Kevyn Orr talks about his experiences as Emergency Manager for the City of Detroit. March, 2014.
>> Welcome to the University of Michigan Policy Talks at the Ford School Lecture Series. Today's event will begin shortly. My name is Cliff Martin. I'm the events and outreach manager of the Gerald R. Ford School of Public Policy. I'd like to take this opportunity to remind you that the University of Michigan strives to create an environment whereas the freedom to express diversity points is valued and protected. This includes the freedom to oppose of use of others but also the right of speakers and performers to be heard. Please respect this important value of our academic community. Finally, if you need assistance for any matter during today's event, look for the sunglasses or see one of our event staff around the room. Thank you all for coming and enjoy the program.
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>> Good afternoon everybody. Good afternoon and welcome. I'm Susan Collins, the Joan and Sanford Weill Dean of the Gerald R. Ford School of Public Policy. And it's such a pleasure to welcome all of you here for another policy talks at the Ford School. It's wonderful to see so many here in the audience in particular a number of our friends form the law school. I'm also very pleased to welcome the University of Michigan's Detroit Center Campus who is turning on via web stream. And I know that we have a number who are watching via live web stream from other places as well, welcome. Before I begin this afternoon's program, I'd like to recognize Professor Barry Rabe and his staff at the Center for Local State and Urban Policy, CLOSUP for their efforts and coordinating this special event. I also want to thank the students of the Ford School's domestic policy council who had been volunteering and have been extremely helpful in organizing our activities. Well, today, it is my special privilege to welcome one of the University of Michigan's very highly accomplished alumni Kevyn Orr. Kevyn Orr in fact comes from the University of Michigan family. I understand that his mother earned her masters degree in education from the University of Michigan and he earned both his AB from the department of political science in 1979 and then his JD degree from the University of Michigan as well. After graduating from the law school he initially returned to his home state of Florida and joined the progressive Miami law firm often providing service pro bono. In 1991, he moved to Washington DC to focus his energies on bankruptcy law and reorganization. He went on to become acting director of the executive office for US trustees which is a federal agency which oversees the administration of bankruptcy cases. In 2001, Kevyn Orr joined as partner with Jone's Day. Since then, his breath of experience has lead to leadership assignments for several high profile bankruptcy and reorganization cases in particular Kaiser Aluminum and Chrysler. Well, last year, Michigan's governor Rick Snyder appointed him to serve as Emergency Manager of the city of Detroit. And in fact, it was exactly one year ago today that Kevyn Orr officially started this which I think many would agree is his most difficult assignment. Across all of these experiences, he has had to make very tough decisions with outcomes that often affected the livelihoods of many individuals. Well, such decisions we know are inevitably controversial and perhaps even more intensively so when one is breaking new ground, this is of course the largest municipal bankruptcy in the nation's history. As a Detroit free press has noted, he is someone who can deliver disagreeable news without being disagreeable himself. Well, we are very grateful to him for joining us today to provide an update and share his perspective about the critical issues and prospects for the city that we care so deeply about. And all of us whether because of our livelihoods, our family, our love of music, our love of cars, all of us are concerned about the city of Detroit and about its future. As you may know it's a city of many names, it's often called Motor City or Motown which you may not know is that one of its names has been Renaissance City and that is a name that I very much hope will return when we think about the city of Detroit. Well, before we begin I'd like to remind our audience that if you have a question for Kevyn Orr please write it on one of the cards that was distributed when you came in to the room this afternoon. Ford School volunteers will begin collecting cards in about half an hour or so with help from Professor Elizabeth Gerber and Tom Ivacko from CLOSUP. Students from the domestic policy council will then be reading your questions in a second portion of our program this afternoon. If you're watching online, please submit your questions by a Twitter using the hashtag policytalks. And immediately following the lecture we are very pleased to be able to have a reception, Kevin Orr will have a meeting with the press corps in the south corner of the room for a short period and then we'll come and join the reception. And so, with no further ado it is my pleasure to welcome Kevin Orr to the podium.
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>> Thank you Dean. And thank you fellow alumni and members of the University of Michigan community. You know, it's interesting, it's been a year since I started this job as everyone is saying on the anniversary. And if you told me that this year is going to go as quickly as it had I would have been surprised. When I first started the job I was aware that Detroit had been in financial straights for sometime, demographically since the 1950s when the city peaked at 1.8 million people and had been declining ever since year after year. In fact from 2000 to 2010, the city lost roughly 25 percent of its population in one decade and went from about 1.1 million to about 720,000 and now is approximately 700,000. So, the decline has been demographic. But the decline has also been economic. Those of you who are from the city, who ride through the city, who read the stories about the city have recognized for some period of time that a city that was the economic power of the nation. The arsenal of democracy, the Motor City, the city who brought us the living wage, 5 dollars a day with Henry Ford, a city for as day even a segregation thought of itself as being progressive when Henry Ford decided to create Inkster for his African-American workers and Dearborn for his white workers. A city who went through many labor strikes but nonetheless truly emerged from the ashes as [inaudible] spoke about. But to really try to get an understanding of the city I began this analysis back in January when the law firm I was with was coming in and do a pitch to represent the city and is restructured. And that analysis I looked through a lot of data and is all available. So, the process that I'm involved with actually began almost two years ago. It began with the first Detroit review team which started in February 2012. That review team issued a report which lead to the consent agreement of the city in April 2012. Varied to meet certain metrics of that consent agreement lead to the memorandum of Detroit reform for November 2012. That led to another review team on the status of Detroit in December 2012 which created a report in February 2013 which ended in a 21-page finding the facts about the status of the city and a declaration of a financial emergency of March 1st, 2013. So, the arch of Detroit's analysis and recovery has been long and many of the stories and analysis about how we've gotten there had been written about for a long, long time. So, I usually don't spend a whole lot of time in a retrospect of looking back as to how we got here. That's all available and has been well publicized in fact one of the great books about it is Thomas Sugrue's The Origin of the Urban Crisis: Race and Inequality in Detroit. I'm sure some of you who are in the public policy school study it, it's quite informative, chronicalizes intentional and unintentional basis for where we are. What I try to do is to explain the people what we've been doing in this process, the restructuring process and where we intend to go from here and then end with what hopefully is some sense of perspective about where the city is going to go. So, when I was first selected to be a candidate for the emergency manager, my initial response was not only know but hell know. I was firmly well in Wisconsin, my petite bourgeoisie life as a partner in a large corporate law firm. I've been selected by that firm to go down to Miami and open up our new office. At that point I think was a 37th office in 18 counties I believe, 300 sunny days, average 80 degrees. In January, I was out [inaudible], convertible, its good living. But when they called, the first question I'd ask myself was, are you willing to step out of your comfort zone to do