Detroit financial crisis

Detroit bankruptcy judge Steven Rhodes.
John Meiu / Detroit Legal News Publishing LLC

U.S. Bankruptcy Judge Steven Rhodes ruled this morning that the city of Detroit is allowed to protect itself from its creditors under Chapter 9 municipal bankruptcy protection. In his ruling, Rhodes said pensions can be treated like any other debt and are subject to potential cuts. We've been following the news as it unfolds today.

Update 3:31 p.m.

Michigan Attorney General Bill Schuette issued a statement today saying he supported the bankruptcy ruling, but was "deeply disappointed" with Rhodes' ruling that pensions are eligible for cuts.

Detroit bankruptcy judge Steven Rhodes.
John Meiu / Detroit Legal News Publishing LLC

Today is the last day U.S. Bankruptcy Judge Steven Rhodes will accept documents from all sides of the Detroit bankruptcy case.

Rhodes will then look at all the evidence and decide whether the city of Detroit can reorganize itself under Chapter 9 bankruptcy laws. 

Rhodes has heard a lot. The city's future path will be up to him.

His decision will be based upon a) whether the city truly has no other options to pay its debts, a b) whether the city negotiated in good faith with its creditors prior to saying bankruptcy was the only way.

No one seems to be arguing that the city has a viable way to pay its debts. And Daniel Howes of the Detroit News argues that defining "good faith" negotiations in exceedingly difficult in this case.

That's because Detroit owes money to nearly 100,000 creditors.

Well, it was quite a week for our state’s largest city. Voters elected a white mayor for the first time since 1969.

Had you gone to Lloyds of London 10 years ago and bet that within a decade, America would have a black president and Detroit a white mayor, today you would be very rich indeed.

But in the city Cadillac founded, attorneys today will offer closing arguments in a trial to determine whether the city will be allowed to file for bankruptcy. While everything in Federal Judge Steven Rhodes’ courtroom is by the book, there is an element of Kabuki-theater unreality about it all.

Nobody really believes the application will be denied. If it were, creditors would tear what remains of Detroit apart with the efficiency of a pack of wolves with a lamb.

Gerald Rosen, the bankruptcy judge in charge of mediation, issed the order today.
Detroit Legal News

Detroit is NOT in bankruptcy. Not yet, anyway.

That's what the bankruptcy hearing, which started today, is all about.

The federal bankruptcy judge will decide whether the city is allowed to protect itself from close to 100,000 creditors under Chapter 9 bankruptcy laws.

We found out this morning that Michigan Gov. Rick Snyder, the man who ultimately signed off on Detroit's bankruptcy filing, will testify in the Detroit bankruptcy trial on Monday.

Unions had served Snyder with a subpoena, but his live testimony appeared to be an unsettled issue earlier this week.

Gov. Snyder's lawyer argued that the Snyder's recent three-hour deposition should be enough.

But now his counsel says the governor wants to cooperate and will be available Monday afternoon.

Unions and pension funds want to question Snyder about approving Detroit's bankruptcy filing in July as well as other issues related to the case.

They will try to prove to the bankruptcy judge that Gov. Snyder and Detroit's emergency manager Kevyn Orr had bankruptcy in mind all along - that they did not negotiate in good faith with the creditors ahead of time.

Michigan Radio's Sarah Cwiek is live tweeting from today's hearing. Lawyers for the city have already argued in favor of bankruptcy this morning. Now it's time for those opposed to bankruptcy to argue. Here's how Cwiek sums up what their arguments will be:

 

 

The Detroit Institute of Arts
Flickr

Detroit Emergency Manager Kevyn Orr has sent out the strongest hint yet that prized pieces in the DIA collection are on the table as a way to put money into the city coffers.

Without offering many details, Orr told the Detroit Economic Club today that there are ways for the DIA to make money from its artwork that might not involve outright sales, but perhaps would involve long-term leases.

