Judge: Detroit Eligible for Bankruptcy

Detroit Bankruptcy
Carlos Osorio/APDetroit city workers and supporters protest outside the federal courthouse in Detroit while awaiting a judge's bankruptcy decision.

DETROIT -- Detroit is eligible to shed billions in debt in the largest public bankruptcy in U.S. history, a judge said Tuesday in a long-awaited decision that now shifts the case toward how the city will accomplish that task.

Judge Steven Rhodes turned down objections from unions, pension funds and retirees, which, like other creditors, could lose under any plan to solve $18 billion in long-term liabilities.

But that plan isn't on the judge's desk yet. The issue for Rhodes, who presided over a nine-day trial, was whether Detroit met specific conditions under federal law to stay in bankruptcy court and turn its finances around after years of mismanagement, chronic population loss and collapse of the middle class.

The city has argued that it needs bankruptcy protection for the sake of beleaguered residents suffering from poor services such as slow to nonexistent police response, darkened streetlights and erratic garbage pickup -- a concern mentioned by the judge during the trial.

"This once proud and prosperous city can't pay its debts. It's insolvent. It's eligible for bankruptcy," Rhodes said in announcing his decision. "At the same time, it also has an opportunity for a fresh start."

Before the July filing, nearly 40 cents of every dollar collected by Detroit was used to pay debt, a figure that could rise to 65 cents without relief through bankruptcy, according to the city.

"The status quo is unacceptable," emergency manager Kevyn Orr testified.

Rhodes said Tuesday that Detroit has a proud history.

"The city of Detroit was once a hard-working, diverse, vital city, the home of the automobile industry, proud of its nickname the Motor City," he said.
But he then recited a laundry list of Detroit's warts: double-digit unemployment, "catastrophic" debt deals, thousands of vacant homes, dilapidated public safety vehicles and waves of population loss.

Detroit no longer has the resources to provide critical services, the judge said, adding: "The city needs help."

Rhodes' decision is a critical milestone. He said pensions, like any contract, can be cut, adding that a provision in the Michigan Constitution protecting public pensions isn't a bulletproof shield in a bankruptcy.

The city says pension funds are short by $3.5 billion. Anxious retirees drawing less than $20,000 a year have appeared in court and put an anguished face on the case. Despite his finding, Rhodes cautioned everyone that he won't automatically approve pension cuts that could be part of Detroit's eventual plan to get out of bankruptcy.

There are other wrinkles. Art possibly worth billions at the Detroit Institute of Arts could be part of a solution for creditors, as well as the sale of a water department that serves much of southeastern Michigan. Orr offered just pennies on every dollar owed during meetings with creditors before bankruptcy.

Behind closed doors, mediators, led by another judge, have been meeting with Orr's team and creditors for weeks to explore possible settlements.

Much of the trial, which ended Nov. 8, focused on whether Orr's team had "good-faith" negotiations with creditors before the filing, a key step for a local government to be eligible for Chapter 9. Orr said four weeks were plenty, but unions and pension funds said there never were serious across-the-table talks.

"The governor took more time to interview the consultants to help the city with restructuring than they took to negotiate the restructuring itself. That's absurd," attorney Sharon Levine, representing AFSCME, said at trial.

An appeal of Rhodes' decision is a certainty. Opponents want to go directly to a federal appeals court in Cincinnati, bypassing the usual procedure of having a U.S. District Court judge hear the case.

Orr, a bankruptcy expert, was appointed in March under a Michigan law that allows a governor to send a manager to distressed cities, townships or school districts. A manager has extraordinary powers to reshape local finances without interference from elected officials. But by July, Orr and Gov. Rick Snyder decided bankruptcy was Detroit's best option.

Detroit, a manufacturing hub that offered good-paying, blue-collar jobs, peaked at 1.8 million residents in 1950 but has lost more than a million since then. Tax revenue in a city that is larger in square miles than Manhattan, Boston and San Francisco combined can't reliably cover pensions, retiree health insurance and buckets of debt sold to keep the budget afloat.

Donors have written checks for new police cars and ambulances. A new agency has been created to revive tens of thousands of streetlights that are dim or simply broken after years of vandalism and mismanagement.

While downtown and Midtown are experiencing a rebirth, even apartments with few vacancies, many traditional neighborhoods are scarred with blight and burned-out bungalows.

Besides financial challenges, Detroit has an unflattering reputation as a dangerous place. In early November, five people were killed in two unrelated shootings just a few days apart. Police Chief James Craig, who arrived last summer, said he was almost carjacked in an unmarked car.

The case occurs at a time of a historic political transition. Former hospital executive Mike Duggan takes over as mayor in January, the third mayor since Kwame Kilpatrick quit in a scandal in 2008 and the first white mayor in largely black Detroit since the 1970s.

Orr, the emergency manager, is in charge at least through next fall, although he's expected to give Duggan more of a role at city hall than the current mayor, Dave Bing, who has little influence in daily operations.

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"Whether you think you are owed it or not, sometimes there just isn't enough money to pay the pensions!"

