Detroit files plan to fix debt, leave bankruptcy
By Corey Williams, AP
February 23, 2014, 12:06 am TWN
DETROIT--Detroit's emergency manager filed a plan Friday to restructure the city's US$18 billion debt by making cuts to pensions and creditors while offering a blueprint for emerging from the largest municipal bankruptcy in U.S. history.
The goal: A leaner, cleaner and safer Detroit.
The plan, which still needs approval from a bankruptcy judge and will likely be subject to numerous appeals and challenges in the months to come, aims to pour money into the city's aging infrastructure and clean up the city's blighted neighborhoods by demolishing decrepit homes.
On the other side, retirees would see cuts to benefits, though Wall Street creditors will see just a fraction of what they're owed.
“There is still much work in front of all of us to continue the recovery from a decades-long downward spiral,” state-appointed manager Kevyn Orr said in a statement. “We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end.
“We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work.”
The specifics of the plan include:
— Pensions: Police and fire retirees will receive at least 90 percent of their pension after elimination of cost of living allowances. General city retirees would likely receive at least 70 percent.
— Other creditors: The rest, such as bond insurers, will receive about 20 percent of their claims.
— City services: US$1.5 billion over 10 years for city infrastructure and technology upgrades, including US$500 million to knock down blighted and abandoned properties that are Detroit's most visible eyesore.
— The arts: The Detroit Institute of Arts will keep the city-owned art under a deal with the state that relies on money from foundations and private donors. Part of the deal requires Gov. Rick Snyder to get US$350 million from the state to help the city's two pension systems.
The plan still faces numerous obstacles. Most aspects are still being negotiated in mediation sessions with stakeholders. Court appeals are all but certain even after the final version is approved in bankruptcy court.
Orr has said the of the city's US$18 billion in debt, about US$12 billion is unsecured, meaning there aren't taxes or other revenue streams to pay it.
Orr had hoped creditors would sign off on the plan before he submitted it to U.S. Bankruptcy Judge Steven Rhodes. But the clock was ticking because Rhodes had set a March 1 deadline. Nevertheless, with negotiations ongoing, changes are expected.
Pension officials have disputed that figure.
Bankruptcy attorney and St. John's University law professor Anthony Sabino believes the plan could start an argument over being treated equally between the city's general workers and retirees and police and firefighters.
“It's intriguing Mr. Orr wants to have the firefighters and police have 90 percent and other city workers cut back to two-thirds,” Sabino said Friday. “The other unions will say 'even if we're uneven, we should be closer.' It does create an inequity that is going to have to be addressed in court.”