Orr was clear -- he said he must consider ways to use the museum's treasures to help the bankrupt city.

And, earlier this week, another one of the city's "jewels" was back in the spotlight.

The State and Mayor Dave Bing announced an agreement under which the State DNR would run Belle Isle as Michigan's 102nd State Park.

Detroit News business columnist Daniel Howes joined us to talk about all this.

Listen to the interview above.

DETROIT (AP) — Crews will begin a block-by-block review of streetlights in two Detroit neighborhoods this week as part of a three-year plan to overhaul the city's decrepit lighting system.

Fewer than half of Detroit's 88,000 streetlights are believed to be working, and Public Lighting Authority workers will inspect each light in areas on the city's east and west sides to map out which aren't working and to determine the cause of each malfunction.

"We will use the information we gather to design a specific plan to relight both of these areas as a prelude to moving out into the rest of the city to completely restore street lighting," the authority's Executive Director Odis Jones said in a statement.

Workers will be wearing yellow vests with the Public Lighting Authority's logo and will be driving vehicles with PLA signs on the side.

After approval from City Council, the Public Lighting Authority was set up earlier this year to design and implement the plan to improve Detroit's public lighting system. Gov. Rick Snyder signed legislation last year to allow lighting authorities in some cities.

mich.gov / Michigan Government

Detroit Mayor Dave Bing will finish his term at the end of the year, and according to Matt Helms of the Detroit Free Press, Bing is going out feeling frustrated.

Sarah Cwiek / Michigan Radio

The Detroit News reports that Kevyn Orr is considering a sale of the city's parking system.

Michigan Radio's Sarah Cwiek is looking into this story further and will have more later.

Parking systems can be a source of revenue for a city, but according to the News, Orr says the system is losing money:

Bob Jagendorf / Flickr

People are willing to loan money to Michigan public entities again: that's according to Brian O'Connor, the finance editor at the Detroit News.

O'Connor writes that when Ypsilanti Community Schools and the state sold bonds yesterday, it marked the "first time since Detroit filed for bankruptcy" that public debt was issued in Michigan. 

From The Detroit News:

Jones Day

Bills being charged to the city of Detroit in its restructuring are under the spotlight.

Last month, legal fees charged by Kevyn Orr's former law firm, Jones Day, were highlighted in a piece by AM Law Daily's Sara Randazzo.

Nobel Prize winning economist Joseph Stiglitz wrote about Detroit's bankruptcy filing in yesterday's New York Times.

In his opinion piece, The Wrong Lessons from Detroit's Bankruptcy, Stiglitz writes that it is "extremely important" to understand what happened in Detroit.

Detroit’s travails arise in part from a distinctive aspect of America’s divided economy and society ... our country is becoming vastly more economically segregated, which can be even more pernicious than being racially segregated. Detroit is the example par excellence of the seclusion of affluent (and mostly white) elites in suburban enclaves. There is a rationale for battening down the hatches: the rich thus ensure that they don’t have to pay any share of the local public goods and services of their less well-off neighbors, and that their children don’t have to mix with those of lower socioeconomic status.

Stiglietz says the question in front of Detroit now is how the city gets through the bankruptcy process, and that "ensuring that bankruptcy proceeds in a way that is good for Detroit will require vigilance."

New York Mayor Michael Bloomberg talked about Detroit once being an "economic powerhouse." He said there are some important lessons in Detroit's bankruptcy filing.

Current methods for calculating the health of pension funds might be outdated. This post by Mary Williams Walsh explains why.

Patrick Gibson / Flickr

Detroit filed for Chapter 9 federal bankruptcy protection yesterday.

The federal courts have never seen a municipal bankruptcy filing of this size, so there are a lot of questions out there.

Earlier today, we asked our Facebook followers, "What questions do you have about Detroit's bankruptcy?" 

We've been working hard to answer as many of them as possible. Here's what we have so far, but keep checking back as we gather more information for you.

