Historic Detroit bankruptcy ruling today
The largest public bankruptcy in U.S. history is reaching a climax.
A judge set to decide Friday whether to approve Detroit's plan to emerge from Chapter 9 with buckets of debt emptied and $1.7 billion (all figures U.S.) pledged to improve the quality of life in the struggling city.
Judge Steven Rhodes promised to announce his decision early Friday afternoon in a downtown courtroom. His task: to declare whether the plan is fair to creditors and feasible for the years ahead, the key standard under bankruptcy law.
All major critics have been silenced, particularly two bond insurers who dropped their opposition in exchange for cash, real estate and long-term leases on some city assets. General retirees voted in favour of a 4.5-per-cent cut in pensions and the elimination of annual cost-of-living payments. Detroit also is shedding $7 billion in debt.
'We'll be on a little bit of a diet for a while'
"I think we've met all the conditions we need to meet, but he's the final voice," emergency manager Kevyn Orr said of the judge.
Orr, who ran Detroit for 18 months until late September, took the city into bankruptcy with Michigan Gov. Rick Snyder's blessing in 2013.
"No one has said it's not feasible. No one has said it will not provide adequate services," Orr said of the bankruptcy exit plan. "Everybody said, `It's skinny, so we'll be on a little bit of a diet for a while.' That's OK."
With Rhodes' decision, the case could be concluded in just under 16 months, lightning speed by bankruptcy standards. That was largely due to the series of deals between Detroit and creditors, especially retirees who agreed to accept the smaller pensions after Rhodes last year said they had no protection under the Michigan Constitution.
The most unusual feature is an $816 million pot of money funded by the state, foundations, philanthropists and The Detroit Institute of Arts. The money would patch holes in pension funds, prevent even deeper cuts to retirees and avert the sale of city-owned art at the world-class museum.
It took more than two years for a smaller city, Stockton, California, to get out of bankruptcy. San Bernardino, a California city even smaller than Stockton, still is operating under Chapter 9 protection more than two years after filing.
"Chapter 9 is an open book. It's not going to look the same from case to case," said Melissa Jacoby, who teaches bankruptcy law at the University of North Carolina at Chapel Hill law school. "One shouldn't look at Detroit and say, `We're going to do exactly that.' That would be very difficult to do."
She noted the "high level" of involvement by the governor and Legislature in the Detroit bankruptcy as well as federal judges who acted as mediators to broker settlements between the city and creditors.