The Associated Press
DETROIT (AP) — More than a year after Detroit filed for the largest public bankruptcy in U.S. history, a federal judge is hearing evidence on whether he should approve the city’s plan to emerge from billions of dollars in debt. Here’s a look at the past, present and future of the city’s finances:
AT STAKE
For decades, Detroit paid its bills by borrowing money while struggling to provide the most basic of services for residents. The city, once fueled by the massive auto industry it gave birth to, shrunk from 1.8 million people six decades ago to fewer than 700,000 now.
So, when Detroit finally succumbed and filed for bankruptcy in July 2013, its long-term debt exceeded $18 billion. The city expects to get that down to $5 billion if Judge Steven Rhodes approves the plan put forth by state-appointed emergency manager Kevyn Orr.
AT TRIAL
Trial started Sept. 2. Rhodes has scheduled dates into mid-October, if needed, to determine whether the city’s plan is fair to creditors and feasible for the city. The judge is hearing from city leaders, including Orr and Mayor Mike Duggan, and creditors who oppose the plan. Both sides have up to 85 hours to present their arguments and testimony, and Rhodes also has his own experts to advise him.
AT ISSUE
The strongest opposition has come from bond insurers Syncora and Financial Guaranty Insurance, known as FGIC. But Syncora struck a settlement with Detroit on Sept. 9, leaving FGIC as the lead opponent.
Much of the criticism centers on what’s called the “grand bargain,” which would prevent the sale of city-owned art and put $816 million into two underfunded pension plans with money from the state of Michigan, foundations and philanthropists. The money isn’t available to other creditors.
General retirees still would take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. The Detroit Institute of Arts, home to hundreds of paintings and sculptures by Van Gogh, Renoir and other masters, would be protected.
AT LAST
Rhodes can force the entire plan on creditors — even if some don’t like it — because some significant creditors, notably some 30,000 city pensioners and employees, have already voted in favor of it as part of the Grand Bargain. Such a ruling is referred to in bankruptcy court as a “cram down.”
He could also approve part of it and urge changes if he does not think parts will work. It could be a month or more after the trial for Rhodes to reach his decision, given the complexity of the case.
Regardless of how Rhodes rules, appeals are possible.
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