Detroit bankruptcy timeline of events

Photo by Curt Guyette.

Saying Detroit was “dumb, lazy, happy and rich” for a long time didn’t win Kevyn Orr many fans.

January 2011

• Venture capitalist Rick Snyder, the self-described “one tough nerd” who campaigned on the theme of being a moderate, is sworn in as governor. Holding his right hand up, with palm out, and with his left hand on a family Bible, Snyder swore to “support” both the U.S. Constitution and the state constitution. The latter document contains a mandate stating, “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall not be diminished or impaired thereby.”

March 2011

• Public Act 4 is enacted. The controversial law greatly expands the powers of state appointees assigned to take control of school districts and municipalities in financial crisis. When the law is passed, the state Legislature holds a vote to have it immediately implemented. More than two years later, the U.S. Court of Appeals for the Sixth Circuit would call the immediate-implementation vote a “farce.” 

May 2011

• Opponents of PA 4 — which gives appointed emergency managers unprecedented power over cities and school districts — begin circulating petitions and gathering signatures in an attempt to have voters decide the law’s fate in a referendum.

August 2011

• Two lawyers from the Jones Day law firm publish a paper titled “Pensions and Chapter 9: Can Municipalities Use Bankruptcy to Solve Their Pension Woes?” In the article, they say there’s little to no precedent for using municipal bankruptcy to avoid paying the pensions promised workers, put that there is reason to believe that doing so is legally possible.

November 2011

• Detroit Mayor Dave Bing warns that Detroit is quickly running out of money and time, saying that the budget deficit could reach $150 million by June, when the city’s fiscal year ends. The mayor suggests that an emergency manager may be necessary. Some say the mayor is using scare tactics in order to wring concessions from labor unions. He would later say under oath in a deposition that he believed the city could have found its way through the crisis without either an emergency manager or filing for bankruptcy. 

• Gov. Snyder contends that the appointment of an emergency manager for Detroit is anything but imminent. “I’m not aspiring in life to run the city of Detroit,” Gov. Snyder says in an interview. “My goal is to be a supporting resource and be there to help Detroit succeed by itself.”

December 2011

• Democrat Andy Dillon, a former venture capitalist and state legislator appointed state treasurer by Republican Gov. Snyder, recommends the state send in a team of specialists to review the city’s finances. (Earlier in the year, Miller Buckfire had been given a $150,000, two-month contract to conduct a review of the city’s finances.)

February 2012

• In what the Huffington Post described as a “the result of a massive statewide grassroots organizing campaign led by a coalition of groups called Stand Up for Democracy” the total number of signatures gathered over the past year reaches more than 226,000 — about 60,000 more than are needed to put a referendum on PA 4 on the ballot. Once the signatures have been verified and the referendum is officially placed on the ballot, PA 4 will be suspended until the voters have their say in November.

March 2012

• A consent agreement the city is being pressured to sign in order to avoid having an emergency manager appointed is in the process of being drafted. Also, the potential for PA 4 being repealed by voters generates concern in the Snyder administration. The Jones Day law firm is enlisted to help deal with both issues; the firm’s services are provided free of charge. Lawyers for the Retired Detroit Police Members Association sum up Jones Day’s involvement in the issues as follows:

“In early March 2012, attorneys from the firm of Jones Day, along with representatives of Miller Buckfire [an investment banker with extensive bankruptcy experience], were involved in discussions with the Michigan Department of Treasury regarding the consent agreement the State was seeking to compel the City of Detroit to agree to under the provisions of PA 4. On March 2, 2012, attorneys from Jones Day determined that the “cleanest way for the State to take control of the City of Detroit was to pass new legislation that included a spending provision which would insulate such legislation from repeal by the referendum process.” 