something for public service? The great thing about being a Michigan alumnus is that Michigan's culture of service and commitment to the community, an uncommon school for the common man is part of what you take away from you when you're in this institution and you leave since you have a duty, a broader sense of self. And so, I began to discuss it with my wife and with my then managing partner. My wife is something was just really sort of instructive. She said, "You know honey" she's actually a surgeon on John Hopkins in Perinatology. And she said, "Honey, we'll be fine as far as you taking another job and commuting back and forth and being away from home. And we have two small children, we'll be fine." She said, "You know, you really have to answer this question for yourself. Because the thing you have to ask yourself is not, whether or not you take the job now. What do you going to say to yourself two, three, 10 years from now? When you heard a call to action, are you to answer it or you don't?" There's no harm, there's nothing going to be followed you if you don't do it. But, you have to look inside yourself. And then my managing partner said to me, Kevyn, years later, you know, that's one of the trustees for the firm's foundation, I was on the firms advisory committee, I was the firm wide hiring partner for four years worldwide. And she said, "You're fine here at the institution." She said something very similar. And then it got a little heavy on me. She said, "You know, those of us who are fairly comfortable on our environment and frankly that's the vast majority of a Americans, many we live in air condition buildings in the summer and we live in heated buildings in the winter. Seven and half million people and billion people in this world. Some of them are people that are armed forces, some of them are 18, 19 years old have their whole life in front of them. What makes that individual jump on the grenade for his or her compadres? What makes that individual willing to sacrifice their life, good, bad, right or wrong of what you think about any particular conflict on any given time we ask this young people to put themselves in harm's way for what we are elect the leaderships say's its our benefit. What makes them make the ultimate sacrifice? And all I'm being asked to do is still work in an air conditioned office in the summer and a heated office in the winter. And a particular area practice that I've been involved with for 33 years. So, putting aside the fact that he shamed me [laughter], a little heavy on it, OK, got a little sick. I have to think about that. Because at the end of the day all of us in ways small and large will be called to action, sometimes daily, caught off in traffic, Christmas time someone doesn't let you get the parking space and give him the finger salute, what do you say? C'est la vie. You go on, or big ways, ways beyond your comfort zone. So, after thinking about it and after understanding from an academic perspective the needs of the city, the 18 billion dollars in debt the fact that 60 percent of our fire call is either arson or non emergency. The facts that our police rates were initially very long, when someone breaks into your house or someone did to my mother's house three times in two months. It's the kid next door. They caught him one time up in the attic trying to find the system. Caught him coming out of the window, she's an arch engineering. What is she want when she calls the police? For someone to come. You want to hear that siren the minute you hang up that phone, someone is on the way, help is coming. For a city where 20 percent of our housings stocks, 78,000 units out of 320,000 are blighted and when I say blighted I don't mean the gutter is falling down or the shutters need to be painted, I mean 20-year old sycamore trees growing up to the foundation of the building, those of you from the city of scenic graphically over the years. And anybody wants to know it, you can drive around the city and see it. And this is a great American city, change the way we live. You look at debt service. 6 million dollars in secure debt affiliated with the war department. But 12 billion dollars on a one billion dollar general fund budget that means that the city shut down and did nothing. No whites, no police, no potholes, nothing for 12 years, a dozen years, they couldn't off the debt. If you took 200 million of those dollars which is what we have average in discretionary budget for the city and that means every gas festival celebration 4th of July, winter fest everything we do in addition regular operations 60 years to pay off the debt, and that's including no interest or compounding, 60 years. So, it's clearly never going to be paid. And here's the real gravamen of the problem. People talk about the creditor class depending from which sides of the fence you're on, is either unfair to the pensioners and unfair to the workers or some fair to the creditors who have lent this actual real money. And they have actually fifth amendment rights against impairment of contracts and they have property interest and they really did lend the city 1.44 billion dollars in 2005 and 2006, that's real money even in today's dollars. But, putting aside which ever side of the fence you're on, the real gravamen is 5.7 million dollars and that was open by the employee benefits healthcare obligations at the city had promised and it made over the years. Now, the three and half billion were pension obligations which were supposed to be cured by the 1.44 billion that was borrowed in 2005 and 2006 of the total amount only approximately two billion is funded them and so the banks and bond holders. So, is really a case about the obligations that the city made starting in the early '50s, '60s, '70s. When I came of age or roughly a 150 workers for everyone retiree rate back in the '60s and '70s. That's went all down now, so, approximately two to one worker for every retiree. 50 percent of all domestic municipal state pension funds are under funded. And some cities we have an under funding obligation of 3.5 billion, Chicago has 19 billion and another billion due this year. This is an issue that is coming before demographically, economically, politically kicking the can down the [inaudible]. Everyone has say it for years, so, we have to address it at some fashion. So, we came into the project as I call it, we divided it up into threes. The first stage was an honest assessment to analyze the true nature extent, death, and breath of the process and the problems and then to publish those and put those out. And we spent the first few months really trying to do that first with an initial report, 30 day report, then we had a June 10th meeting. And we had a June 14th proposal for creditors. And we just laid it all out, no can't, no gloss, here it is, here's what we owe, here's what we find, here's the extent of the problem, here's what we can't pay. And to this day a little bit less than a year but almost a year later that was really taking issue with the dollar notice. [Inaudible] found new money there's no pot of gold with a leprechaun, OK? There's no manna from heaven, its real debt, real problems. So, we want it to get that out there's as of June 14th. The next stage was plan design, what are we going to do about it. In any restructuring in a business sense it's almost easier participating in large cases, Chrysler, Dana, others. But you got a balance sheet, you have a product, you're trying either save the country--company in chapter 11. We're trying to dissolve it in chapter seven and he was trying to save it in chapter 11. You trying to grow markets, you trying creativity, use joint ventures, paths, other assets you can use to give that company revert so that it can grow organically and reinvent itself in a city you're trying to provide services, let me tell you how crucial these services are. We're down from a high roughly 300,000 students school children in a city of 50,000. And our school children ride our city busses. Back in November, I'm up near McNichols UDC Mercy, there's a little girl, little princess. Its got a little pink backpack on, she's cute as she can be. It's about 5 o'clock, November sun is going down. She's sitting on a bench not a shelter on a bench in the cold by herself. Maybe first or second grader and she's waiting for that bus. That bus is late, she's out there in the dark and on a city where 20 percent of your house and stock is blighted there are monsters in the dark, there are assaults in the dark. Even then bus comes on time, our young children of tender age are riding public transportation with adults, some [inaudible], some brutal, some older, mean adults. So, every time you hear the word city services, you think about that little princess and you ask yourself, does she deserve a better level of services. There's only one answer--there's only one answer of course, of course, about the same told.
