Detroit files bankruptcy restructuring plan on $18B debt
Bondholders get 20%, city workers get 70% of pension, police and firefighters get 90%
Detroit's emergency financial manager filed a plan Friday that would bring the city out of bankruptcy, providing for the first time a detailed look at what the Motor City would look like when it finally sheds its financial burdens.
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 neighbourhoods by demolishing decrepit homes.
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On the other side, retirees would see cuts to benefits, though some 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.
Plan includes city upgrades
"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 per cent of their pension after elimination of cost of living allowances. General city retirees would likely receive at least 70 per cent.
- Other creditors: Most of the rest, such as bond insurers, will receive about 20 per cent of their claims.
- City services: $1.5 billion over 10 years for city infrastructure and technology upgrades, including $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 $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 $18 billion in debt, about $12 billion is unsecured, meaning there aren't taxes or other revenue streams to pay it.
Inequity on pensions
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 per cent 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."
About $6 billion of the debt is Detroit Water and Sewerage Department debt, which is secured by water bill payments. There is a proposal to contract out the business to a regional player.