Detroit's trial of the century begins, and the outcome is anything but certain

Sep 2, 2014

Detroit’s bankruptcy has been with us so long that it is hard to believe that the actual trial is only starting today.

Technically, it is not a trial in the strict sense of the word, but something called a “plan confirmation hearing.”

But it is, in a very real sense, Detroit’s trial of the century. That’s an overused phrase, but totally appropriate here.

In fact, U.S. Bankruptcy Judge Steven Rhodes, the most important figure in all of this, said it all last week: What happens here will determine “the future of the city of Detroit.”

Actually, it might be technically correct to say that this trial will determine whether the city has a future.

The outcome is anything but certain. Emergency Manager Kevyn Orr and his allies have painstakingly put together a “plan of adjustment”  based on a “Grand Bargain” designed to wipe out debt, save the Detroit Institute of Arts, and put more money into city services, to make the city a better place to live.

But two of the city’s major creditors, Financial Guaranty Insurance and Syncora are fighting the settlement hard. They say what Detroit wants to do is illegal, because it gives pensioners a much better settlement than the city’s creditors.

For the first time, Detroit has been forced to make an honest inventory of its problems and come up with a strategy.

Everyone admits the settlement is unequal.

Yet does that mean it is legally unfair?  There are other wrinkles as well. The proceedings could last as long as six weeks. There will be a vast number of witnesses.

Kevyn Orr, who has been emergency manager for nearly a year and a half, is the key figure for the city. But by the time the trial is over, he may well no longer be in that job. Legally, city council can remove him around the end of this month.

How that would affect things isn’t clear. Nor is it clear what Judge Rhodes will do, or how long it will take him to rule. What those opposed want is for the judge to completely reject the bankruptcy.

That would essentially leave the city naked before its creditors, almost certainly meaning an endless round of lawsuits.

What the city of Detroit hopes is that the judge simply accepts the plan, allowing the city to emerge from bankruptcy and start again to build a future.

But it is entirely possible that the judge will instead tell the city to make changes and come back with a new proposal.

Whatever happens, the Yogi Berra rule is sure to apply: When this is over, it won’t really be over. Even if the city wins.

Even if Judge Rhodes accepts the plan and allows the city to exit bankruptcy. The plan of adjustment calls for $1.4 billion to be poured into upgrading city services. But the fact is that much of that is based on assumptions about anticipated new revenues.

Mayor Mike Duggan himself has admitted that unforeseen things like national recessions and new state budget cuts could derail those projections. However, rebuilding has to start somewhere.

For the first time, Detroit has been forced to make an honest inventory of its problems and come up with a strategy.

And clearest of all is that this state needs a healthy Detroit.   

Jack Lessenberry is Michigan Radio’s political analyst. Views expressed in the essays by Lessenberry are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.