^M00:20:00 Yes, the woman who met my mother at the Presbyterian [inaudible] out of St. Louis last year is from Detroit. She's not [inaudible], she raised six children on her own after her husband left her 46 years ago, stayed in her house, she's done nothing wrong, city worker, nothing wrong. She planned her affairs, she came to work, she did her job, she retired and now she's in the fall of her life. She's not going to go get another job, she has no means of supplementary income effectively. She came up to my mom and she asked her, "Are you the Orr whose son is in Detroit?" She said, "Yes." She started crying. She said, "Is your son going to cut my pension?" And my mother started crying. When she cries, she calls me. [Laughter] When your mama calls you, you tend to listen, I love my mother very much. She said, Kevyn, do you have to do this?" I said, "Mom, I don't want to do it but I'm here to make the hard call, that's my job." I said, "If I don't do it, I risk victimizing that little princess, so, she won't get bus service. Her schools continue to degrade, her housing [inaudible] will go from 20 to 25, we will have more potholes, the lights will not get turned off, 40 percent of them are off, we will not remove the light. We will not do the things the adequate level of services that any municipality should be doing for in citizens, that is the purpose of a municipality is to provide services to his citizens so you can enhance the quality of life and the benefits that a current municipality so it can function in the ordinary course. So, you have to weight these issues, the alpha and the omega, the young and the old, the past and the future, promises made, promises can't be kept. It's a tough deal, I never borrowed a dime from a pension fund, I never forgave a loan, I never forgave a defaulted loan and convert it with equity in a business that has no market value. I never deferred compensation or contributions to pension funds, we did that 600 million dollars on the city that we can't pay, never did any other. So, the issues that we're talking about have been coming this way for 60 years. That's the assessment and the plan design phase. So, we came up with a plan of adjustment and even the nomenclature in bankruptcy is different and restructuring is a plenary organization, in the chapter nine, municipal bankruptcy is a plan of adjustment 'cause by definition you're trying to adjust the debts of the municipality that is what the framers of the--of the constitution and of the bankruptcy thought of when they were using the language to describe what we're trying to do, a plan of adjustment. Because principally, what you're trying to do is adjust debts, because that's what kills municipalities. Why is it important? Right, a cross roads, not to cast dispersions anywhere but cities have lives and deaths. [Inaudible] one time is called tombstone. One time, Detroit was one of the four big cities in America. There was New York, there was Detroit, there was Chicago and there is this little biddy town out on the edge of a desert called Los Angeles, OK, nobody really cared about, it was one of the great American cities, great architecture. We have the same fountain at Belhaven, that's the designer of the supreme court, [inaudible] was designed for James Lawrence's homestead, the landscape architect for central park in New York. A great city, the reason we have the Detroit [inaudible] is because when the city was wealthy, not only with donors go abroad and buy art, the city bought art, OK? Well, we're not there now, so, what are we trying to do in the plan of adjustment? Four principle things, first and foremost, get the city to a point where it can provide the necessary adequate level of services for its citizens, is ashamed in any municipality in America that it is dark, and 40 percent of your lights are out, where that 20 percent of your housing stock is down. This is America, we have a high standard of living and it should be high standard of living throughout the country. Number two, provide for pensions, the promises that were made, that weren't kept. Number three, as required in stature 436, the states stature under which it operate 'cause I'm a fiduciary into capacities on the state fiduciary on the 436 and I'm a federal fiduciary under chapter 9, OK? Provide for the city, so, they can go forward in a sustainable fashion so we don't have to come this way again. And here's the catch, number four, to reach a consensual resolution with our stake holders, both on the labor side and on the credit side. Now, that's the heavy lift, the state of affairs, the requirements, the needs of the city apparent, nobody's [inaudible]. Written in a consensual resolution by getting someone to understand that they have to give up expectations particularly those in the twilight of life, that's a difficult call. So, we go to plan implementation, stage three, OK? Part of it is going through the mediation process which is led by Judge Rosen, Chief Judge Rosen, Eastern District of Michigan. And part of it is overseen by Judge Rosen, University of Michigan, Judge Rosen. He's got a hard job. He's got to make decisions about proposals that I and my team make on a regular basis under the rubric of the bankruptcy code and determine whether it's fair and equitable, whether there's unfair discrimination, and whether or not whatever we propose will ultimately be feasible, cannot work. OK, that's in the implementation stage. We'll be going through that process for the next six months, and it's going to be a quick process, because there's no reason why it should not. The world spin on, describe the problems, we're not going to grow our revenue stream appreciably anytime soon, that billion dollars in the general fund budget is not going to go to a billion five. The 700,000 people we have in the city, we hope to grow but it's not going to go from 700,000 to 1.2 million in the next few years, it needs to grow. So, we have to assume a steady state going forward, OK? That's just the state of affairs that we have to deal with. So, we have a disclosure statement hearing coming up and that's whereby will put a plan out which we hope to publish in the next few days, the final version. And that disclosure statement hearing the court will make a determination as a matter of law that we provide adequate information for an informed interested party to make a decision as to whether or not to vote for or against the plan. The next state that's really material we're going to have coming up is in July. In the July 27th or so we'll start the confirmation here, and that's going to be a full blown trial as to whether or not the assumptions we made, the proposals we put out or adequate and feasible for the plan to be successful. After that, the judge is got to take it up, go through all the evidence and I suspect it is going to be a huge volume of testimony and evidence that the judge and his clerks have got to pour through to make a decision. And when you think about it, everybody involved in this process has a heavy job. The mediators on the tremendous pressure to reach a consensual resolution for the group of people that have enabled me to get the pensions to a level that I think I would not have had six months ago. We've been pledged 365 million dollars from a group of 10 plus foundations. Some of whom--all of them had nothing to do with this process. Some of whom have been in the city for the better part of the decade but some of whom have not. Ford Foundation, Knight-Ridder [phonetic], Skidder [phonetic], Skillman, you go on to a Kresge, Kellogg, Greater Southeastern Michigan, 365 million dollars, over third of a billion dollars, Gratis [phonetic]. Some of them did that as a profile encourage. Some of their own board members say, "We do philanthropy. Dollars that yield positive outcomes. We don't do charity, just don't give money away." OK? Someone say we shouldn't be doing all--this at all. There's a moral hazard here, because after all, we were told in 2005 and 2006 that that 144 billion dollars was going to cure the pension under funding problem. And if they take of that money and invested it in a Dow Jones Industrial index or Standard & Poor's from 2006 to '09 when the stock market was creating 8500 to 9,000, it's now at 1603. It'll almost double their money. There'll be no pension under funding. If the stops some of the practices, the 13th check, declaration of self fund under rates of return in 2009, one of the funds lost 27 percent. They declared the rate of return of over 7. The 32 percent spread in one year, OK? True story. So, for the mandates. So, many of the people were saying, "There's a moral hazard here. We shouldn't be doing it." But in a profile encourage, the foundation leader said "No. This is a particular time in the history of America and we need to stand up and be counted." And I thank them for that because otherwise I was going to be having a yard sale of DIAR, OK?
