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Report: Detroit’s Finances Crumbling; Future Bleak

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But the city’s problems preceded Bing, a former steel supply company owner and professional basketball Hall-of-Famer.

“This has been a moving target. The historical numbers that have been reported were unreliable,” bankruptcy expert Doug Bernstein said. “Certainly, nobody was going to expect the numbers were to be better than were reported.”

Orr described the city’s operations as “dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption.”

“Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st century government,” he said in the report. “A well run city will promote cost savings and better customer service and will encourage private investment and a return of residents.”

The report also looked at attempts officials have made to fix problems.

“Recently, tens of millions of dollars of pension funding and other payments have been deferred to manage a severe liquidity crisis at the City,” Orr wrote in the report. “Even with these deferrals, the City has operated at a significant and increasing deficit. It is expected that the City will end this fiscal year with approximately $125 million in accumulated deferred obligations and a precariously low cash position.”

The city also owes more than $400 million in outstanding obligations, including $124 million used to provide funds for public improvement projects.

It’s highly likely he will seek concessions from the city’s labor unions. At least five unions representing police and firefighters are seeking arbitration in collective bargaining with the city.

Detroit lacks, but is developing a “comprehensive labor strategy for managing” its relationships with its unions, according to Orr.

The emergency manager law gives Orr the authority to “reject, modify or terminate” collective bargaining agreements and concessions will be sought, he wrote in the report.

“This power will be exercised, if necessary or desirable, with the knowledge and understanding that many city employees already have absorbed wage and benefit reductions,” he wrote.

When taking the job, Orr said he hoped to avoid a municipal bankruptcy filing, but didn’t rule one out if Detroit can’t reach agreements with its many creditors and bond holders.

“If he already hasn’t, he should continue negotiating for savings necessary in collective bargain,” said Bernstein, a managing partner of the Banking, Bankruptcy and Creditors’ Rights Practice Group for the Michigan-based Plunkett Cooney law firm. “He has to negotiate reductions with bond holders and get as many concessions as he can. It’s an across-the-board savings.

“If he can’t get everything completed by consent, then there is no option but bankruptcy. It should be a last resort. It should be used sparingly. It is an option. When all else fails, that’s the last tool in the tool box.”

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Posted by FanningCommunications on Jun 1st, 2013 and filed under News. You can follow any responses to this entry through the RSS 2.0. You can leave a response by filling following comment form or trackback to this entry from your site

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