1. Why now?

LiveStream

The city of Detroit has filed for Chapter 9 federal bankruptcy protection making it the largest city in U.S. history to declare bankruptcy. We are updating this post as we learn more information. To see how the story unfolded scroll down and read up.

Final update on this post - 3:08 p.m.

And here we go - the beginning of a long line of likely court battles after the city of Detroit attempts to move through federal bankruptcy protection.

Today, Ingham County judge Rosemary Aquilina issued orders saying Detroit's bankruptcy filing violates the state constitution. More from the Detroit Free Press:

In a spate of orders today arising from three separate lawsuits, Aquilina said Gov. Rick Snyder and Detroit emergency manager Kevyn Orr must take no further actions that threaten to diminish the pension benefits of City of Detroit retirees.

State Attorney General Bill Schuette moved quickly and said he will appeal the judge's decision. He plans to ask the Michigan Court of Appeals to grant a stay of that order.

11:22 a.m.

Detroit Emergency Manager Kevyn Orr and Gov. Snyder held a press conference this morning to discuss the Chapter 9 bankruptcy filing for Detroit with the press. They both stressed that for the people of Detroit, "it's business as usual."

"Going forward...we will pay our bills," Orr said. He said priority will be given to those expenses relating to health, safety, and welfare.

Orr said that "bankruptcy is a tool in our toolbox" and the process gives him a chance to implement a plan that he laid out on June 14

"It gives us breathing room," Orr said. "We were getting sued on a weekly basis." Two Detroit pension boards filed suit to try to stop federal bankruptcy proceedings. The action prompted Orr and Snyder to push up the timing of the filing.

Orr told reporters that he asked for a "consensual process" with creditors and interested parties, "but that didn't happen."

Orr was asked "what shocked him most?" when he first opened Detroit's books. Orr replied it was the normalcy of the practice of continual borrowing in the face of mounting debt in Detroit that struck him most.

"What shocked me wasn't the numbers," he said. "What shocked me was the tolerance for this behavior for decades...I wish there had been a lot more outrage over the past ten to twenty years."

Orr referred to his short tenure as emergency manager to deal with Detroit's debt problem. "We're dealing with 60 years of deferred maintenance in 18 months. I can't afford to spend time running in place to fix the problems I'm here to address," he said.

Orr mentioned a list of mounting problems in Detroit as reason to take drastic action - children walking home in the dark after school because street lights don't work, "40 year-old trees" growing out of dilapidated buildings, and slow police response times.

"I recognize [Chapter 9 bankruptcy] is a lever, but we are trying hard to be fair."

Orr said they are looking for an entity to represent retirees in the bankruptcy proceedings, something he said some unions were unwilling to do.

Gov. Snyder became animated when talking about the Chapter 9 filing.

"Now is our opportunity to stop 60 years of decline. This is fundamental... how long has this ...we are doing something. This is forum. This is the place to do it in. This is the place to address the debt question...we will come out with a stronger, better Detroit." Gov. Snyder said. Snyder said not only do the citizens of Detroit deserve an improved city, but the people of Michigan deserve it as well.

9:30 a.m.

At 10:00 a.m., Gov. Snyder and Detroit Emergency Manager Kevyn Orr will hold a press conference on the Detroit bankruptcy filing.

State of Michigan / Michigan.gov

Two Detroit pension funds have sued the city’s emergency manager, Kevyn Orr, and Governor Rick Snyder in an attempt to block the Motor City from filing for bankruptcy.

The General Retirement System and the Police and Fire Retirement System of the City of Detroit filed the lawsuit yesterday, Bloomberg’s Margaret Cronin Fisk reported. The state’s constitution offers protection of public retirees’ rights, and the petitioners of the lawsuit are claiming that a Detroit bankruptcy would violate those rights.

Orr’s office refused to comment on the lawsuit.

Orr hasn’t commented on which pension funds would be cut, and to what degree, but he has vowed to make “significant cuts” to pension payments.

