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Detroit bankruptcy: recovery plan awaits final ruling

Hearings are wrapping up on the contentious bankruptcy plan for the hard-hit city

October 28, 2014  by Ed White, The Associated Press

DETROIT—The city of Detroit urged a judge to approve its plan to get out of bankruptcy, calling it a sweeping effort to “solve some really bad problems” by wiping out billions in debt and spending $1.7 billion on better services in a long-term prescription for the Motor City.

Judge Steven Rhodes will decide next week whether Detroit’s plan is fair and feasible in the largest public bankruptcy in U.S. history.

Bruce Bennett, an attorney for the city, went through the key points and summarized evidence from a trial that began after Labor Day.

“Look where we are: 7 billion-plus coming off the books, massive deferrals” of other debt, he said. “This is exactly the relief Detroit needed and it’s gone about it in the right way.”


Detroit, which has lost 27 per cent of its population since 2000, can’t afford to raise taxes to get more revenue, especially from poor residents, Bennett said.

“It’s self-defeating behaviour. … No one would come here. They would look at the tax assessments and say, ‘This will never end,”’ he said.

Bond insurers with more than $1 billion at risk fought the city during much of the trial, but now are on the sidelines after settling for cash, real estate and long-term leases on certain assets. Retirees who had hoped the Michigan Constitution would protect them from pension losses agreed to a 4.5 per cent cut last summer after Rhodes said there is no shield.

Private talks between Detroit and three counties are also leading to a spinoff of the water department into a regional agency.

Bennett said those features and others created a “comprehensive effort to solve some really bad problems.”

His remarks often were broken up by a back-and-forth with the judge who raised technical points about how to apply legal precedent to the historic case, which was filed less than 16 months ago.

Rhodes asked about the risks of Detroit’s plan deflating in the years ahead.

Bennett agreed that nothing’s bulletproof. He said $1.7 billion pledged to improve basic city services over the next decade will greatly depend on the mayor and city council.

It has to be an “incredibly high priority,” Bennett said.

Bennett also talked about the “grand bargain,” an $816-million bailout by the state of Michigan, foundations and philanthropists to prevent the sale of valuable city-owned art at the Detroit Institute of Arts and avert even deeper pension cuts.

The museum “contributes to the image of the city. It might even contribute to bring residents back,” Bennett said. “It’s reasonable to keep the DIA assets, not liquidate them.”

Attorneys for the state of Michigan, retirees and pension funds also argued in favour of the city’s plan.

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