A conversation with ‘Detroit Resurrected’ author Nathan Bomey about the city’s bankruptcy

Nathan Bomey headshotI don’t know how else to start this post than with this disclosure: Nathan Bomey and I were coworkers at the Business Review, a long-gone franchise of what’s now called MLive Media Group. We  have remained friends since.

So it’s fair to say I am super excited for him on the eve of the release of his first book, “Detroit Resurrected: To Bankruptcy and Back” (W.W. Norton & Co.), due in stores April 25.

But I am not being a homer when I say that few reporters distinguished themselves as much for their coverage of Detroit’s complicated Chapter 9 bankruptcy, or broke as much news, as he did as a reporter for the Detroit Free Press. That’s saying something, since I honestly believe there was an enormous amount of excellent journalism that sprang from this period.

Bomey, who’s now a business reporter for USA Today, spoke to me in this email interview, which I proposed as a way to keep things from being awkward (journalists generally don’t interview friends, for good reasons).

8-Wood: Alright man. First of all, HUGE congratulations on the release of your new book, “Detroit Resurrected” and the incredible reviews it’s getting. I can’t wait to read it. How do you feel? Have you celebrated yet?

Bomey: I’m so excited to finally reach this point! It obviously takes an incredible amount of work, so it’s really rewarding to hear that people are finding the book engaging and eye-opening. The goal is to spur constructive dialogue about Detroit’s financial collapse and bankruptcy turnaround — a story that has profound implications for politics, urban development, law, finance, art and philanthropy. It doesn’t matter if you’re liberal, conservative, somewhere in between or off the political spectrum altogether — Detroit affects all of us.

I definitely want to come back to that last statement, but let’s talk about the book first. You spent the better part of two years covering Detroit’s bankruptcy, from the declaration of a financial emergency and appointment of Kevyn Orr as emergency manager in March 2013 to the bankruptcy filing, the Grand Bargain and the city emerging from court protection in late 2014. At what point did you decide you wanted to write a book about this and why?

In spring 2014 I began to consider the possibility of writing a book on the case. I could tell there was enough material to make it work, but wasn’t yet sure if I wanted to pursue it. A few months later I was approached by an agent who asked if I had considered writing a book on the case. I said I had! So I spent a few weeks putting together a pitch, and then she pitched it to various publishers. We eventually agreed to a deal with New York-based W.W. Norton & Co. Norton is an outstanding publisher with a world-class group of authors, and I couldn’t pass up the opportunity to work with them. I signed the deal in October 2014.

Do you mind if I ask you to summarize that pitch? I’m interested because a) I haven’t yet read the book, but also because b) as someone who followed the case and tried to read a lot of the news coverage, it often struck me that the bankruptcy was actually very thoroughly covered, especially by local media. I mean, it’s a rare feat in this era when newsrooms are so much leaner and understaffed to see an issue covered so well and insightfully, particularly when it’s as complicated as municipal bankruptcy. I guess I wonder what stones were left unturned.

Detroit Resurrected coverYou’re right that the bankruptcy was very well covered by many people at the Detroit Free Press, Detroit News, New York Times, Wall Street Journal, Associated Press, Reuters, Bloomberg, WDET, local TV stations and other outlets.

But you’d still be surprised by how many people say they read a few stories about it but still don’t really understand what happened. The appetite for a greater understanding of Detroit’s financial collapse and recovery is significant.

So I framed the pitch with two objectives in mind. First, I wanted to enlighten people who followed the case closely with new information.

But second, and perhaps more importantly, I wanted to deliver a compelling narrative for readers who want to learn about Detroit and enjoy a great story at the same time. To do that, I believed strongly that this book had to rest on the fascinating characters involved in the bankruptcy. Bankruptcy is fascinating to me but it’s arcane to most folks. But I knew that if I could bring the book to life by featuring these electric personalities, it would make the pages turn faster for the reader.

Lastly, although this is a nonfiction book, I still believed there was a natural dramatic arc to this story. There are compelling scenes that shape the characters and shake up our characters. And the case builds to a surprising climax that forces us as Americans to reevaluate our beliefs about democracy.

I’ll ask you about the characters in a moment, but what do mean by reevaluating our beliefs about democracy?

From a political perspective, Detroit’s financial collapse forces us to examine how we as a society could allow an iconic American city to get to a point where 40 percent of its streetlights are broken, police take half an hour to respond, the bus transit system has fundamentally collapsed and tens of thousands of abandoned buildings are fueling crime and hopelessness.