^M00:30:03 And if you don't think that could happen, there are many sovereign wealth, Russian oligarchs, Brazilian millionaires who were calling and inquiring about it. If I didn't get that money, I was getting proposals, multiple proposals a week to turn Belle Island, Bell Isle into a gated community. One said, "Look. You don't have to do the whole thing, just the North part where the gulf course is. We'll gate it off. Turn it to a private community. It's a thousand acres of prime land." Thousand acres and 100,000 dollars an acre, 100 million dollars, city needs money, OK? So, we're trying to preserve assets. We have the state coming in with the [inaudible] for 350 million dollars, and I'm sure those of you know the state. There are folks in the legislature are saying "Why--you read in the paper, you hear it in the blogs. And why are we pouring money into Detroit? They made their bed, let them lie in it." So, the state has said, "Look. We're going to do this deal but we need a consensual agreement to get this deal done, so we can get it tot the legislature in time." And then we have 100 million dollars coming in from the DIA benefactor community. All told, from 2006 to now, 2.255 billion dollars would have been given to Detroit to address its pension issues. So, when I say sustainability, we can't do this again. This is it. So, we need consensual resolutions. So, that's where we are now, getting prepared to start the court process and push out the final stage of our plan. I am hopeful that our counter parties, particularly in the labor community understand how crucial this is. There is a risk that if I don't get their agreement, some or all of these money could go away 'cause it is all hinged the condition precedent is that there'll be consensual resolution to the claims in this bankruptcy. And that was severely impair the 94 percent I'm trying to pay to our uniforms and the 72 percent I'm trying to pay the civil service employees. Now, what's at stake? If we get this right, we restructure the city's balance sheet. But more importantly than that, there are things going on in the city right now that already show the interest and now quickly a city can turn. We have foreign investors from China brought up three buildings in Detroit. They're putting their money where the amount is. One investor from Hong Kong, very wealthy developer there has brought up a number of properties along the East Jefferson Corridor and its looking and doing some development of an open use, public access, building over in [inaudible]. We have over seven projects going in the Woodward Corridor and just in the next two to three years, Detroit will have four major infrastructure problem--infrastructure projects ongoing in the city. We're so important the international trade that the sovereign nation of Canada was been 5 billion dollars to build us a bridge. We have a Welcoming Center going in. We have M-1 Light Rail. We have a new arena going in that's going to close the space between Downtown, Midtown and New Center so that your Sports Center in Detroit is going to be one of the most foremost sports centers that will rival Three Rivers Stadium in Pittsburgh, if you have been there, OK? We will be able to have the event nights virtually year around in the sport cycle and that would drive business and development throughout that area, restaurant, pubs, entertainment. The city is on the move. It's got a lot of great things ahead of it, a lot of great interest and I can't tell you how many financiers, governor, and I was just there in New York yesterday talking to a [inaudible]. Spent time with several investment banks after and said "What can I do to help Detroit? How can I assist?" Even in the midst of the bankruptcy, we have lenders lining up to fund us for a quality of life loans so that we can put services out, and for exit financing when we get through bankruptcy. So, I'm not saying it's Pollyannaish [phonetic] because at the end of the day is still a tale of two cities, Downtown, Midtown, New Center thriving 97 percent at least. Number of different activities. If you ever down there on an event night, it is a thing of beauty. But 139 square miles of city, under 43 if you include rivers and lakes, OK? Boston, Manhattan, and San Francisco fit within our borders. City that was originally developed to be anywhere from three to five million people, that's 700,000. Almost 3,000 miles of sewer and water lines that have to be maintained. Some in areas that may have one or two houses in a block. So, they're challenges. So, I like and what I'm doing here to just the first step in a very long path have used a metaphor, [inaudible], right? Somebody had a party. They drink too much, they stayed too long, they party too hard, they hung from the chandelier, they dance with the lampshade on their head, they trash the joint, they walked out, left everything on the table. I'm coming in and cleaning the place up, washing the dishes, removing the tablecloth, resetting the table, rehanging the drapes, and mopping the floors but the leadership team behind me, Mayor Duggan and the city council, think about this, are working together. Council passed privatization of solid waste, I never thought in my life I'll be so excited about garbage. [Laughter] OK. Talk about public policy, I'm elated about garbage pick up. I wake up in the morning driving around the city see what garbage has been picked up, OK? Also Custodial Services we clean up our buildings but that's the grits, that's the grits of urban management, public policies making things work, fixing potholes, repairing 75 sewer line breaks in the first week of the month. Now, I just had to be emergency manager and the worst winner in 130 years. Last time it's called--closed the university, I was a sophomore in1978. I hope I'm not causing all the problems. [Laughter] But trying to get to this, so that the city truly that dreams a better things rises from the ashes. So, I could [inaudible] on and on about Detroit because I'm passionate about the city. Someone asked me, what's on the anniversary? What's your biggest mistake? Is it my biggest mistake? I failed to appreciate the true greediness and resilience of the people of Detroit, the city of Detroit. The municipality may be bankrupt but the people of Detroit are not. The people of Detroit are resilient, they love their city and they want to fight for it to come back, and it will. Because that's the true nature of the American spirit and I'm just proud and humble to be a small part of it and have been given this opportunity. So, that's the end of my prepared comments. I hoped at beginning of my speech to exercise a point of personal privilege in public speaking. The five B's, "Be brief, brother, be brief." But I'm going on for a while. So, I'd be happy to answer any questions about what we're doing or anything else. Thank you.