April 2012

• Faced with the threat of an emergency manager being imposed, a majority on the Detroit City Council vote to accept a consent agreement with the state. Mayor Dave Bing signs off on the deal as well. “The deal, which creates an advisory board to oversee financial decisions, spared the city from fates that many viewed as far worse: a complete takeover by a state-appointed manager, bankruptcy or default,” reports the New York Times.

• Citizens for Fiscal Responsibility (CFR), a group created by conservative business interests, challenges the signed petitions submitted by Stand Up for Democracy.  Among other things, CFR contends that the heading on the petitions aren’t in 14-point boldfaced type, as required by law.

• Michigan’s Board of State Canvassers votes 2-2 on the question of allowing the referendum on PA 4 to be placed on the November ballot. The split vote — which falls along party lines with Democrats in favor and Republicans opposed — means the measure remains off the ballot. As a result, emergency managers remain on the job in a number of cities and school districts. Opponents of PA 4, a group that includes union members and civil rights activists, erupt in anger at the decision.

August 2012

• The Michigan Supreme Court, in a 5-4 decision, rules that the dispute over font sizes shouldn’t keep the referendum on PA 4 off the ballot. As a result, the law is automatically put on hold until voters have their say in November. In yet another controversial decision, state Attorney General Bill Schuette issues a decision saying that the previous law, PA 72, can be revived. Emergency managers lose their expanded powers as they become emergency financial managers with far more limited authority than they had under PA 4.

November 2012

• Michigan voters, by a margin of 52 percent to 48 percent, vote to repeal PA 4. Emergency financial managers, already operating under PA 72, remain in place.

December 2012

• A new law, PA 436, which duplicates much of PA 4, is quickly passed during a lame-duck session of the Legislature. Unlike PA 4, however, the new law contains appropriations that are built into it. Doing so, as suggested earlier in the year by Jones Day attorneys, makes the new law referendum-proof.

January 2013

• With the state having declared that Detroit was moving too slowly with regard to implementing aspects of the consent agreement, which was intended to be a five-year plan, the city is told to hire Miller Buckfire to assist with restructuring. The no-bid contract is worth $1.8 million. In addition, MB is put in charge of helping the city evaluate law firms it is interviewing to come in and lead restructuring efforts. That, too, is a condition dictated by the state. According to court documents, Miller Buckfire gave Jones Day questions it was going to be asked in advance of an interview with city and state officials at Detroit Metro Airport. Miller Buckfire also suggests that Jones Day not reveal to city officials that the firm helped craft both the consent agreement and PA 436. Finally, Miller Buckfire created the matrix by which law firms would be evaluated. Jones Day came out on top, besting the nearest competition by a single point.

• Following Jones Day’s presentation at the airport, which included Kevyn Orr as part of the firm’s pitch team, Richard Baird, a confidant of Gov. Snyder’s, begins trying to recruit Orr to become Detroit’s emergency manager.

• According to published reports, an audit reveals that Detroit’s accumulated deficit is topping $320 million.

February 2013

• A review team appointed by Gov. Snyder declares that Detroit is in a state of “operational dysfunction” and has no plan in place to rectify the situation. State Treasurer Dillon says during a press conference that he still believes that the city can avoid having to file for bankruptcy. Gov. Snyder’s spokeswoman says her boss will review the expert panel’s report carefully before making a decision on appointing an emergency manager.

• Mayor Bing flies to Washington, D.C., to meet with Orr and discuss power-sharing arrangements.

March 2013

• Mayor Bing selects Jones Day to be the law firm that leads Detroit’s restructuring efforts. The firm begins work immediately even though, under the city’s charter, its contract must first be approved by the Detroit City Council.

• Gov. Snyder, on March 14, announces that he has selected bankruptcy specialist Kevyn Orr to be Detroit’s emergency manager. He’s installed on March 25 as an emergency financial manager under PA 72 because the new law doesn’t take effect until three days later. The timing is crucial because PA 436, unlike its predecessor, offers cities and school districts in a financial crisis a menu of four options: emergency management, a consent agreement, mediation or, with the governor’s approval, seeking bankruptcy directly. Here’s the catch: In jurisdictions with an emergency financial manager in place before March 28, when the new law took effect, those options wouldn’t be available.

