Case Studies

Financial Recovery of Detroit

The City of Detroit’s financial woes have made major headlines over the past several years. Decades of financial mismanagement culminated with the City filing for Chapter 9 bankruptcy protection on July 18, 2013. This became the largest municipal bankruptcy filing in US history. Ultimately, the City restructured or discharged nearly $7 billion in debt and retiree obligations.

 

During the 2014 bankruptcy proceedings, Public Act 181 (PA 181) was passed by Michigan legislature and signed by Governor Snyder. One of the objectives of PA 181 is to give the State of Michigan a measure of financial oversight of the financial affairs of the City of Detroit by creating a Financial Review Commission (FRC). The FRC, which consists of nine members and an executive director, is tasked with the review and final approval of all City contracts that exceed $750,000 or two years duration. The FRC is also responsible for approval of the City’s four year financial plan and budget, which is required on an annual basis.

 

Only two other large municipalities have faced outside financial oversight, New York City in 1975 and Washington DC in 1995. Detroit’s FRC, with its tough task at hand, found itself in need of outside resources. Michigan Department of Treasury prepared a statement of work for assisting the FRC and asked for proposals in February 2015. UHY LLP (“UHY”) was awarded the work by Treasury through a competitive bid process.

 

The firm’s Forensic, Litigation and Valuation Services and Government divisions, led by Chris Peterson and Ed Plawecki, analyzed the City of Detroit’s four year financial plan and budget for fiscal year 2016-2019, a complex document covering 33 separate City departments and encompassing more than 750 pages. Working with the City’s top financial officials, UHY assisted in fine tuning the four year plan into the final document that was approved by the FRC in April 2015. They also helped the FRC to assess certain issues with respect to the City’s progress on implementation of a new ERP system.

 

UHY LLP had previously been retained by the State of Michigan, and Emergency Manager Kevyn Orr to assist the City of Detroit before, and during, the bankruptcy proceeding with restructuring activities, which included the police, fire and EMS departments. However, the unique nature of the FRC project allowed UHY to use its expertise with Government and FLVS segments in a new way, and it added another dimension to the already robust experience in the firm’s catalogue.

 

UHY’s expertise provided before, during, and post Chapter 9 City of Detroit bankruptcy elevates its status as a select advisory group qualified to provide such professional services to distressed and challenged municipal government entities throughout the United States.