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>> Thank you.
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Hi, Erin [assumed spelling].
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>> Well, Jones Day [assumed spelling] are my attorneys. I'm not accountable to them. They work for me and that's a good things 'cause I get, be like a client like how much this is costing me and you go away and do this, that's lawyering 'cause that's a different experience for me. I'm accountable to everyone else though. I'm accountable to the state, to the chief executive officer or the governor. I'm accountable to the people because ultimately what I say we're trying to achieve will either work or it won't. And think of this, I'm accountable to my namesake. If this works, great. If it doesn't, I'm one of the biggest blame house in the history of mankind, OK? So, I have a number of levels on the accountability and I feel that everyday, and that's why we're working as hard as we can to turn this thing around.
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Hi Emma [assumed spelling].
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I can't hear it.
>> My name is Emma Mac [assumed spelling] and I'm a second year student at the Ford School and a faulty analyst with CLOSUP. Why does it appear that the city isn't making a greater effort to collect back taxes from businesses and corporations? One of the Detroit newspapers reported a year ago that the alleges or millions of back taxes, specifically, what is happening to collect that money which will greatly help the city?
>> Yeah, there's a much discussion about particular taxpayers and two things about that. Our CFO is a gentleman who was executive director doing DC control boards, and he is well regarded and well known throughout basically the country for his skills and we've been looking at our collection rate. The reality is that--let me answer them two ways. One, although, everybody thinks that all these taxes to be collected, there's a level of diminishing returns where for instance, for some of our property and income taxes, those houses are vacant. You're never going to collect that tax. That's just gone money. Two, there been a lot of allegations where some were corporate taxpayers that they owe it but we've done an investigation for instance in that particular instance, there are issues regarding statute limitations as well as tenancy at sufferance with regards some of their properties that prohibit us from going further.
^M00:40:04 So, we've assessed it. That's part of my charge, just to increase the lecture rate as best as I can and look at past collections, but a lot of that is already water under the bridge.
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>> --handle municipal financial crisis. From your perspective, how could Michigan's emergency manage a law be improved to be more democratic result and better outcomes for citizens?
>> All right, you know, I hear this question a lot about democracy and I said this I think on day three. You know, receiverships are for those of you have a legal background, receiverships are essential to law as Black's Law Dictionary or Blackstone. I mean the first financial crisis was the 1632 [inaudible] crisis where some of those were put into receivership. So, the concept of an enterprise public, private, whatever being put into receivership is pretty central to law. In fact, if you look at it, we've been coming this way for 60 years, this is 18th months. It's a snapshot in the history of where we've gotten, to what we need to get done. And if you look at it in the longer timeframe, the length of time that Detroit reform has been going on when the city had a chance to save itself for whatever reason that didn't occur. Now, second part of your question is, how can emergency manage a law be changed? This is my interest to say it, but I actually think that there could be a length of time to after you rollout any plan either legally or otherwise that you make sure that it takes if there's muscle memory behind it. So, maybe a manager needs to have a little bit more runway to make sure that new patterns are being properly attended to. I'm more comfortable about that concern here though because I think Mayor Duggan is actually classmate of mine at Michigan in '83, Class 83-JD. Mayor Duggan and the city council are acutely aware that all of us are under microscope with this thing. And if I get my job done right and leave him with the better balance sheet and ledger and opportunity and frankly the--preparing the new dinner and setting the new table I talked about, that's on him, and people are going to be watching that very closely.
>> How do you see the roles of social entrepreneurship and innovation, first of all, a big business in Detroit's revitalization?
>> Sure. I see a role in anything regarding Detroit's revitalization. I mean, I'm good with hands arms which is an area where we took some urban property and turning into urban farming. I'm also interested in people getting involved in any aspect they can from revitalization whether it's a job share and other things. Absolutely.
>> Can you explain the concept of creditor class and how an emergency manager decides who must be paid back first and then what amount?
>> Yes. Classes of creditors are fairly common in bankruptcy. In fact, that's a central tenant of bankruptcy law is that there's a concept called absolute priority that depending upon where you are as either secured or having a priority over a subordinate creditor that your interest cannot be subordinated without your will. So, function of the Constitution, no unreasonable takings without deprivation, due process of law, Fifth Amendments and so on and so forth. Part of the way you determine classes of creditors in bankruptcy is you look at their organic documents. For instance, when we look at our water and sewer bonds that class of creditors brought into a revenue stream that comes from an enterprise, the Water and Sewer Department and their bonds have a dedicated revenue stream to be serviced by water and sewer revenue, so they are a secured class of creditors. Other creditors that have valid leans, for instance, some of our swap counterparties which take a lean on some of our casino revenue are also secured interest and so, they're treated differently. Classic is the general obligation class of creditors. Some of you may have been reading in some of the financial publications that there is an implied covenant of good faith and fair dealing when it comes to playing what's called your GO bonds. Anytime as a lawyer, you hear the word implied, that sort of falls right along the lines of policy that means you don't have mortgage, OK? That means you don't have a security agreement, that means you don't have a collateral pledge, a letter of credit, you're unsecured and that's the scheme set out in the bankruptcy code. So, the bankruptcy code helps to find which classes of creditors exists and then we administered accordingly.
>> Do you believe gentrification is a necessarily evil for the city of Detroit to prosper?