Downtown DetroitAs you know, Michigan Gov. Rick Snyder, a technocratic Republican, appointed bankruptcy attorney Kevyn Orr, a progressive Democrat, as the emergency manager to take over the city government. This effectively suspended democracy in Detroit in the name of putting the city back on a fiscally sustainable path.

When we examine the job Kevyn Orr did in Detroit’s bankruptcy, we must ask ourselves whether democracy means something different to us than it did before. Was this process democracy at its finest, democracy at its worst or somewhere in between? I don’t endeavor to answer that question in this book. But I think the book provides the content for a constructive conversation about what lessons we can learn from Detroit.

I find it particularly amazing that a city that played such an immense role in preserving democracy for the world — through its role as the Arsenal of Democracy during World War II — is now teaching us new lessons about urban democracy in the 21st Century.

Fascinating points, particularly given what’s happened in Flint, also under an emergency manager. But let’s go back to the characters in the bankruptcy case. You and I have spoken offline about Kevyn Orr. Do you consider him the most outsize personality here? Is anyone overlooked? And how did the personalities of the various players affect the case?

Kevyn Orr is a fascinating character because of his dynamic role as, quite literally, the CEO of Detroit for about 18 months. His suave demeanor, political savvy and supreme legal talent got him the job. I think the public underestimated his ability to remove his emotions from the equation. The way he adapted to the job was crucial to the outcome.

What you saw in Detroit’s bankruptcy was a tremendous clash between some of the greatest legal and financial minds in the restructuring world over pension cuts, the potential liquidation of the Detroit Institute of Arts, debt cuts and investments in basic services for city residents.

To see Detroit become the epicenter of this clash, including ongoing rivalries between lawyers and investment bankers who have been warring for years, was eye-opening.

How close did we really get to liquidating the DIA? Orr always seemed to bring it up in such a way that, I don’t know, it felt like he always knew it wouldn’t have to come to that, that he was just checking off a box by mentioning it. Maybe it’s the history of the museum itself: It’s always found a way to scrape by, despite historically shaky funding. It was a scary thing to think about, but I always suspected that well-heeled patrons — somebody or some thing — would find a way to shield the art from auction.

It was close. But I don’t want to say too much for fear of spoiling it!

Beyond saving the art collection, can you explain the significance of the Grand Bargain to the larger bankruptcy case?

The importance of the grand bargain in resolving Detroit’s bankruptcy cannot be understated. Foundations, corporations and the state pledged the equivalent of $816 million over 20 years to help reduce pension cuts and preserve the Detroit Institute of Arts as an independent institution.

Without that money, I’d say it’s likely, based on my reporting, that pensioners would have joined Wall Street creditors in pursuing the liquidation of the museum. The only real question after that would have been whether the judicial system would have allowed art to be sold.

In a city with only about $1 billion in annual general fund revenue, the injection of the grand bargain cash was the most important pillar of what became a consensual resolution to the case.

It also strikes me as a pretty remarkable statement, that all these different entities — nonprofit foundations from both in and out of town, private businesses, and especially the state of Michigan, which was entirely controlled by very conservative Republicans — came to rally together for the cause.

Heidelberg ProjectI couldn’t agree more. Several foundation CEOs involved in the grand bargain — including Ford Foundation CEO Darren Walker and Community Foundation for Southeast Michigan President Mariam Nolan — told me that they had never funded anything like this in their entire career, so they started out very skeptical. But Gerald Rosen, the chief mediator who played a key role in soliciting donations and conceiving of the grand bargain, was extremely persuasive in the fundraising process. He helped convince them that they must take action.

As for the state Legislature, the bipartisan political compromise was remarkable. Democrats were upset because pensioners were facing cuts. And Republicans were upset at what some critics viewed as a bailout. But they came together to help Detroit.

To be sure, however, there was a decidedly pragmatic element to the compromise. The state could have faced a lawsuit from Detroit pensioners over cuts — and if the state lost, it could have been on the hook for billions. So an upfront payment of $195 million — with pensioners agreeing to absolve the state of any liability — was a bargain for the state, too.

Obviously the DIA was one of the clear winners, and the city got $1.5 billion over 10 years to improve services and upgrade street lighting, which it’s already doing. Retiree pension-holders took a haircut but it could have been far worse for them absent the grand bargain. It seems like Wall Street creditors generally got the biggest shaft. Was this largely a function of politics — i.e. Orr’s progressive leanings? Or was there more to it?

