Government Reorganization and Restructuring

Overview

When a public entity is faced with significant financial challenges, most often those challenges are not caused by a single factor. Rising costs, declining tax revenue, increased pension and health care costs, and shifting economic forces can combine to not only threaten a public entity’s ability to meet financial obligations, but also inhibit its responsibility to provide vital public services. Dykema understands that a legal approach limited to financial restructuring alone is often insufficient for handling these significant issues. We provide public entities with the comprehensive financial and structural reforms needed to restructure while maintaining the seamless delivery of services required to make fundamental organizational change.

Whether assisting public entities and officers, or representing entities interacting with public entities facing significant financial challenges, Dykema has an extensive background creating and implementing comprehensive structural reforms and financial restructurings. We take an integrated approach to the complexities of government turnarounds by calling on our broad legislative, government affairs, municipal finance, public governance (including transparency initiatives) and litigation experience to help simplify capital structures, streamline and improve government operations and services, and provide creative project and infrastructure finance solutions.

Experience

Financial Oversight

Dykema lawyers were involved in drafting legislative amendments to the State of Michigan’s various municipal oversight and financial emergency laws, and authored the statute creating a financial oversight board for the City of Detroit post-bankruptcy and for the Detroit Public Schools. On behalf of the State of Michigan, Dykema drafted and successfully negotiated the first voluntary consent agreements under Michigan’s financial emergency law with local governments facing declared financing emergencies, including two school districts, a charter township, and Wayne County (Michigan’s largest). The consent agreement with Wayne County enabled resolution of its financial emergency in less than 18 months.

Streamlining Government

Dykema has drafted more than 300 executive orders and directives, including orders merging state departments, consolidating the functions of 12 public corporations into a single debt issuer, and centralizing administrative rules and hearings, human resources, accounting, grant management and permitting functions. We have also authored and assisted with the passage of legislation providing for the sale of a former state hospital property to a global automotive OEM for the construction of a technical center, with successful defense of the legislation and real estate transaction before the Michigan Supreme Court. Building on experience gained a decade earlier in the privatization of the Michigan workers’ compensation fund, in 2015, Dykema represented the Michigan Insurance Commissioner on the conversion of the State of Michigan’s largest health insurer from a special purpose state corporation to an independent not-for-profit mutual insurer.

Pension and OPEB Solutions

Dykema boasts a dedicated Public Retirement Team with extensive experience working with and through the federal and state retirement laws—including Internal Revenue Code provisions, state statutes and the federal and state case law governing state and local retirement plans, including OPEB liabilities.

Dykema has served as consultant and special legal counsel on the State of Michigan’s defined benefit (“DB”) plans, as well as its 401(k) and 457 defined contribution (“DC”) plans for two decades, helping the State convert its DB pension plan to a hybrid DC plan, and implement graded health care, banked leave time, sick leave conversion, and employee health care payment and cost-sharing solutions. These changes have generated significant savings for the State, school districts, and local governments in Michigan.

Members of the Public Retirement Team have drafted multiple reform provisions for state and local pension and retiree health plans, and have lectured on Distressed Municipalities: The Battle Outside Bankruptcy.

Governmental Restructuring

Dykema has extensive experience creating and implementing governmental restructurings. In 2014, we helped Detroit Water and Sewerage Department (“DWSD”) restructure its $6 billion debt portfolio in a voluntary market driven alternative to cram-down in the City of Detroit bankruptcy, making successful regionalization of the enterprise possible. In 2015 and 2016, we worked with the State of Michigan to restructure the School District of the City of Detroit, protecting $1.4 billion in state contingent liabilities.

Dykema has been a leader in structural educational reform since authoring charter school legislation in the early 1990s, successfully defending the legislation’s legal challenges and representing state universities in establishing and overseeing public school academies in the last 20 years. Dykema has assisted with the consolidation, annexation and the dissolution of public school districts, with the conversion of traditional districts to charter districts. Different approaches have included:

  • the restructuring of the School District of the City of Detroit by creating a new district to deliver public service free of debt service burden, while stranding the debt with the old school district;
  • the restructuring of the school districts of the City of Highland Park and the City of Muskegon Heights where we created temporary new operating systems to deliver educational services while the old school districts pay off the debt;
  • the annexation of the financially-distressed Albion school district by the neighboring Marshall school district;
  • the dissolution of the Buena Vista and Inkster school districts with the assumption of educational functions by neighboring districts without legacy debts or costs; and
  • the creation of consent agreements for the school districts of the City of Benton Harbor and the City of Pontiac where we developed a collaborative agreement involving locally-affected stakeholders and the State for the operation of the entity and repayment of the debt.

In 2008 and 2009, Dykema lawyers drafted and assisted in the enactment of legislation enabling the successful regionalization of the City of Detroit’s convention center, insulating it from city liabilities. This legislation was significantly based on legislation Dykema had drafted in 2002 creating a new independent authority to operate the State’s largest airport.

Tax and Revenue Solutions

Dykema assisted with the conversion of the State of Michigan's business tax model, initially in 2007 from a value-added tax to a hybrid income tax and modified gross receipts tax, and subsequently in 2011 to a corporate income tax model that substantially altered tax credits. We have secured legislative enactment of a new process for the collection of delinquent property tax (Public Act 123 of 1999) and advised county treasurers, municipal treasurers, and land title professionals on the implementation of the tax collection and foreclosure process. In 2014, our lawyers conceptualized and authored legislation eliminating taxes on business equipment while holding affected local governments harmless from lost revenue and assisted in securing legislative approval, and approval by Michigan voters in a statement referendum.

Innovations in Government

Dykema has drafted, negotiated and secured enactment of legislation establishing land bank authorities for return to productive use of tax-reverted and abandoned properties and other economic development activities. Our lawyers drafted and assisted in the passage of legislation authorizing business improvement districts in Michigan, and conceptualized and drafted intergovernmental agreements to create a “virtual city” to develop efficiencies and consolidate back-office functions and other governmental services of local governments on a statewide basis. Dykema lawyers also authored legislation enabling the creation of the nation’s first nonprofit street rail car system in Detroit, and we represent the nonprofit as it partners with the federal, state, and local governments to begin providing the first street car service in Detroit since 1956.

Public Finance Solutions

In 2007 and again in 2009, Dykema helped the State of Michigan secure much needed-transportation funding by financing in anticipation of federal funding through the issuance of GARVEEs and BABs. In 2009, we worked with the Michigan Finance Authority to restructure its over $1 billion student loan portfolio following the collapse of the auction rate market, eliminating significant contingent liabilities in the process. In 2011 and 2012, we worked with the Governor’s office and various departments to refinance $3 billion in unemployment trust fund loans from the federal government, eliminating an unsustainable federal liability. In 2013, we assisted the State of Michigan in amending the Emergency Municipal Loan Act to provide new forms of financing for distressed municipalities. At the same time that we advised on the restructuring of the Detroit Water and Sewerage Department, we helped create the first-of-its- kind debtor in possession financing (DIP) and secured exit financing for the City of Detroit.

Public Governance

Our team of professionals includes attorneys who have worked with and for the State of Michigan, representing the interest of the executive branch and governor, state universities, and numerous government officials and entities. Our team regularly represents governmental agencies, boards and public bodies. We have broad experience counseling such entities on a variety of issues, including public records laws, open meetings issues, conflicts of interest matters, procurement matters, political and gift ban restrictions, ethics compliance and transparency initiatives.