Nick Krieger (@nckrieger):
A colleague texted me from the Guardian Building at about 11:15 on Wednesday morning to let me know that he had seen U.S. District Judge Gerald Rosen entering the office of Wayne County Executive Warren Evans.
Judge Rosen was appointed by the U.S. Bankruptcy Court to serve as a special mediator during the Detroit bankruptcy proceedings. In recent months, he has made a cottage industry of promoting himself and drawing attention to his prominence in the bankruptcy negotiations. Last fall, I was at a bar in downtown Detroit when Rosen got up to speak to the assembled crowd of young professionals. He stressed his numerous accomplishments and took personal credit for “turn[ing] on the streetlights” in Detroit. He then asked everyone to look around the room—which was populated almost entirely by white suburbanites—and declared, “Isn’t this great! This room looks like the New Detroit!”
Just last month, Rosen joined former U.S. Bankruptcy Judge Steven Rhodes and former Emergency Manager Kevyn Orr at the Detroit Regional Chamber’s Mackinac Policy Conference “Architects of Prosperity” event to celebrate their respective roles in Detroit’s bankruptcy. After a great deal of back slapping, Rosen extolled “the aura of good feeling that we have about the bankruptcy.” Macomb County Executive Mark Hackel rightly criticized the triumphant and adulatory atmosphere at the Mackinac Island event, remarking that it was in bad taste to publicly celebrate a bankruptcy that had hurt so many working people and retirees.
In short, Rosen is now perceived—whether correctly or incorrectly—as the go-to guy for municipal-bankruptcy negotiations in southeast Michigan. So when Warren Evans announced on Wednesday afternoon that he had asked state officials to begin the process of declaring a financial emergency in Wayne County, I immediately suspected the real reason behind Rosen’s visit to the Guardian Building earlier that day.
Under Michigan’s Local Financial Stability & Choice Act, 2012 PA 436, MCL 141.1541 et seq., the chief administrative officer of a local unit of government (including a county) may ask state officials to conduct a preliminary review to determine whether “probable financial stress” exists within the unit of government. MCL 141.1544(1)(a). If the officials determine that probable financial stress exists, the Governor must then appoint a review team to determine whether there is a bona fide financial emergency. MCL 141.1544(3). The review team has broad investigatory powers, may take up to 90 days to complete its investigation, and must ultimately report its conclusions to the Governor. MCL 141.1545(3) and (4). Upon receiving the review team’s report, the Governor may declare that a financial emergency exists within the municipality. MCL 141.1546(1).
Assuming the Governor determines that a financial emergency does exist, the local unit of government has several options. It may (1) enter into a consent agreement, (2) submit to the Governor’s appointment of an emergency manager, (3) agree to engage in mediation with the use of a neutral evaluator, or (4) seek permission to file for Chapter 9 bankruptcy. MCL 141.1547(1).
According to an article in Friday's Detroit News, Wayne County is burdened by a $52 million structural deficit, continuously declining property-tax revenues, and a pension system that is underfunded by at least $910 million. In addition, the county pays $14 million in debt service annually for the abandoned jail project.
The county hopes to sell the unfinished jail site and is now considering whether to sell the historic Guardian Building as well. Yesterday, the Wayne County Board of Commissioners voted to eliminate the controversial “13th check,” an annual cost-of-living bonus that has been paid to county retirees. But even with these meager cost-savings measures in place, bankruptcy may be Wayne County’s only real option. As the Detroit Free Press has aptly noted, Wayne County owns fewer real assets than the City of Detroit ever did. Thus, for example, although Wayne County’s total debt pales in comparison to Detroit’s bonded indebtedness on the eve of its own bankruptcy filing, there just may be no other realistic alternative.
Evans has stated that if a financial emergency is ultimately declared in Wayne County, he prefers the “consent agreement” option under state law. But Evans is no fool. He knows that a consent agreement would only take the county so far. Indeed, as explained, the only real way to escape Wayne County’s crippling debt may be Chapter 9 bankruptcy.
Who better to advise Evans on the intricacies of pre-bankruptcy planning than Rosen? And if Evans should happen to stroke Rosen’s ego in the process? Well, so much the better. If Wayne County does end up becoming a debtor in Chapter 9 proceedings, there is a strong likelihood that Rosen will be involved in one way or another.