----- Answer ----------

Actually, there is enough money earned to pay for the pensions, the problem is that accountants, some working for the city, did NOT fund the pensions at the proper amounts that it would take. This could be due to fraud, directing the money elsewhere, failure to do correct calculations or guesses, or just stupidity....

December 03 2013 at 9:26 PM Report abuse -1 rate up rate down Reply
1 reply to mac2jr's comment

Actually, it was due to union slugs who insisted the city continue to hire more union slugs and give more raises to the existing union slugs in lieu of funding of the net present value of existing pension liabilities, based on the assumption that these pension expenses could be dumped on taxpayers at a future time when the liabilities actually came due.

December 03 2013 at 9:37 PM Report abuse +1 rate up rate down Reply

As for Republican Governors like Christie, Walker, Rick Snyder, etc., each and every one needs to be FIRED during the next elections. PERIOD...

December 03 2013 at 6:03 PM Report abuse -2 rate up rate down Reply
1 reply to mac2jr's comment

Fire democrats. Impeach Obama!

December 03 2013 at 7:13 PM Report abuse +1 rate up rate down Reply

As for the Drug Wars, the worst President we had was George H.W. Bush who supplied half of Afghanistan with farm equipment that immediate was used to grow illegal drugs that are exported all over the globe.

The solution is simple, but it takes guts and for the public to finally get the idea that illegal drugs are the cause of much of the blight, war, and destruction we face daily that is costing us trillions in tax dollars. The Solution is to 'seed' the market with drugs that are treated to turn people GREEN when used.. Try explaining that to the cops, the authorities, the mate, the children, the boss, etc...

December 03 2013 at 6:01 PM Report abuse -2 rate up rate down Reply
1 reply to mac2jr's comment

The solution to the drug problem is to create a mark with which dumbest 1%ers like mac can be readily identified, similar to the traditional practice of cattle branding.

That way. thinking Americans can readily identify freedom hating turds who seek to control what fellow Americans ingest in their own bodies, their artificially manufacturing black market related crime that could be eliminated absent these disgusting freedom

December 03 2013 at 8:54 PM Report abuse +1 rate up rate down Reply

Unions built much of this country; go back to 1920 - 1925 and see what the RICH Business Types did to the economy and the public at large, it took the Unions to bring the country back to a stable economy and up until the Reagan Era when Union Busting became a 'Walker Must' we were doing very well.

Bring back the workers, the Unions, and tell the RICH Business Types we are not AGAIN playing THEIR GAME, and we may survive this mess created by the U.S. Chamber of Commerce and their Corporate Bosses..

December 03 2013 at 5:56 PM Report abuse -2 rate up rate down Reply
1 reply to mac2jr's comment

One of the most hilarious thing about this article is the cartoonish photo of dumbest 1%ers protesting protest outside the federal courthouse in Detroit while carrying signs that advocate forgiving Detroit's debt to banks as a solution even though almost none of the money Detroit owes is owed to banks. Instead, the vast majority of Detroit's debt is comprised of two groups of creditors. 1Public union pensioneers, and 2. bondholders.

Hilariously, the group who organized the protest against banks who hold almost none of Detroit's debt is the local AFSCME chapter whose members hold a large portion of Detroit's debt, and were one of the two main causes of the disaster (along with the knuckle-dragging government goons who collaborated with the union slugs to rob Detroit taxpayers).

Obvious the union bosses know well the staggering stupidity of their membership.

December 03 2013 at 9:09 PM Report abuse rate up rate down Reply

Unions no good, take your money and run.

December 03 2013 at 4:17 PM Report abuse rate up rate down Reply

Illinois public sector unions---take heed from this bankrupcy. Whether you think you are owed it or not, sometimes there just isn't enough money to pay the pensions!

December 03 2013 at 4:12 PM Report abuse +3 rate up rate down Reply

Detroit is a filthy, bankrupt, drug infested dump, for two simple reasons, unions, and democrats.

December 03 2013 at 2:19 PM Report abuse +1 rate up rate down Reply

As a former Detroit Resident and business owner, I believe the problem is the new state governor who has taken measures to destroy the city even more than it was by the Big Three pulling up much of the stakes and abandoning the very people that helped make Detroit one of the best cities in the Midwest / Mideast.

We had Motown, GM, Chrysler, Ford, K-mart and others in the area, but many of these were in areas north of 8-mile and thus Not Detroit, but a suburb of Detroit. Sterling Heights and Gross Point Shores were the Bedroom communities that prospered while the inner city deteriorated.

Whites along the Brownstone strip at Woodward and 8-mile fled when a single Black moved into their neighborhood, thus destroying the values of many properties as they fled and dropped prices to nearly 50% of the actual values. This and the national drug habit added to the crime wave, and the demise of many stores, including mine that was robbed of tens of thousands of dollars by Whites that were high as a kite on drugs, and associated with a massive crime syndicate the included the alarm companies, police, and drug lords.

Wake up America, the Drug Problem is the CAUSE of MUCH of the DEMISE of AMERICA..... STOP BUYING and USING..

December 03 2013 at 1:08 PM Report abuse rate up rate down Reply


December 03 2013 at 12:58 PM Report abuse +1 rate up rate down Reply