“THE CITY IS INSOLVENT,” blared the all-caps headline near the beginning of Detroit’s June 13 Proposal for Creditors.
Without the restructuring under Chapter 9 of the U.S. Bankruptcy Code the city is seeking, Detroit will run out of cash this fiscal year and have negative cash flow of $198.5 million in its 2014 fiscal year, according to the proposal to creditors. The city, which will have about $9.05 billion of liabilities on its balance sheet at the close of 2013, filed for bankruptcy on July 18.
While the restructuring is no done deal, Jim Bonsall is proceeding as if it were. Just one day after the July 18 bankruptcy filing, Bonsall, 60 years old, came out of a year-long retirement to start work as the city’s CFO. Ironically, although he “led many difficult restructuring assignments for AlixPartners,” a consulting firm, his focus won’t be on the actual financial restructuring, he said.
Instead, he’s homing in on what will happen after the financial restructuring. That will provide the “slug of cash” needed to help him turn around the city’s inability to provide essential services, he says.
That inability, in fact, is dire. As of April, about 40 percent of Detroit’s street lights weren’t functioning. The ones that were functioning were “scattered across the City’s historical population footprint (and thus are not focused to meet the current population’s actual needs),” according to the proposal.
Just as bad — and getting much worse — is the police department’s response to the more than 700,000 calls for service it gets in a year. For the highest priority, (911)-type calls, the average response time jumped a staggering a 94.7 percent last year, rising from 30 minutes in 2012 to 58 minutes in 2013. The response times of the city’s emergency medical service and fire department are also “extremely slow when compared to other cities,” according to the proposal, averaging 15 minutes and 7 minutes, respectively.
Indeed, Detroit has the highest rate of violent crime of any city in the nation with a population of 200,000 or more. “Residents and business owners have been forced to take their safety into their own hands; some relatively well-off sections of the City have created private security forces,” the city noted.
To help remedy the situation, Bonsall, who grew up in Detroit but spent much of his career overseas, will be attempting to parlay the cost savings of the bankruptcy into improvements in the city’s safety and security.