Muckraker Alert: Road to bankruptcy paved in secrets, lies

August 5, 201371 CommentsRead More

This report is based on hundreds of public records and more than a dozen interviews with state officials and former aides to Mayor Bing. Some of this has been published, some not. This is the whole narrative. 

State and local leaders conspired to plunge Detroit into the nation’s largest municipal bankruptcy in a series of surreptitious meetings that began soon after Mayor Dave Bing was elected to his first full term in 2010, the Motor City Muckraker has learned.

In early 2011, newly elected Gov. Rick Snyder and his executive team invited Bing and his aide, Kirk Lewis, to private brainstorming sessions. The topic – devising a strict emergency manager law that would allow an appointed official to break union contracts and privatize services in financially struggling municipalities.

The private sessions, which the mayor and governor had denied took place, marked the beginning of two years’ of secret meetings intended to deceive Detroiters, city workers and other stakeholders about the prospect of a financial takeover and bankruptcy, calling into question whether authorities ever intended to bargain in good faith, a requirement of Chapter 9 bankruptcy.

Involved was a surprising array of local and state politicians, including the governor, Treasurer Andy Dillon, Emergency Manager Kevyn Orr, mayoral candidate Mike Duggan, former Council President Pro Tem Gary Brown and a host of others.

Gov. Snyder finds partner in Bing

Bing and Gov. Snyder hit it off immediately. In early 2011, they agreed the city couldn’t dig out of its debt without state intervention, but neither would say that publicly for nearly a year.

Even Bing wanted to be the emergency manager, former city and state officials said.

Bing and his staff “worked with stakeholders to ensure that Public Act 4 (emergency manager law) contained all necessary provisions to accomplish the goals of the strategy, which included Mayor Bing being named emergency manager for the city of Detroit,” according to a whistleblower suit filed by former mayoral aide Rochelle Collins, who received a quick $200,000 payout to prevent further discovery in the case.

Responding to questions from Motor City Muckraker, Bing acknowledged he met early on with the governor but had no hand in “crafting Public Act 4.”

“Obviously, I met with the governor on several occasions about issues here in the city,” Bing told us. “My job is to protect the city in every way possible. That’s what I did. It was the right thing to do.”

Nevertheless, Bing plowed forward with a plan to establish the basis for state intervention – a $1.7 million Ernst & Young report that showed Detroit was on the verge of running out of money. In October 2011, the mayor violated the Open Meetings Act by gathering privately with the City Council to discuss the report and its impact on the city’s future.

“This was a setup from the beginning,” said activist Robert Davis, who obtained damaging emails that showed state and local leaders cooked up plans for Detroit’s future behind closed doors. “Bankruptcy was the plan since January, and they made deliberate attempts to keep that information from the public.”

To hide his involvement, Bing communicated with Lansing officials through a private email operated by Sue Ray, an administrative assistant who told the governor’s team that she was a “trusted confidante” of the mayor’s and wanted to “stay below the radar.”

The ringleader of the clandestine meetings was Richard Baird, a longtime trusted associate of Snyder who maintains a low profile and is paid by a controversial nonprofit foundation called the NERD Fund.

Mayoral candidate Mike Duggan gets involved

In January, Baird donated $2,500 to Duggan’s mayoral campaign, making him one of the top donors. Duggan privately advised state officials on how best to handle the financial takeover and said he’d be a supportive partner of an emergency manager, if elected.

Duggan also is a close friend of Treasurer Dillon, who sought out the mayoral candidate for advice on state intervention. Duggan was to meet privately with members of the Financial Review Team, which would have violated the Open Meetings Act if a majority of the team was present. It’s unclear whether that meeting ever took place.

But publicly, Duggan emphasized that he was strongly opposed to an emergency manager, never mentioning his role in the process.

The former Detroit Medical Center CEO said he was tapped because of his experience turning around DMC, and he still he was “furiously lobbying not to get them to appoint of an emergency manager.” What he didn’t say was, he lobbied against the appointment until after the election.

“It has become painfully clear that Detroiters were sold on the false hope that bankruptcy would be the last resort, while all along, bankruptcy was always the desired and singular option,” mayoral candidate and frontrunner Benny Napoleon said. “As public officials, if they believed they were doing the right thing on behalf of the electorate, they should have had the courage to make the case for an unpopular decision, not conspire to dupe the voters because they thought we would never find out.”

More closed-door meetings 

As the plot unfolded behind closed doors, five to six city council members met with Dillon and other state leaders. The council was given a coded threat: Work with us on state intervention or we won’t need you.

