Thread: Judge approves Detroit's exit from bankruptcy

Judge approves Detroit's exit from bankruptcy

DETROIT — A federal judge approved a plan Friday to end Detroit's historic Chapter 9 bankruptcy, giving the Motor City an unprecedented shot at recovering from decades of economic despair and municipal mismanagement that left it awash in debt and struggling to provide basic public services.

Judge Steven Rhodes ruled that Detroit's comprehensive restructuring plan is fair and feasible, providing the legal authority for the city to slash more than $7 billion in unsecured liabilities and reinvest $1.4 billion over 10 years in public services and blight removal.

With Rhodes' decision, the city is expected to cut about 74% of its unsecured debt, freeing up significant cash to reinvest in services.

The plan also projects potential cost savings through more efficient government operations that could increase the reinvestment plan to $1.7 billion.

Rhodes called the city's settlement with pensioners a nearly "miraculous" outcome and overruled all objections to the city's plan.

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"This city is insolvent and desperately needs to fix its future," Rhodes said.

Key to the city's plan to exit bankruptcy is a $440 million blight removal initiative, a $274 million investment in police, and a $156 million investment in the city's fire department. The reinvestment includes $483 million in anticipated new revenues, which would come from higher bus fares and improved tax collection.

The historic ruling puts an end to the largest municipal bankruptcy in U.S. history, $18 billion in debt, with all of the city's major creditors agreeing to support the plan of adjustment. The city is expected to emerge officially from bankruptcy within weeks.

The city's bankruptcy filing July 18, 2013 brought international attention to Detroit's plight, shining a spotlight on a ruinous cycle of borrowing and spending that failed to reverse the effects of a stunning economic contraction in the past half century.

Detroit emergency manager Kevyn Orr filed for federal bankruptcy protection on behalf of the city with the approval of Michigan Gov. Rick Snyder, a Republican who appointed the former District of Columbia lawyer in March 2013 to repair the city's finances and operations.

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To balance the books, Orr almost immediately threatened steep cuts to pensions and retiree health care, insinuated the city might have to sell Detroit Institute of Arts treasures and infuriated Wall Street with a proposal to aggressively slash bonds.

But after Rhodes ruled in December that the city was eligible for bankruptcy and that pensions could be cut, the tone of the city's talks with creditors shifted.

The emergence of a deal to reduce pension cuts and preserve the art museum, which the Free Press dubbed the grand bargain, helped soothe the objections of retirees and unions who spent the first half of the case fighting pension cuts by claiming they were protected under the state constitution.

The grand bargain allows the city to accept $816 million over 20 years from nonprofit foundations, the State of Michigan and museum donors to reduce pension cuts and save the Detroit Institute of Arts as an independent institution.

"It would not have been possible without the leadership and sacrifice shown by Detroit's hardworking retirees and public sector unions, whose continued commitment to a better Detroit should be honored and acknowledged today," the foundations said in a statement.

"Today is a day of determination for Detroit. With Judge Rhodes' confirmation, the city and its residents can focus on the important tasks of rebuilding institutions, repairing communities, reinvigorating the economy and restoring the trust of its citizens."

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The museum, which waged a fierce fight against any potential sale, will not have to sell a single piece of art to pay off the city's debts or reinvest in services.

Several bond insurers argued repeatedly during the case that the grand bargain was illegal because it favored pensioners over other creditors.

But they dropped their objections after reaching settlements in the middle of a 24-day trial featuring 41 witnesses and 2,327 exhibits on the viability of the city's plan of adjustment. Both wound up with cash and city-owned property as part of their settlements.

All the city's major creditors backed the plan, including the U.S. government-appointed Official Committee of Retirees, the city's two pension funds, two major retiree associations, all of the city's unions and two global banks, UBS and Bank of America Merrill Lynch.

General pensioners will get 4.5% cuts to their monthly checks, the elimination of annual cost-of-living-adjustment increases and a recovery of money already disbursed in excessive interest from annuity savings. Police and fire pensioners would get a reduction in their cost-of-living increases.

Pensioners voted overwhelmingly to accept the deal during a 60-day balloting process this past summer.

The bankruptcy's conclusion also marks the end of Orr's tenure in Detroit. As emergency manager, he retained control of the city's operations for 18 months but handed power over to Mayor Mike Duggan and the City Council in September while maintaining control of the bankruptcy case.

The city will not obtain complete autonomy for at least a decade.
The state Legislature and the governor approved a Financial Review Commission — mostly controlled by gubernatorial appointees — to oversee the city's finances. In addition, an investment committee will oversee decisions from the city's two pension boards.

The board will have the power to veto the city's spending and borrowing decisions, which Orr has described as crucial to giving investors confidence that the city won't slip back into bankruptcy.

http://www.usatoday.com/story/news/n...ling/18640947/

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Originally Posted by JohnDoe2

To balance the books, Orr almost immediately threatened steep cuts to pensions and retiree health care, insinuated the city might have to sell Detroit Institute of Arts treasures and infuriated Wall Street with a proposal to aggressively slash bonds.

Loks like Orr got everybody to take a rational look at the future. Good for him.
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