>> Well, you know, this is--I'm going to be careful with the word necessarily evil because there are some people would think is a natural consequence of things. When we look at [inaudible] Brooklyn at one point, you can talk to the local Native Americans as to whether not they believe in gentrification, or you can talk to the original Dutch settlers as to whether or not they believe [inaudible] communities have lives. What I do believe is that cities need growth, development in tax revenue. And I think there is a fine line that you have to be very careful with in making urban centers accessible to all parties while at the same time providing the adequate revenue streams so you can provide the services that are necessary. If you don't have that growth and development, Washington DC for instance was also went through a financial emergency. But now some of the areas U Street, Shaw, Cardozo, [inaudible] some of the most dangerous areas when I came in 1991. When I came in 1991, the 7th and 9th street corner was still built--burned out from the '68 riots. Well, those areas are now part of the Verizon Stadium and some great grow. So, there's a healthy balance but you have to think in the lives of municipalities. They need to grow and they need tax revenue. I don't know if it's a necessary evil but I know you tax revenue.
>> Detroit's problems require a original fix. Have we squandered an opportunity to attain that fix by having a bankruptcy, attorney and charge other than a skilled politician? Bankruptcy necessarily looks internally within Detroit next creditors or as a politician could look for solutions originally.
>> Well, that's a good question. I don't think so. I think one of the first things that did when I came into the city was a delegate authority back to the city council and the mayor so that they could have a political dimension in the city. And I also thought that statute 436 has specific requirements for them to do under the statute. And the current mayor that I delegated authority to him is very active in terms of what he's doing. So, we're trying to work together in partnership. I think there's a role for the political actors and at the end of the day, the ultimate political actor for the state is my boss, the Governor. And he is highly focused and highly involved in the process as well.
>> This is another question from Twitter. How will your blight removal efforts differ from prior efforts from past administrations?
>> We have money. I think every administration for probably since Kevyn Orr and 0Roman Gibbs as well as Coleman Young has been concerned about blight. You know, when I first came to the city, one of the things I read was the number of plans that the city had regarding blight remediation and reform. But none of them have the funding necessary to really get to it and part of what we're trying to do with this restructuring. Let's think of this, if we get this right, we will leave this mayor in the city council and maybe there's successors in incoming years. For the next ten years, roughly 150 million dollars a year on average to deal with city services and blight remediation. That's 15 percent of the general fund budget. And no mayor in the past half century has had that kind of money. So, that really is providing the resources to get to the problem and that's pretty crucial.
>> What model is the city using as a template to create efficiencies in city operations?
>> There are many models. I mean, there are models regarding lean processing that you can use in city operation. There's also Richardson's study models that you can use in terms of efficiencies and you can even borrow money for instance in a privatization from other communities. One of their models is Cincinnati-Indianapolis model is that you give the existing workers and maybe unionize or not a chance to bid on the outsourcing of contracts to match prices that they can or another. So, we're using a number of different models and process as well as making some of our own. I think is a little unfair perhaps in some other municipalities to look at their models. I mean I think the bankruptcy is a tremendous tool, it's traumatic for some people but it's really unique tool that allows us to shed a lot of debt that you otherwise will not be able to do. So, I'd caution people to look at this in your case studies and going on about how much of a model this process is going to provide.
>> This is another question from Twitter. What contributions do you envision from the Southeast Michigan academic community? And how can we maximized that impact?
>> I think that the parties that are studying the city now is a case study. But as well as using their knowledge to analyze what the city needs going forward in the model need to continue doing that in the out years, as one of the contribution I think that need to make. If we get this right and we leave the city with the resources that it needs in the coming years, some are the forces that are tempted by the honey pot that are drawn to is still there in the city. And you're going to need some significant posting emergence discipline to make sure the city stays on course. In New York, they had Municipal Assistance Corporation that lasted for 33 years, 1975 to 2008. In Washington DC, you had to report out of balance budget for four years before you can get out of the emergency over side by the DC control board. I think part of what the academic community has to do here is to make sure that the city, its elected officials and stakeholders, its benefactors, the city activates its people stay true to the opportunity they have been given and call them out if they're not. So, it needs to be a steady examination or steady review and a true discussion if that doesn't occur. I hope it does.
>> Everyday you encounter numerous character attacks from the community that you're attempting to help. How do you stay motivated?
>> You know what, its part--if I'm not being attacked, I'm doing something wrong. You know, I've got into the point when a star is getting quiet, I'm wondering, am I messing up somebody. You--if you think what you're doing is right and you believe in what you're doing and you understand that objectively that's all part of the game.
>> This question is from Twitter. What is the biggest single thing the Obama Administration could do to benefit Detroit in 2014?
[ Laughter ]
>> Well, that's a political question. The Obama Administration has done a wonderful job, Shaun Donovan, Tony Fox, Eric Holder and others came into the city in--last fall as a matter of fact they made the commitment to assist the city whenever way it can. For instance, they contributed over 300 million dollars in grants to the city in prior years and released 35 million dollars I think in 2012 funds and another 33 million dollars in 2013 funds and that's real money. They're also assisting the city in terms of finding the right people, for instance, some are IT tech, meaning--we had a meeting just for instance. But the Chief Technology Officers in Louisville, Boston, New Orleans, and there's two other cities, I'm not remember right now. And just hearing their stories we eventually the mayor, Mayor Duggan [inaudible] recruited one of them does not like to come up from Louisville to assist the city. Why is that important? In New Orleans from technology fixes and efficiency since Hurricane Katrina on a 500 million dollar general fund budget. They were able to rip 70 million dollars of savings within 12 months. That's real money that can be reallocated. So, both in grants, both in assistance in kind, and both in focus on the city they've been there for long time.
>> This is another question from Twitter. What lessons from being a Michigan student, do you lean on in your current job?
>> Every bit. You're looking at a guy. They group in Fort Lauderdale, Florida and spent the summers and Fern Park, Winter Haven, in Altamonte Springs running barefoot to the red clay streets. My grand daddy the Reverend Eugene [inaudible] became OR when e came north, as [inaudible] down home. My grand daddy used to have a little church behind the lake and they have three alligators in it. And his kids with my cousins we go swimming in the lake. And alligators are cold blooded, so they would sun themselves, warm themselves. When you saw two alligators instead of three, somebody had to get out the water and watch the water for the other one and we only saw one, everybody have get up water. So, you're looking at a kid who by no means was destined to have some measure of success and opportunity that I've had. And I chopped it up entirely University of Michigan both undergrad in law, taught me new way to think. It gave me different opportunities. It exposed me to friends, two of my groomsmen. I went to law school with one--the other groomsmen, my best man and I went to college together amazing blue through and through.
