Earlier this month, the financial expert witness hired to review the City of Detroit’s bankruptcy restructuring plan approved of the strategy, but reminded city officials there is a long way to go.  Marti Kopacz, the financial expert hired by US Bankruptcy Judge Steven Rhodes to analyze Detroit’s recovery strategy, finalized her assessment in late July.

Detroit’s Bankruptcy Expert Witness Approves Restructuring Strategy

Ms. Kopacz and her team of financial analysts were brought in to the case by Judge Rhodes to help him understand whether or not Detroit’s bankruptcy plan was feasible.  As we blogged about here, Detroit was ordered to pay Kopacz $500,000 for her expert witness report that helped Judge Rhodes determine the right course of action in the city’s bankruptcy.  With Detroit venturing into unknown territory, Judge Rhodes relied on Kopacz’s expert opinion to ensure the unique restructuring process went as smoothly as possible.

After reviewing the city’s financial situation and reading its plan to address the more than $36 million in debt, Kopacz and her team issued a report that approves of Detroit’s bankruptcy emergence strategy.  In a 226-page assessment, Kopacz provided the critical go-ahead on the city’s $1.4 billion reinvestment plan compiled by emergency city manager Kevyn Orr and his army of bankruptcy consultants and attorneys.  Although Kopacz’s expert opinion reflected optimism that Detroit could achieve its financial goals, she noted reasons for concern and reminded city officials that the work has just begun.

Expert Witness Calls for Unified City Leaders in Detroit

In Kopacz’s report, she strongly emphasized that Detroit’s bankruptcy plan is only possible if the city’s labor force and politicians work together to take advantage of the influx of cash to improve upon services.  Sending a message to city employees, Kopacz expressed some criticism that public union workers don’t always grasp “that their job is to provide a service to the taxpayers versus the taxpayers owing them a job.”  Although she praised the city’s employees for their willingness to work and knowledge, Kopacz’s expert report pointed out that differences between public workers and city officials could derail Detroit’s bankruptcy plan.

In Kopacz’s expert opinion, Detroit also needs to update its technology infrastructure as it works through the bankruptcy plan.  Without better technology to streamline the supply of public services, Detroit could easily slip back into costly bad habits that would stunt the city’s planned revitalization.  Overall, Kopacz repeatedly pointed to the need for strong leadership and cooperative government as Detroit worked through its bankruptcy, conditioning her approval of the strategy on the city officials who will take the lead after Judge Rhodes approves the plan.

Other Recommendations from Detroit’s Bankruptcy Expert Witness

In addition to approving the plan and reminding city officials of the importance of quality management in the coming months, Kopacz and her financial team:

• Recommended that Michigan hire full-time financial experts to monitor Detroit’s bankruptcy and provide oversight reports that ensure the plan is moving along smoothly.
• Suggested additional efforts to raise funds to remove the blight that plague’s Detroit’s neighborhoods. Currently the city has plans to secure $300 million in loans to combat blight, and Kopacz recommended there be other funding efforts.
• Offered the suggestion that Detroit lease or sell the city’s airport, which is “currently a cash drain on the city’s budget.”
• Called to question the city’s expectation of a 6.75{d61575bddc780c1d4ab39ab904bf25755f3b8d1434703a303cf443ba00f43fa4} return on investment for worker pension funds.  Saying that number could be too high, she cautioned city officials about relying on it.
• Questioned the planned speed of the bankruptcy, which is something that both Mr. Orr and Judge Rhodes have pushed for during the bankruptcy process.  Kopacz warned officials from rushing the bankruptcy at the expense of city improvement.

Ms. Kopacz and her financial expert witness team compiled her analysis after reviewing the city’s financial documents and conducting over 200 interviews and fact-finding meetings with Detroit officials and public employees.  Kopacz also worked closely with Mr. Orr and his bankruptcy consultancy team to understand the strategy before approving of the plan.  As Detroit moves forward, Kopacz and many of the bankruptcy experts will remove themselves, leaving the daunting task ahead up to Mayor Mike Duggan and the other elected officials.