“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.
A second major focus will be to wring as much cash out of operations as he can, employing tools familiar to finance chiefs: improvements in accounts receivable, tax administration, information technology and the like.
A self-described “pit bull” with zero tolerance for apathy, Bonsall came across in an interview with CFO as down to earth, even-tempered and eager to work with his team in a collegial way. An edited and condensed version of that conversation, which took place just after his first week on the job, follows.
How do you distinguish the “restructuring” of Detroit from the “turnaround”?
The restructuring is fixing the balance sheet and the turnaround is fixing services. By the turnaround I mean how we provide services to the citizens. If you walk into the Coleman A. Young Municipal building [the headquarters of the city’s government] you’ll see what I mean: what to expect when you call 911, how the fire department and the police respond — all that’s part of the turnaround and not the restructuring.
How do you see the restructuring affecting the turnaround?
We need the money to do all the initiatives effectively. To improve responsiveness, we need to have the right number of [police] cars on the road. All the initiatives there, along with those of the fire department, require a slug of cash. And the restructuring provides that.
You said in an interview with the Detroit Free Press that your goal on the job is “to generate the maximum cash that we can.” Speaking specifically as the finance chief, how do you plan to do that?
Wherever I’ve been, we’ve been able to drive cash in the organization through receivables collection. Delinquent property tax collection isn’t stellar, and it needs to be. After a certain number of days, we give [the receivables] to the county, and after a number of years we have to take them back. We need to have less that we take back.
How will you make accounts receivable more efficient?
I can tell you what my thoughts are, although they’re just five days old. I want to work with a system that gives me reliable accounts payable [and] accounts receivable numbers, for example. The proliferation of Excel-based receivables systems here is unfortunate. Nothing wrong with Excel — but it’s got to be done right.
I would like one register where, if we approach somebody who owes us money, that the information is right. There’s no reason each department carries its own receivables. They should be in a consolidated receivables system so we can identify it, know what’s good, how it reconciles to the ledger. So there are a number of things to be done to make sure the receivables are good, and then we’re going to collect them.
To do that, we’ll use a combination of our own collection efforts and those of people skilled in collecting delinquent accounts and hold their feet to the fire and not be satisfied with write-offs or carrying bad debts.
We need to understand the aging of receivables better. We need to understand which ones are duplicates and get rid of those, which are erroneously billed and get rid of those — and try to collect the real stuff.
How else do you see yourself generating cash?
I’ve been looking at the Department of Administrative Hearings. Our code-violation ticket writing has gone down over the years. We’re talking about people dumping junk, not taking care of their house, not cutting the lawn.
I’d like to find out why and suggest to [his boss, Detroit Emergency Manager Kevyn Orr] to put corrective measures in place. The ticket-writing function doesn’t report to me, so I have to have the ear of the EM, which I think I do. Then it has to be doable, whatever the fix is.
What about tax collection?
Now that does fall under my jurisdiction. We need to have a system that identifies who’s paying, who’s not, how city tax filings compare to federal tax returns. The system needs to be good at what it does, and there is such a system in the state. Maybe 22 of the 24 municipalities in Michigan use that particular system, an outsourced [way of administering] income-tax records. We’re going to get on that system. The EM’s already approved it, we just need to get a contract and get it finished.
We still have all the check-writing and other such duties to administer. But when you file your federal return, we want to be able to check things like, if you’re a resident, did you file? If you’re a non-resident working in Detroit, did you file? These are difficult issues, but apparently that system works pretty well.
What budgeting and forecasting challenges do you face as CFO?
The city’s vendors have been introduced to a ten-year plan. I want to be sure that I can own that plan or amend it the way it needs to be so that I can own it. The vendors and the debt-holders need and expect to hear from me on that.
I think we have a competent budget system that just needs a little ‘oomph’ behind it. I think the budget manager, deputy manager and the budget director are very competent people. They just need a little help in hearing what the operating departments are saying, so that we’re helping as opposed to just enforcing.
What do you see as the growth engine of Detroit?
I think it’s people feeling secure and comfortable about being in Detroit. That’s why it’s so important that the chief of police and the fire chief are successful. That’s the growth engine.
What specific accounting challenges does the city face?
We need to close our books quickly, get to the [operating] departments and authorities and understand why they’re varying from what we all talked about they were going to do. Then we need to be sure our books and records are good through the reconciliation processes.
I think we can close our own books. We just need to get with it.
You’ve only been on the job a short time, but what’s your relationship with Kevyn Orr like?
Great. I really like the man. We have style differences; I’m used to running companies and now I’m reporting to somebody. He’s got to get used to pit bulls [laughter]. I may not sound very pit-bullish to you, but I am.
If that’s true, what makes you snarl the most?
Lack of caring. If someone doesn’t care — or is into self-aggrandizing — I really have little use for them. That grinds my gears worse than anything I can think of.
That sounds like a good attitude to have, considering the challenges you’re facing.
The last thing we really want is excuses. Or somebody using the “I” word a lot.
How is your staff structured, and what challenges do you face in managing them? Have you been able to bring in any of your own people?
I haven’t tried to bring my own people in and am working very much within the structure, which hasn’t been defined as we speak. There might be an announcement later.
But what I do in working with the people in the org chart that have a line to me is communicate like crazy. I want us all to become business friends. We can’t do much about us all becoming personal friends, but I want us to respect each other, be willing to talk to each other, go to lunch together: business friends.
You don’t sound like a pit bull in that respect.
I don’t do I? Maybe I’m a mass of conflicts [laughter]. But I do require them to come prepared. Presently the preparation is nothing more than a task list with completion dates, roadblocks, low-hanging fruit and internal-control concerns. And it’s going to morph into metrics.