What happened Thursday?
Detroit became the largest American city – both in size of population and size of debt -- to file for bankruptcy. The $18 billion bankruptcy case is remarkably complex, and is certain to include emotional clashes over who will lose what. The Detroit case has profound implications for municipal finances in the country as a whole: Among other things, it is likely to establish national precedents on whether bondholders and pensioners are unsecured creditors – as Emergency manager Kevyn Orr maintains.
To whom does Detroit owe the $18 billion?
Orr’s filing included 3,000 pages of documents that list more than 100,000 creditors. Charlie Langton, Fox 2’s lawyer-in-residence, was rendered almost speechless Thursday night when he mentioned this number. The creditors include the names of all of the city’s active and retired employees, bondholders, business creditors, insurance companies and properties with tax claims.
What does bankruptcy filing mean for city employees and retirees?
Deep anxiety. They stand to lose much of their health-care coverage and perhaps a portion of their pensions.
The city's largest creditors are the General Retirement System, with $2.037 billion in unfunded liabilities and the Police and Fire Retirement System, with $1.437 billion in unfunded liabilities. Orr is attempting to have the court accept the premise that retirees are unsecured creditors, which appears to go against pension protection enshrined in the Michigan Constitution. The pension question is one of the pivotal issues in Detroit’s bankruptcy case, and it could end badly for people who worked or are working for Detroit, including those who put their lives in risk every day while they were on the job.
What does bankruptcy mean for city operations and services?
All officials insisted that bankruptcy filing would have no immediate effect on government services, which is a scary proposition in itself because the services have deteriorated so badly. Gov. Rick Snyder stayed on message Thursday in multiple interviews, saying the purpose of bankruptcy is to get Detroit’s finances in shape so services can be improved for Detroit’s residents. But the services continues to falter: The emergency communications system failed for three hours earlier this month, and Detroit nearly ran out of fire crews when the night of July 4-5 was busy. In Orr’s plan, he will have $1.25 billion to improve services – if creditors and the bankruptcy judge agree.
Might the city have to sell DIA paintings and other municipal treasures?
Possibly. That will be figured out in the coming months. Amid the documents filed Thursday is one that says the emergency manager continues to evaluate the value of the city’s assets to determine how to “maximize” their value. It adds: “No decisions have been made regarding any particular asset.” Creditors are not likely to care about how the public feels about the DIA, Belle Isle, the water departments and other assets. In a statement, the DIA said: “We remain committed to our position that the Detroit Institute of Arts and the City of Detroit hold the DIA’s collection in trust for the public and we stand by our charge to preserve and protect the cultural heritage of all Michigan residents. “
What happens first?
Alice Batchelder, chief judge of the U.S. 6th Circuit Court of Appeals in Cincinnati, will appoint a bankruptcy judge to oversee the Detroit case. The bankruptcy judge will determine where to hold hearings, which could take place anywhere in the 6th Circuit, which includes Detroit, elsewhere in Michigan, Kentucky, Ohio or Tennessee.
Might Detroit’s case get thrown out of court?
Maybe. Orr must prove the city is truly insolvent. Creditors can challenge the city’s right to file for bankruptcy by arguing the city failed to negotiate “in good faith,” a key requirement. A ruling could take days, weeks or many months. Already some city unions are arguing Orr has refused to meet with them. Dan McNamara, president of the Detroit Fire Fighters Association, said in a statement: “It is a shame that now we will have to be in front of a bankruptcy judge when all along we have been expecting to have meaningful meetings with Emergency Manager Kevyn Orr. These meetings never occurred.”
How long will Detroit’s case last?
It could be or years. Orr said he hoped to be out of bankruptcy by summer or fall of 2014, but others say that might be optimistic. The complexity of Detroit’s case argues against a quick resolution. San Bernardino, Calif., much smaller than Detroit, filed for bankruptcy nearly a year ago and a bankruptcy judge is scheduled to decide its eligibility next month.
Some leaders spoke of a feeling of optimism Thursday. Is that warranted?
If all goes well, Detroit could get a fresh start and services might improve. But the bankruptcy process is so complex and unpredictable, and Detroit’s case is so big, that it is difficult to see the end result at this time. Many of the business leaders who spoke of the bankruptcy in a positive light are the same people who supported the politicians who could not make the hard decisions in recent years. And business leaders always speak with optimism. On other hand, commentators on MSNBC's "Morning Joe" program Friday morning were speaking of Detroit's giant upside.
Whose fault is Detroit's bankruptcy?
That's the $18-billion question. Experts have written books about what happened to Detroit over the past 60 years, as the city started its slide in the early 1950s after 50 years of dizzying growth because of the auto industry. In short, bankruptcy is the result of a long, complicated process resists being reduced to a few villains of causes. It includes global economic developments over which Detroit leaders had no control, and it also includes the failures of Detroit public officeholders to make decisions that likely would have caused them to be voted out of office. Mayor Dave Bing is widely criticized for his management record during his four years in office, but it is noteworthy that Bing was the first Detroit mayor to acknowledge the city's dire situation.
