PROVIDENCE, R.I. — Kevyn Orr's challenges as emergency manager for Detroit are so widespread that Michigan Treasurer Andy Dillon, when asked which one was biggest, gave a long pause, then said nothing.
"I'll have to think about that one for a while," Dillon said with a wry grin during an interview Monday afternoon at The Bond Buyer's Symposium on Distressed Municipalities, where he spoke to a panel about Detroit's problems to a captive audience of about 250 persons.
Four days earlier, Michigan Gov. Rick Snyder handed the emergency manager reins to Orr, a Washington-based Jones Day LLP partner who represented automaker Chrysler LLC during its restructuring in 2009.
"Reaction has been very positive," Dillon said of Orr. "He has the right personality, I think, to bring these factions together."
Orr's background in bankruptcy law, notably in a Chrysler case not considered bondholder friendly, has generated concern in the capital markets. But Dillon said Standard & Poor's having raised its outlook to stable from negative after Orr's appointment proves otherwise.
Dillon said Detroit's big challenge was not funded debt, but pension and OPEB (other post-employment benefits) obligations — estimated long-term at $15 billion, pose the biggest problems — as well as swap derivative transactions.
Asked after his presentation whether Orr, 54, could end swap agreements through his unilateral ability to amend contracts, Dillon replied: "Unilaterally? I don't think that applies because these agreements have been executed."
Detroit, long a symbol of urban blight, has triggered national headlines during its most recent financial crisis. "Certainly Detroit has burst into the front pages recently. It seems like Detroit for decades has been down," Rhode Island Gov. Lincoln Chafee said in an interview earlier Monday.
Chafee, who began his political career as a councilman and mayor of Warwick, R.I., said Detroit's plight helps draw attention to struggling cities nationwide. "Absolutely," he said. "I see Michigan putting so much attention to getting Detroit on solid financial footing. Local problems are widespread. You see them here as well."
Dillon agreed that Detroit is a magnet. "Our case and the ones in California," Dillon said, referring to bankruptcy filings in the Golden State by Stockton, San Bernardino and Mammoth Lakes in the past year.
Former Harrisburg, Pa., receiver David Unkovic, also on the panel, repeated his call to end local governments from engaging in swap transactions. "Swaps have been a disaster," he said, drawing on his time in Pennsylvania's capital city, "where a public finance industry took a city off a cliff."
Unkovic last fall urged Pennsylvania lawmakers to ban localities from engaging in swaps. "People were trying to keep things well run and they haven't," he said. "I see Detroit has the same problem."
Distress problems, said Dillon, trace to declines in taxable valuation, lack of financial sophistication, internal and external borrowing against future resources, excessive year-to-year budget focus, and significant deterioration of major infrastructure.
Detroit's problems, Dillon added, have effectively stigmatized the state. "For the most part, Michigan's financial footing is solid," he said. According to Dillon, only two of Michigan's 645 credits — Detroit and Allen Park, both in Wayne County — are below investment grade. Allen Park is also in emergency financial management.
Dillon cited in Allen Park's case "a one-time, self-inflicted wound," the city's ill-fated purchase of 104 acres to create a movie studio, Unity Studios & Village. The city issued $31 million of long-term GO bonds for the failed project.
