1. City of Detroit Restructuring Discussion
Al Koch, Managing Director
Illinois Municipal League
September 18, 2014

2. City of Detroit Restructuring
Emergency Manager (EM) primarily focused on restructuring ~$9.6B of unsecured claims
EM was focused on getting retiree agreement due to favorable public relations impact, impact on operations and claim size (OPEB $4.3B, Pensions $3.1B)
Leverage of key city assets (DIA Art) was used to supplement retiree settlement
Financial
Completed initiatives that were in process prior to Chapter 9, such as outsourcing trash collection and public lighting. However these were not major contributors and most of the restructuring efforts was focused on planning and not implementation
Union contracts were marginally improved, however no significant improvement to work rules or consolidation of union agreements, which was a lost opportunity
Operational
Structural issues related to governance not addressed
Historical full-time City Council left in place
Post emergence the Financial Review Commission is designed to ensure the City adheres to the Plan and continues to implement financial and operational reforms that promote more efficient and effective delivery of services to City residents
Governance
Primary focus of Emergency Manager was a financial restructuring of the City’s debt not operational improvements

3. City of Detroit Financial Restructuring
Comments:
Unsecured claims reduced by 72%-76%, while overall obligations reduced by 44%-46%
OPEB Claim reduction represents over 50% of the total unsecured claim reduction achieved by the Plan
The reduction was primarily achieved by shifting the retirees (under 65) to individual insurance utilizing the Affordable Healthcare Act
Other municipalities are currently implementing similar strategies to reduce OPEB obligations (outside of Chapter 9)
The difference between the High/Low Case for the PFRS and GRS Pension Plans represents the impact of the DIA Grand Bargain ($660MM in payments with a PV of $460MM)
Source: Fourth Amended Disclosure Statement Exhibit K – 40 year Financial Projection
Present value amounts calculated assuming a 5% discount rate
The high recovery case assumes the City is successful in its challenge of the POC claim

4. Re-Investment Plan/Operational Restructuring
Source: Fourth Amended Disclosure Statement Exhibit I – 10 year Summary of Restructuring Initiatives
Note (1) – Amount represents estimate for remediation costs related to the shut down of the City’s legacy sub-stations
Comments:
Plan focused on improved services through additional spending. Plan increases headcount by over 700 despite huge investment in technology and infrastructure, while population is expected to decline over the same period
Plan assumes Police resources remain well above peer cities for entire period despite significant investment in technology and infrastructure – little or no efficiency gain recognized from technology
Long-term labor structure (work rules, excess unions, etc.) not addressed. Implemented changes only impacted base economics
Continued investment in non-core assets (City Airport)

5. Potential Opportunities for Municipalities
OPEB
Pensions
Labor work rule improvements
Other employee benefits
Service and product sourcing
Outsourcing
Consolidation of services
Internal
Neighboring communities

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