• Kevyn Orr becomes Detroit’s emergency manager on March 28, when PA 436 takes effect. He’s provided with a suite — estimates put the cost at, at least $2,000 a month. He will testify later that he was unaware that the bill was being footed by Gov. Snyder’s so-called NERD fund — a nonprofit that won’t disclose who is contributing to it.

• The first of two federal lawsuits challenging the constitutionality of PA 436 is filed. Plaintiffs include residents from a number of cities and school districts where emergency managers have been installed. The Sugar Law Center, a nonprofit, takes the lead on the case. A second lawsuit, filed by the Detroit branch of the NAACP, is filed soon afterward.

June 2013

• At a community meeting held at Wayne State University, Orr, when asked about pensions, responds by assuring retirees that under state law they are “sacrosanct.” Like Snyder, he took an oath to uphold the state constitution. At the same meeting, Orr puts the chances of bankruptcy at 50/50. The bankruptcy judge who is eventually given that case will, six months later, determine that Orr made the statement “knowing in fact there was no chance of that.”

• On June 14, he releases a so-called “Proposal for Creditors” that, later testimony will reveal and Orr will admit, is structured in such a way that it is not possible for pension recipients to know exactly how much they would be receiving if they accepted the deal.

• Testimony would also later show that no real negotiations took place between the city, which was being represented by Jones Day, and the unions — even though good-faith negotiations are supposed to be a precursor to filing for federal Chapter 9 municipal bankruptcy.

• The one instance where serious negotiations do take place involves millions of dollars connected to a disastrous interest rate swaps deal entered into during the administration of former mayor Kwame Kilpatrick, who is serving up to 28 years in federal prison after being convicted on a variety of corruption charges. The settlement involves Bank of America/Merrill Lynch, a client of Jones Day, and UBS, which has associated businesses that are also clients of Jones Day. The bankruptcy judge would reject both the initial settlement agreement and a subsequent agreement, both of which were characterized as being far too generous to the banks.

July 2013

• Three separate lawsuits are filed in state court seeking to prevent Detroit from filing for bankruptcy. A central argument in all three cases is that the bankruptcy would endanger pensions, and would therefore be in violation of the state constitution.

• Although July 19 had been the date planned for a bankruptcy filing, when it was learned that it looked as if a state court judge was going to issue an injunction blocking the bankruptcy filing, which had to be authorized by the governor, Orr crossed out the 19, wrote in 18, and authorized attorneys to file for federal bankruptcy before the state court could issue an injunction.

• In one of his first actions, U.S. Bankruptcy Court Steven Rhodes issues a stay stopping the state court cases from moving forward. At the request of both Jones Day attorneys and Attorney General Schuette, that stay was extended to include the federal cases involving Detroiters challenging the constitutionality of PA 436. (One of those cases, the Sugar Law Center case, has been recently allowed to move forward; the NAACP case remains in legal limbo. The reason is that the Sugar Law Center case involves residents of other cities under emergency management; the NAACP case involves only Detroiters.)

December 2013

• After hearing testimony and reviewing evidence from creditors who argued that it was the intent of Gov. Snyder to seek bankruptcy long before it was publicly announced, and that no substantial negotiations with most creditors — including representatives of retirees and labor unions representing city workers, Judge Rhodes nonetheless authorizes the bankruptcy on the grounds that the city’s debt — pegged at $18.5 billon — can’t be addressed any other way.  That ruling made Detroit the largest city in American history to officially go bankrupt.

March 2014

• Multiple lawsuits have been filed by creditors objecting to the settlement terms offered by Orr in the so-called “plan of adjustment” submitted to the court — even though Judge Rhodes has yet to accept that plan. An updated version of that plan was scheduled to be submitted to the court as this article was going to press.