Top EM Candidate Has Been Leaked

[m b v]

I don't have a problem with Synder picking a qualified old friend [[they were together on campus for 6 years in the 70s/80s). But he is absolutely taking a HUGE pay cut to become EM. What is motivating him? Please don't tell me it's for the nobility.

[bailey]

Really, are these serious questions? You don't think there will be a pissed off city garbage man or two after he realizes his pension is getting slashed?

If any city employee or retiree doesn't see the writing on the wall that major and unprecedented, and likely painful change is coming and long overdue, I don't know what level of sensitivity could be conveyed to assuage them.

Yes, the person doesn't need to be an asshole about it, a la Engler [[which I don't agree is really an apt comparison..just agreeing he was a dick) and I would hope we could possibly avoid appointing a corrupt or incompetent manager, but there is literally nothing an EFM can do that wont be "perceived as insensitive" because all the choices are bad for some segment of the populace that derives its livelihood from Detroit government.

That's what happens when a problem gets kicked down the road for a couple generations.

[Zug]

I hate anyone losing a job [[unless they are incompetent)...but I think most residents would accept cuts [[and some privatization) if it means actually getting services. I just hope that any EFM decisions do not negatively affect services. That remains to be seen.

[TexasT]

I don't have a problem with Synder picking a qualified old friend [[they were together on campus for 6 years in the 70s/80s). But he is absolutely taking a HUGE pay cut to become EM. What is motivating him? Please don't tell me it's for the nobility.

Is he prohibited from getting paid by Jones Day while he is an EM? This is amazing recognition and press for his firm.

[Det_ard]

If any city employee or retiree doesn't see the writing on the wall that major and unprecedented, and likely painful change is coming and long overdue, I don't know what level of sensitivity could be conveyed to assuage them.

Yes, the person doesn't need to be an asshole about it, a la Engler [[which I don't agree is really an apt comparison..just agreeing he was a dick) and I would hope we could possibly avoid appointing a corrupt or incompetent manager, but there is literally nothing an EFM can do that wont be "perceived as insensitive" because all the choices are bad for some segment of the populace that derives its livelihood from Detroit government.

That's what happens when a problem gets kicked down the road for a couple generations.

Exactly. Anyone taking the necessary actions, whatever they may be, will be see by some as being too harsh. The more astute observers will judge them by the appropriateness of their actions, knowing that there will have to be big cuts, radical changes and swift, decisive action in order to stop the bleeding.

[Downriviera]

Smoke came out black, so no EFM chosen yet.

[Gannon]

This isn't homeopathy.

Gut-laugh! thanks...

[Wesley Mouch]

Gut-laugh! thanks...

I wondered if anyone would get it. Ha!

[oladub]

Here is something that should draw a lot of hostility. Sandy Springs, GA became an independent city in the 80's. Now it has over 100,000 residents. It is also very solvent. Except for it police and fire departments, all city work is outsourced. It contributes to 401k's instead of pensions. In this 8 minute video, it is recognized that cities with legacy costs would have a lot of opposition to such a plan. Maybe some of Sandy Springs' methods could be grafted onto Detroit's situation though.

Sandy Springs, GA: Model of Libertarian Living

[313WX]

http://www.freep.com/article/2013031...have-conflicts

Top pick for Detroit emergency financial manager could have conflicts

[Cincinnati_Kid]

Really, are these serious questions? You don't think there will be a pissed off city garbage man or two after he realizes his pension is getting slashed?

I thought a EFM doesn't have the power to slash retiree's pensions? The pension slashing only comes through bankruptcy. Retiree's pensions are one of the biggest drains of Detroit's budget. Unless you're talking about a active worker's pension.

[Cincinnati_Kid]

Here is something that should draw a lot of hostility. Sandy Springs, GA became an independent city in the 80's. Now it has over 100,000 residents. It is also very solvent. Except for it police and fire departments, all city work is outsourced. It contributes to 401k's instead of pensions. In this 8 minute video, it is recognized that cities with legacy costs would have a lot of opposition to such a plan. Maybe some of Sandy Springs' methods could be grafted onto Detroit's situation though.

Sandy Springs, GA: Model of Libertarian Living

Maybe... but Detroit is a whole different animal, than a small Georgia town.

[mwilbert]

Maybe... but Detroit is a whole different animal, than a small Georgia town.

This is true, but the real difference is that managing a growing city is relatively easy and something that happens a lot. Managing a shrinking city is much more difficult.

[313WX]

I thought a EFM doesn't have the power to slash retiree's pensions? The pension slashing only comes through bankruptcy. Retiree's pensions are one of the biggest drains of Detroit's budget. Unless you're talking about a active worker's pension.

That's correct. Pensions are guaranteed by the state constitution. Andy Dillon made that clear in his speech about the city's financial review. They're also guaranteed by the city charter.

[iheartthed]

I thought a EFM doesn't have the power to slash retiree's pensions? The pension slashing only comes through bankruptcy. Retiree's pensions are one of the biggest drains of Detroit's budget. Unless you're talking about a active worker's pension.

The EM will have the power to send the city into bankruptcy. As I understand it, besides the governor himself, he or she will be the only person with that power. The elected officials of Detroit cannot make the decision for the city to file bankruptcy.

[jackie5275]

I hope they pick someone with a compassion for the tax paying Detroiters.

This guy wont' need compassion. He'll need a hazmat suit.

[Eber Brock Ward]

That's correct. Pensions are guaranteed by the state constitution. Andy Dillon made that clear in his speech about the city's financial review. They're also guaranteed by the city charter.

This is correct. But, just like the bondholders, they may be convinced to accept reduced pensions if the EM says "Accept reduced and/or spun off pensions or see what you get in bankruptcy."