Great question. Detroit’s bankruptcy forms the basis of an emerging consensus among the legal community that, rightly or wrongly, retirees typically get better treatment than financial creditors in municipal bankruptcies. This is a significant development because it represents a fundamental shift in thinking for Wall Street, which previously believed that its holdings would receive priority payment in bankruptcy.

I think politics are a big reason for this — not Kevyn Orr’s politics or the judge’s, but the broader public’s. Look at it like this: Retirees vote. Wall Street has a lot of influence in Washington, but not as much in financially insolvent communities.

Most Chapter 9 bankruptcies are controlled by elected officials who answer to voters at the ballot box, so I suspect that most of these cases will generally continue to deliver better deals to retirees than Wall Street. Taking a whack at Wall Street is much more politically palatable than hurting retirees.

Now, that doesn’t mean it will be painless for pensioners. In Detroit, pensioners got cuts ranging anywhere from a reduction in annual cost-of-living-adjustment increases to a wholesale cut of up to 20 percent. They also lost most of their city-funded retiree health care insurance. This was devastating for many people. But, believe it or not, it definitely could have been much worse.

Earlier you mentioned that Detroit affects all of us. How did Detroit’s bankruptcy break the mold of municipal bankruptcy cases and what does it portend for other bankrupt cities going forward?

Three things come to mind.

First, one of the biggest differences was speed. Detroit’s bankruptcy lasted only 17 months, compared to several years for some other major municipal bankruptcies. There were many reasons for this, but one of the key factors was that in Detroit, there was a single person leading the case for the city. In other municipalities, the political process requires a democratic consensus to make decisions. A City Council, for example, may need to vote on all major decisions, which can lead to long delays.

Second, Detroit got the court’s approval to cut pensions by up to 20 percent. Although it doesn’t set legal precedent for the nation, you can bet that future bankruptcy judges will examine Judge Rhodes’ ruling for clues on how they should rule when other bankrupt municipalities choose pension cuts.

Finally, the bankruptcy marked the first time (a bankrupt municipality) finally put its people before its creditors. I think that future bankrupt municipalities will design their debt-cutting plans to fuel a reinvestment in services and not just a repayment of creditors.

Alright. Dust off your crystal ball. What will you be watching for in Detroit’s finances to determine whether the city’s financial restructuring has legs and is sustainable?

Well, you can already see the financial restructuring working. The city’s budget is balanced with a surplus — an extraordinary accomplishment after decades of deficits. That has already freed up more money to give much-needed raises to police officers, upgrade the bus transit system and invest in critical information technology to improve the city’s tax-collection efforts. The city is also engaging in a comprehensive blight campaign funded primarily by the federal government — which allows the city to spend the savings from its debt reduction on other pressing issues.

Detroit graffitiOne concrete accomplishment is that the city is now collecting about 78 percent of property taxes, compared to about half before the bankruptcy. That’s a very promising sign that the city’s bureaucracy is getting more efficient under Mayor Mike Duggan’s administration. Plus, the city is now transitioning income-tax collection to the state under a plan put into place by Orr’s team — and that should lead to an uptick in revenue, as well.

Let’s watch to see if the city takes the responsible route and sets aside money to pay for pension obligations when they become due again in 2024. Let’s also watch to see if the city continues to keep its costs down so that it can reinvest in public safety and blight removal.

I also think it’s important to watch the city’s independently managed pension funds — the General Retirement System and the Police and Fire Retirement System — to see how they’re managing their money. A lack of oversight of those funds allowed for disastrous investments and enabled pension bonus payments that cost Detroit dearly over the years and contributed directly to the city’s bankruptcy.

Of course, some of the broader issues Detroit faces could not be addressed in the city’s bankruptcy: chronic unemployment and poor schools, for example. Both of these issues will continue to counteract Detroit’s recovery and yet can only be addressed through a mix of policy measures, political consensus and funding that is rare in American politics.

Yeah, sigh… So, I’m curious: You live in the Washington D.C. area now. Has that changed your perspective at all on what happened here? How do locals there react when they find out you wrote a book about Detroit’s bankruptcy?

Like I mentioned earlier, people have an insatiable curiosity about the city. There’s a global appeal to Detroit’s story. So people are often asking me whether I think the city’s comeback is real. I always tell them I’m cautiously optimistic for Detroit’s future — even hopeful. But any conversation about Detroit must include an acknowledgment of its numerous challenges. ♦

Creative Commons photos by Mike Boening Photography, Mike Boening Photography and Mike

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