>> In recent years Benton Harbor, Detroit, Flint, Highland Park, Inkster and Pontiac have all been targeted for emergency management or placed under an emergency manager. All of these are black majority municipalities. Other Michigan municipalities that are eligible for emergency management have not been targeted. What is your comment on the apparently discriminatory application of emergency managers?
>> Well, I'm going to take issue with the apparently discriminatory. I'm going to stick to Detroit. The data that I saw in Detroit left no impression in my mind that it was needing some TLC and some emergency management. In fact, one of ways I got here is I open my big mouth during the pitch were 20--24 law firms came in to represent the city and I was on the pitch team that came in from the Jones Day law firm. And when they ask the question, do you think the emerging manager? I said, "Absolutely. I think you're way beyond the time. I read your material, your background materials. This is a waster of time. You need to get the services out." And nothing is going to offer too long. And wherever that poor schmuck is I will [inaudible] with them, ended up calling the next day. So, you know, my view was that it was we'll require for Detroit. I understand some people think that there's discriminatory [inaudible]. I haven't seen any indication of that. I would encourage people who believe that way to go look at the objective analysis of the cities.
>> How do you think you as the emergency manager affects the legitimacy of the mayor of Detroit? Do you think your presence in power undermine the role of the mayor?
>> Not the least. To be quite honest with you, I think the mayor and I, first of all, working together quite nicely. I think the other thing as I said before my role is just a snap shot in the history of the city. That would be turned back to the mayor and the city council with the much improved budget. I think it actually enhances that the difficulty which he had nothing to do with it. The difficulty to that city is gone through will leave them with that opportunity. And I think that's consistent with any other [inaudible]. Think of this in the chapter 11 we thought chapter 1, the shareholders of corporations often time billions of dollars is wiped out. I think many of them feel similarly disenfranchised but they don't have a choice. This enterprise gets returned back to the shareholders. It's a little different.
>> The Michigan Municipal League argued last week that the State of Michigan's cuts to local government revenue sharing or at least one of the key reasons that cities like Detroit, Flint, Pontiac and others are in fiscal crisis. In your opinion, how much of a role to the states cuts the revenue sharing playing Detroit's fiscal problems?
>> I'd be careful with that analysis. If you go back and look at the program share for the City of Detroit, it's not exactly unbalance at all. Detroit gets a fair amount of revenue share and that revenue share accounts for about 17, 18 percent of our budget. So, my view of it is Detroit can always use more that I want to make clear. So, no one misunderstands, if somebody wants to give us more revenue share we are more than willing to take it but I haven't seen any indication that the cuts would harm the city. I think in cities debt service and legacy obligations aren't the same.
>> I've heard a lot about "Creating a new Silicon Valley in Southeast Michigan." What role do you see the technology sector playing in the revitalization of Detroit?
>> Huge. We already have a Tech Center and tech [inaudible] going in. And, you know, if you think of this way, Detroit in the '20, '30s, and '40s was the Silicon Valley of the nation. If you were an engineer or science major, you want it to be in Detroit. Think of the effort that went in during the war, there were several instances, one was New York, one was Detroit, one was out in the Los Angeles, an aerospace, right? And the Detroit was at that core bringing some of that back with some of the leaders we have now the TechTown which we have the city. In fact, what you're going to see in the couple of weeks, I don't mean to step on the mayor's news but Detroit has been going through an analysis of all 320 of its residential units. We've inventoried everyone. It's never been done before and you'll have a picture, location, and status of every units throughout the city. They're going to roll that out soon. That technology both the hardware and the software and the programming was done in the City of Detroit and it's done nowhere else today and that's just the start.
>> This question comes from Twitter. Do you think the city will be ready to govern itself by September? Or will Governor Snyder appoint a new emergency manager?
>> I'm going to stay away from what the governor's plans are because that assessment has to be made at that time. What I'd like to think is that the process that I have to go through should be done by September and the city will be prepared to go to the next stage which is supposed to emerge , supposed implementation.
>> General obligation bonds have always been back for the full [inaudible] and credit. That is the taxing power of the borrowing government. Detroit clearly has maxed out its [inaudible] capacity. But the State of Michigan could certainly raise taxes to pay off the city's general obligation bond holders. Since the state has taken over local control to fix Detroit's problems, why should in general obligation bond holders expect this data also fill the city's obligations?
>> Three reasons principally. GO bonds, first of all, have been backed by full faith and credit. But as I said before there's no pledge, there's no document, there's no agreement. Essentially, that's wrapped up in the under writing of the financial instrument when you make investment. You know, if you lend money to your cousin like I do from time to time, you need to think of that more as a grant as supposed to a loan 'cause you may not see it back, OK? [Inaudible] I'm talking about too. So, if you do a GO bond, you're getting the benefit of your bargain is that--that is an unsecured investment. Number two, the state has obligations but it can't be in [inaudible] with every bond holder. In other words, have a bilateral relationship with every bond holder because that's home rule. People get the inner into that, they get to make decisions. The reciprocity of that is you have to deal with the consequences of those decisions going out. And number three, the reality is the GO bond market which is we've been talking about this in some sort of allegory for--on a solo on GO bonds around the nation. So, it's way overblown. The city will be under writable and be able to stand on its own feet based upon on the one color and that color is green when this is all said and done. So, I appreciate the sentimental some as I said at the start they're those on the bond side and then those on the labor side, you know, the market of these elements when you leave and everybody's ticked off at you. Oh, sorry.
>> What are some of the ideas to create new jobs in Detroit?
>> There are many ideas for great new job. In fact, Emir [assumed spelling] and his economic development director have ideas. For instance, in blight remediation you can take a portion of those and actually have deconstruction, you can give people jobs. You can have job training but think of this, the four major infrastructure projects that I talked about that are coming to the city, each one of those is a job opportunity. Each one of those--and I'm not talking about the job opportunity now. I'm talking about the job opportunity for your 7th, 8th, and 9th graders. 'cause those jobs, those construction project are going to be going on years. So, we have a lot of jobs coming to the center--city. We have a lot of opportunity for people to train for those jobs is do they have the planning and foresight to get themselves in a position so they can take advantage of those opportunities.
>> This question comes from Twitter. Why should families move to Detroit?
>> There's a lot of reasons. We have--Detroit has some of the nicest housing at the lowest entry point of anywhere in the world, OK? When I started coming out, I was looking over Boston-Edison and East Indian Village and Indian Village. You can get a house--there are coach houses the size of my house at home. OK, for a fraction of the cost of anywhere else. Number two, the city is going to come back and the city is going to thrive is already on the way. So, you have an opportunity to get in during that process. Number three, it's a pretty active and neat place particularly downtown to live. So, I think for all those reasons and opportunity for people to come back to the city.