An EM coming with that line can be awful convincing.

[oladub]

City owned parcels could be given away in lieu of pensions but only as a voluntary option. The City is property rich and cash poor. Such parcels could either be distributed individually or collectively to organizations like the teacher' union which, in turn could embark on development projects with profits going to shareholders of these parcels. Imagine a neighborhood of new houses homesteaded by retired police and firemen. Gated living communities with their own schools, schools, shopping, other amenities would make sense. The gates could come down as soon as crime is reduced to an acceptable level.

[steve from virginia]

Nothing is going to change on the ground in Detroit, Orr [[or whoever) is a technocrat. His job is to provide a cover while the establishment steals whatever remains to steal, in this case, from US taxpayers' grandchildren:

The appeal stresses the progress Detroit has made under the agreement, including workforce reductions and other cuts, and approval of a public lighting authority. The appeal also argues emergency managers have not made progress in Detroit Public Schools or in other Michigan cities.

From The Detroit News: http://www.detroitnews.com/article/2...#ixzz2NRDqSrXy

Emergency managers have not made progress ... Surprise! That isn't their job. It is to divert public funds toward the private sector. None of the managers can create funds, none of the governments involved can create funds: only the Federal government through the back door: it can borrow without limit.

The city's lenders are looking for the US government to bail out Detroit's existing $14 billion debt. That is the reason for Orr and none other. The Chrysler bankruptcy and firm's relationships within the DC hierarchy are indicative. This is strictly 'K Street' insiders at work.

The State of Michigan cannot bail out Detroit. The state is as bankrupt as the city. There is nothing the city can do to meet its obligations it lacks the tax base and its debts are too large. It can default and/or restructure. It can beg.

The US government will bail out Detroit, that is the plan. The US will bail out the lenders and become the collection agency, parting out what it can to private interests. 'Retired' Detroit bonds will be sold to vulture capitalist hedge funds for nickels on the dollar, these will torment whoever remains in the city long after the bailout is done and the technocrats have faded away.

There is little else the technocrat can do to 'lift up' the city. That has to come from the city itself and its inhabitants ... those purposefully excluded from all the decision making.

[corktownyuppie]

This is correct. But, just like the bondholders, they may be convinced to accept reduced pensions if the EM says "Accept reduced and/or spun off pensions or see what you get in bankruptcy."

An EM coming with that line can be awful convincing.

I'll tell you where the leverage is. Health care benefits. Pension benefits are protected. Healthcare benefits could totally disappear. And so whether it's a bankruptcy administrator or an EFM, someone will approach union reps and say, either drop your pension by 5-10% and we guarantee your healthcare, or keep your pension at 100% and all of your healthcare will be gone.

And that's what's most likely to happen.

What'll be interesting is that if the DWSD gets leased to a regional authority, it will no longer be subject to the liabilities of the city, which means its bond rating will shoot up to the sky, and its interest payments will get cut by a ton. 80% 90%?

And the DWSD pensionholders, no longer sharing in the major deficits with the city, could see both their pension and healthcare benefits totally untouched. Interesting.

[DetroiterOnTheWestCoast]

http://www.jonesday.com/_lawyers/bio...ion=Experience

Some bio info

[mwilbert]

What'll be interesting is that if the DWSD gets leased to a regional authority, it will no longer be subject to the liabilities of the city, which means its bond rating will shoot up to the sky, and its interest payments will get cut by a ton. 80% 90%?

No. First, the spread between DWSD bonds and AAA munis is only about 140 basis points right now, so there is no 80-90% to be had. Second, any re-rating won't change their payments on outstanding bonds, so until [[at least) they reach their call dates you won't get any benefit there. Over time of course there will be a benefit, but it will take some time for it to be significant.

[Novine]

"I'll tell you where the leverage is. Health care benefits. Pension benefits are protected. Healthcare benefits could totally disappear. And so whether it's a bankruptcy administrator or an EFM, someone will approach union reps and say, either drop your pension by 5-10% and we guarantee your healthcare, or keep your pension at 100% and all of your healthcare will be gone."

The changes with Obamacare make this kind of threat have less leverage. It's not like retirees are going to go without health care. They are all covered by Medicare.



"And the DWSD pensionholders, no longer sharing in the major deficits with the city, could see both their pension and healthcare benefits totally untouched. Interesting."

What makes you think that? Employees are part of the city's pension program. You're not going to see changes for only some employees. It's all or nothing. I'm betting that we won't see any changes in pensions for retirees. Perhaps current or future employees. But not the retirees.

[corktownyuppie]

No. First, the spread between DWSD bonds and AAA munis is only about 140 basis points right now, so there is no 80-90% to be had. Second, any re-rating won't change their payments on outstanding bonds, so until [[at least) they reach their call dates you won't get any benefit there. Over time of course there will be a benefit, but it will take some time for it to be significant.

First...you're right...so, let's go through the math.

On $100MM AAA 20-yr bond at 2.4% yield, annual interest cost is $2.4MM per year. [[That was my recollection of AAA munis last week)

On $100MM DWSD 20-yr bond at 4.6% yield, annual interest cost is $4.6MM per year.

$4.6MM
-$2.4MM
=========
$2.2MM / $4.6MM = 47%...100-47 = 53%

You're right. Not 80-90%. But still 53% You're cutting interest payments in half. AND...DWSD is on review for downgrade anyway, so the problem likely to get worse instead of better.

==================


[[2) Yes, re call dates. But you can pre-refund the bonds and take out new debt at the new rates, right?

[coracle]

This is true, but the real difference is that managing a growing city is relatively easy and something that happens a lot. Managing a shrinking city is much more difficult.

No the real real difference is that they've got off their asses and done something about it.