User: Brother O'Mara / flickr

Saunteel Jenkins replaces Charles Pugh as Detroit City Council President

"Saunteel Jenkins is the new President of the Detroit City Council. The Council voted on new leadership after it lost its two former top officials. Jenkins replaces Charles Pugh, who has vanished from the public eye amidst allegations of a questionable relationship with a teenager," Michigan Radio's Sarah Cwiek reports.

Proposed legislation would let voters eliminate income tax

Republican state Representative Bob Genetski is sponsoring legislation that would let voters decide whether to get rid of the state's income tax.

"He supports raising the state’s sale’s tax to make up for the lost revenue. Former director of the state House Fiscal Agency Mitch Bean says the plan would leave an $8.5 billion dollar hole in next year’s state budget," Jake Neher reports.

Orr cancels bus tour with creditors

Detroit emergency manager Kevyn Orr has canceled a planned bus tour meant to convince Wall Street creditors that the city's condition is dire and they should accept big losses on its debt.

"Orr says the tour could be rescheduled. But it increasingly seems that his negotiations with creditors are hitting a wall. City Council member Ken Cockrel echoes what many think--that resistance from creditors is speeding up Detroit’s timeline for a possible bankruptcy filing," Michigan Radio's Sarah Cwiek reports.

Detroit's pension boards have been under investigation by the SEC and federal prosecutors. Now Kevyn Orr is ordering his own investigation.

When Kevyn Orr was announced as Detroit's emergency manager, he said he took the job because of the challenge - the "Olympics of restructuring" he called it.

Today, Orr unveiled his plan for that restructuring at a two hour meeting with people representing banks, insurers, pension funds, unions, and other companies holding Detroit's debt.

You can read his 128 page "Proposal for Creditors" here.

Matt Helms / Twitter

Update 12:45

The meeting has ended. We'll have updates later today on Orr's plan and reaction to it from other stakeholders.

The Detroit Free Press' Matt Helms tweeted a shot of Orr talking to the media after the meeting:

State of Michigan / Michigan.gov

Detroit’s emergency manager Kevyn Orr sits down with the city’s major creditors Friday.

The meeting sets up negotiations that could help Detroit avoid filing for bankruptcy—or lay the groundwork for it.

Orr will gather all the city’s big creditors—unions, retirees, and banks—to pitch his plan.

They’ll all be asked to take some major losses to help Detroit shed some of its crippling debt load, estimated at a least $15 billion.

Deadline Detroit's Jeff Wattrick witnessed the scene outside last night's public meeting with emergency manager Kevyn Orr. Other politicians and cities seem to handle large crowds and dissent without much problem. Detroit politicians, Wattrick argues, "stage manage these things like Soviet bureaucrats."

The Diego Rivera mural at the DIA. The museum had a good week after their millage passed in three counties.
DIA

In a recent piece in Bloomberg, Virginia Postrel (a political and cultural writer) argues that the "cause of art would be better served" if the DIA's major works were in other, 'more deserving' cities.

Her argument:

DIA

The Detroit News' Christine Ferretti writes this morning that other Detroit cultural institutions are on high alert after the news came that assets at the Detroit Institute of Arts are being counted as potential assets of the city that can be sold to pay off debts.

DIA

Detroit's emergency manager, Kevyn Orr, wants to account for assets held in the Detroit Institute of Arts, which has sparked fears that part of the collection could be sold in the future.

We've posted information here, and Michigan Radio's Sarah Cwiek will have an update for us later today.

Update 11:34 a.m.

The DIA just put out this statement on their Facebook page:

"The DIA strongly believes that the museum and the City hold the museum’s art collection in trust for the public. The DIA manages and cares for that collection according to exacting standards required by the public trust, our profession and the Operating Agreement with the City. According to those standards, the City cannot sell art to generate funds for any purpose other than to enhance the collection. We remain confident that the City and the emergency financial manager will continue to support the museum in its compliance with those standards, and together we will continue to preserve and protect the cultural heritage of Detroit."