>> When the dust settles in Detroit, to which city do you expect to be called to next? In other words, where do you see the next major [inaudible] full bankruptcy occurring?
>> Well, the two parts of that question. Number one, I will not be called to another city, Dr. Donna [inaudible] made it clear to me that that will not happen. I need to go home and take out the garbage and walk the dog. So, I'll be home way to that. Number two, I can't handicap of any city is going to be called the bankruptcy. Frankly, if I had hoped when I started this process that some of our creditors and stakeholders would reach consensual agreements without need for bankruptcy. The one cautionary tail I'm hoping that it comes out of this process is that other municipalities learn that hope is not a strategy, delay is a waste and that three you get much further much quicker without the expense that we have to go through for professionals to resolve your problems illegally [phonetic] as supposed to in a bankruptcy.
>> When you look back on what you've accomplished in Detroit and what you hope to accomplish, what do you think will be your proudest moment?
>> My proudest moments is probably years out. I mean I am fairly confident that we're going to deal with the balance sheet issues. We're going to get some agreements in. We have great case. We've been adjudicated eligible for bankruptcy. And now it's our job to make the case for wider plan of adjustment should be approved. But the really story that's going to be told is not whether or not they get to rationalized the balance sheet going forward. It's not to be what this city looks like in the years to come. And think of this, think of this. Detroit has a crossroads. It can be stable like some great with western cities, Cleveland 390,000 nice and stable has a good light rail system coming through it, it has great sports teams. But it's where it is or it can grow. Baltimore and Pittsburgh, thriving. 15 years ago, Washington DC, everybody have written off. If you go to Baltimore and Pittsburg now, you would not have walked down the inner harbor in the 1990s. You can't walk down there now because it's too crowded. So, Detroit has that opportunity and we'll see. I'm pretty confident it should, it should have every opportunity but we'll see if that happens and then I'll make a decision about whether or not this was a right outcome.
>> The emergency manager is not responsible for schools--
>> --deterrent to new residence, should it be?
>> Well, the schools have emergency manager. So, I don't think that that this process should be because get out in the city, but there is an emergency manager for the schools now. And he's doing a bang up job trying to straighten that up.
>> There's been a lot of talk of development in the downtown area. How about the development of neighborhood that seemed to be neglected time and time again. In your opinion, how did the rest of the neighborhoods develop?
>> Well, that's a good question. I mean, I'm highly confident about it. Downtown is already developing. If fact, frankly, one of the things we have to be a little careful with is a bit of a bubble because there are so much interest coming into the city. Because there's a lot of liquidity in the market we're fortunate to be one of those times now when the market is turning around. The capital markets and there's a lot of money out there looking for a place to land. And people usually have a lot of money. They have to make their money work for them so they look for places to put it with the significant amount of offsite this happen to other cities. But you're absolutely right, the question are about the neighborhood, the 130 or so mile of the city. Now, one of the thing the Mayor and the City Council going to do is to try to reinvent pockets of the city. In fact, they're becoming out of program on the west side recently to try to stop the blight to get people in their homes. The Mayor said, the state of city they're coming up with a program and they're after, whereby, they're going to give certain people alone to buy the home. Other financial institutions are willing to give them loan for down payment but you have to stay in the house for a certain number of years to get the benefit of the loan as it regresses over say five years you lose a certain amount each year. OK. That's a tracking people in, so you have the neighborhoods come in. But think of what else it does, you have renovation, roofing, carpentry, OK, beautification, pride of ownership, all of that generates both neighborhood development but also job economic opportunity in growth. It's a long way to go because of big city but that's how it starts.
>> This is going to be our last question. What advice do you have for our students?
>> Well, first, you made the right decision. There are few institutions that are as unique and special to me at least is University of Michigan. Number two, go where the wind blows you, take every--never feel comfortable where you are. You know, I was very comfortable in my prior life and this was a bit of the concern from me but I'm very comfortable now at this job. I've earned my strives and paid my dues and I can see the light end of tunnel and it is not a train. So, be willing to take the opportunity. Number three, be risk taker. You know, throughout my career, one of things I do when I went to the practice of law is this one of my partners told me in my first term, Kevin you take the widow makers. That's, you know, the type in cases it matters and nobody wants to work on and back to somebody's [inaudible], you know, a lot of dust and bubbles [inaudible]. Why? Two reasons, one, most of the time people want to get it up off their desk, so you get it and you get to handle it. Number two and here's the secret, it's all upside, if it's a train wreck, you can only go one way, OK? And be able to do something with it, I guess who gets the credit, so take the risk, seriously. Take the widow maker, take the hard decision. You know, when I went, is that the RTC in federal government, lower case came in the 1992 called Whitewater, Madison Guaranty Savings and Loan. And at that time in the RTC are delegations of authority in Washington DC were 75 million. Any institution below 75 million we wouldn't see. But we took this one up because it was called a "hot topic". Reason is hot topic, there is this guy who was a governor of the little stayed out in the middle of the country called Arkansas. And somebody said, "You might end up being president", his name is Bill Clinton. OK. And when I took that it was just supposed of VA two month investigation of this little Madison Guaranty Savings and Loan that we are going to ride off, because it wasn't worth our time when we are reorganizing same as a loan crisis. That turn into a six-year investigation with Independent Counsel Fiske, Independent Counsel Starr, House Majority, House Minority, Senate Majority, Senate Minority. You never would have thought. But one of the things of that process is when I got to the Chrysler case. I was comfortable being a witness June 10th of 2010 on the Chrysler case in dealing restricting because I already done the ground work of congregational relationships in the other job. So, take the difficult things, it's only going to extend your bandwidth. It's very [inaudible], if it doesn't kill you, it will make you stronger. And hopefully that land through still here. It won't kill me it makes me stronger.
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>> I would like to thank out guest for his thoughtful and very candid, informative remarks. I'd also like to thank all of you for joining us and for all of your questions I hope you'll stay and continue the conversation. There is a reception over and outside of the room. But please also let our guest have his time with the press for which would be over in that corner before he joins the reception. Again, thank you very much for joining us. I hope to see you at other policy talks.
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