And so a majority of the council members chose their jobs over public pledges to fight state intervention. While the rhetoric at the council table was decidedly anti-emergency manager, five of its nine members approved critical measures that helped pave the way for state intervention. The council even supported hiring Jones Day, the law firm where Orr worked before becoming an emergency manager.

But no one was more helpful than council President Pro Tem Gary Brown, who often met regularly with state officials and led the drive for drumming up support for state intervention. While Brown still publicly maintained that he opposed the appointment of an emergency manager, he and the state were talking about ways to make the EM transition an easy one.

On July 1, Brown resigned from his council position to accept a $225,000-a-year job working for Orr. By contrast, the mayor is paid about $150,000.

The fix was in

Most of the deception began in November 2012, soon after voters rejected Public Act 4, the emergency manager bill crafted by Snyder. Despite the public’s opposition to state intervention, Snyder’s team was quietly searching for a bankruptcy expert to take over Detroit’s finances.

But in public, Snyder and Treasurer Dillon were still insisting that state intervention was by no means a certainty and appointed a six-member review team in December to determine whether an emergency manager was the best choice.

Behind closed doors, Snyder was hunting for bankruptcy experts and found Orr’s law firm, Jones Day, one of the most renowned bankruptcy experts in the U.S.

On Jan. 31, a Jones Day attorney advised Snyder that bankruptcy clearly was the top choice. But Orr expressed concern that the new EM law looked like it was tailored for a Chapter 9 filing – a position that Snyder has publicly denied.

State officials reassured Orr that the state, along with select Detroit leaders, were engaged in a PR campaign to warm Detroiters to the idea of emergency management. The idea: Don’t mention bankruptcy, pension cuts or debilitating budget reductions. Stay positive.

On Feb.12, Snyder’s team sent Orr a contract and urged him to sign it as soon as possible. On the same day, Dillon and Snyder assured the public – again – that no decision has been made on whether an emergency manager would be the best choice for Detroit.

“Governor already asking me if you can start yet,” Baird wrote that day, saying “our folks are already behaving as if you accepted the job.”

Never mind that the financial review team was still a week from filing its report, which Snyder insisted would be the basis for his decision on whether to appoint an emergency manager, a move that would impact markets, Detroiters and potentially all Michigan residents.

Denials continue after financial review report 

On Feb. 19, the state-appointed financial review team declared the city was in bad financial shape, but Snyder and Treasurer Dillon insisted, yet again, that no decisions were made on whether to appoint an emergency manager.

“The governor is saying he’s not going to make a decision until he studies (the report) and is able to make a thoughtful decision” on whether an EM is needed, Dillon told reporters in Detroit that day.

Snyder’s aide, Baird, set up a clandestine meeting between Bing and Orr for Feb. 25. But it was too risky to meet in the Motor City, Baird warned, because the National Governor’s Association was in town.

“I think the lunch would be better held in our offices for the sake of privacy,” Baird wrote.

Bing’s office agreed about privacy: “We wish to stay below the radar,” his office wrote from a private email account.

On Feb. 21, the governor’s office privately arranged to announce Orr’s appointment on March 14 in Detroit. Hours later, Snyder told the media  that he was unsure whether he was going to appointment an emergency manager.

“It could take weeks before there is a firm decision,” Snyder told me in an interview that day.

In the meantime, his staff was preparing to lease a posh, furnished suite at the Westin Book Cadillac, where Orr would live during his 18-month contract.

Four days later, Baird wrote to Orr that the mayor “was very impressed and enthusiastic about a working relationship.”

On March 1, a few days after the press conference was scheduled, Snyder told me he hadn’t decided on emergency management “because I have to stay open-minded during the review process.”

In interviews with the media, Bing denied knowing anything about the new emergency manager.

Governor’s office denies doing anything wrong

On Sunday, I asked the governor’s office about the discrepancies between Snyder’s public and private comments.

“Good leaders always hope for the best but plan for the worst, and Gov. Snyder believes the state is best served when all contingencies have been considered,” his spokeswoman Sara Wurfel responded. “The governor has been transparent and visible throughout the process and in reaching and sharing his decisions.”

When Orr arrived in Detroit for the official announcement, questions about bankruptcy were quickly dismissed as too early.

“Let’s get at it and work together because we can resolve this without bankruptcy,” Orr said.

Soon after, Orr’s powerful legal team began preparing a 3,000-page bankruptcy filing.

While the EM met with creditors and unions in meetings intended to strike a deal to avoid bankruptcy, participants said the sessions were clearly designed to set the stage for Chapter 9.

“We were very displeased that we were told negotiations were going to take place; they never did,” Al Garrett, President of AFSCME Council 25, said.”Instead, they ran to a bankruptcy court.”