9:19 a.m.

Detroit is in a big financial hole, and the man in charge of righting the ship wants to know what can be sold.

Mark Stryker and John Gallagher of the Detroit Free Press report that Detroit's emergency manager, Kevyn Orr, is considering whether the DIA's art collection should be counted as assets that can be sold to pay debts:

Liquidating DIA art to pay down debt likely would be a monstrously complicated, controversial and contentious process never before tested on such as large scale and with no certain outcome. The DIA is unusual among major civic museums in that the city retains ownership of the building and collection while daily operations, including fund-raising, are overseen by a nonprofit institution.

Stryker and Gallagher report on the many hurdles facing such a sale, including ...

  • restrictions on selling off city assets in municipal bankruptcy law,
  • museum ethics and operating rules that forbid selling art,
  • opposition from patrons who donated art,
  • and major a public outcry against such a sale:

“There would be hue and cry the likes of which you’ve never heard,” said Ford Bell, president of the American Alliance of Museums in Washington, D.C. “The museum should be a rallying point for the rebirth of Detroit and not a source of funds.”

Orr spokesman Bill Nowling said there's no plan yet to sell any asset of the city, but he said all the city's assets must be accounted for.

LinkedIn

Detroit emergency manager Kevyn Orr named former Cincinnati Police Chief James Craig as Detroit's new Chief of Police.

Michigan Radio's Sarah Hulett attended the press conference, where Orr announced that Craig will begin July 1, 2013:

The new police chief of Michigan's largest city says he's committed to reducing violence and making the Detroit Police Department a premier police agency.

This announcement followed the plan that Orr outlined in his 45-day report on Detroit's economic status. 

Kate Davidson / Michigan Radio

Detroit Mayor Dave Bing will not seek re-election.

Bing made that announcement after months of indecision. He frustrated reporters weeks ago when he pulled petitions for re-election, only to say he hadn't committed to running.

Then he called a press conference, and handed out pamphlets highlighting his successes in office.

Then he spoke for nearly 20 minutes about his achievements before announcing "that I have decided not to seek another term as mayor Detroit."

Bing said his political career might not be over.

He spent more than he made. 'Mr. Micawber' from David Copperfield.
wikimedia

It's a simple formula. Don't spend more than you make.

Charles Dickens' character "Mr. Micawber" expressed it this way in David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

"Misery" describes the city of Detroit's problems over the last several years.

Detroit has been breaking Micawber's rule for some time. In his report released last night, Detroit Emergency Manager Kevyn Orr wrote this:

Excluding proceeds from debt issuances, the City's expenditures have exceeded revenues from fiscal year 2008 to fiscal year 2012 by an average of $100 million annually.

Here's a representation of Detroit spending more than it makes in graph form:

Detroit Mayor Dave Bing.
Kate Davidson / Michigan Radio

DETROIT (AP) - Detroit Mayor Dave Bing has taken a step toward seeking a second four-year term leading the city that now operates under a state financial manager.

Bing picked up petitions Thursday afternoon at the city clerk's office for a spot on the August primary ballot. The top two vote-getters advance to November's general election.

He's been silent for months on his re-election intentions as Detroit entered state oversight. Gov. Rick Snyder in March named bankruptcy attorney Kevyn Orr as Detroit's emergency manager.

Bing says he's working closely with Orr, who must approve all financial decisions.

The 69-year-old Bing was elected mayor in May 2009 to complete the remaining months of disgraced ex-mayor Kwame Kilpatrick's second term. Voters re-elected elected Bing that November.

He inherited a budget deficit that now stands at $327 million.

The highways around Detroit are being used for displays of civil disobedience over the emergency manager law.

It started last month, and has carried to opening day.

MLive's Gus Burns writes that he was on his way to cover opening day for the Tigers this morning when he decided to tag along with the protestors.

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