Detroit bankruptcy

Sarah Cwiek / Michigan Radio

Detroit emergency manager Kevyn Orr has joined private, ongoing talks between Mayor Mike Duggan and the Detroit City Council about his future.

Under Michigan’s emergency manager law, the City Council could vote to remove Orr this week – but only if Duggan and Gov. Rick Snyder agree.

The parties have been meeting in closed session since Tuesday to discuss a transition plan. No one has been willing to speak publicly about those discussions.

Judge Steven Rhodes said he'll rule next Monday whether to put a temporary halt to Detroit's controversial water shutoffs.

Witness testimony continued in federal bankruptcy court Tuesday with hearings to determine the fate of that policy.

A coalition of Detroit residents and advocacy groups filed a lawsuit challenging the city’s controversial shutoff policy on constitutional and civil rights grounds.

Col. Frank J. Hecker House in Detroit
User: Werewombat / Wikimedia Commons

DETROIT - A Plano, Texas, company has been hired to give Detroit a clear picture of how much individual properties in the city are worth.

Tyler Technologies Inc. says its appraisal arm will compile data on real property in the city. It says Detroit has not completed a full reappraisal of real property in more than 50 years.

A spokesman for emergency manager Kevyn Orr says Tyler's CLT Appraisal Services unit will give the city a "more accurate assessment of property values." Bill Nowling says the city will use it to "create more accurate property tax bills."

Mayor Mike Duggan said earlier this year that the city would lower property tax bills by reassessing home values. He says high, unrealistic property assessments have angered city residents and forced many from their homes.

State capitol
Lester Graham / Michigan Radio

This Week in Michigan Politics, Emily Fox and Jack Lessenberry discuss the possibility of new teachers losing their pensions, the latest in the Detroit bankruptcy trial, and how Aramark is under fire again.


Many years ago, I met Thomas Friedman, the distinguished New York Times journalist who won two Pulitzer Prizes for his coverage of the Middle East by the time he was 35.

When I told him that I regarded his reporting as indispensable, he told me something I’ll never forget. He said “don’t read my stories every day.”  That startled me, and I asked what he meant.

He went on: “Daily journalists covering a beat have to produce a story just about every day.” That’s partly because everybody doesn’t always read everything. But if you look closely, you’ll see that much of the time, much of the daily stories are repetitious.

Bank of the Oise at Auvers by Van Gogh, owned by the DIA
user: Maia C / Flickr

 

As the Detroit bankruptcy trial moves into its third week, the spotlight has often been trained on the Detroit Institute of Arts.

The discussion over whether the DIA can and should be forced to sell its treasures to help offset Detroit's insolvency has been one of the most hotly debated issues of the bankruptcy.

DIA director Graham Beal recently wrote a letter that was published in the museum's newsletter and then posted on Deadline Detroit under the headline "Museums Should Step Very Carefully 'In Times Of Crisis.'"

Here's an excerpt of the letter:

In the Great Depression, the DIA remained open and staffed, largely thanks to the secret support of Edsel Ford. The city of Detroit arts commissioners could have sold the van Gogh self-portrait, Matisse's The Window, Ruisdael's Jewish Cemetery, or even Breugel's Wedding Dance, but the thought never seems to have crossed anyone's mind.

user memories_by_mike / Flickr

The pieces are falling into place for Detroit to eventually emerge from bankruptcy with a lot less of its budget-servicing debt. But the city of Detroit’s budget could still be a house of cards. Many of its revenue sources are not stable.

Bankruptcy does not mean Detroit escapes all of its money problems.

It’s heavily dependent on a city income tax. If another economic dip is around the corner, that source of revenue would shrink.

Casino taxes are stagnant.

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

One big creditor, Syncora, appears to have agreed to a deal with the city this week.

That left one very big fish to fry - the bond insurer Financial Guaranty Insurance Co.

The city owes the group more than $1 billion, and they're not walking away from the money that is owed to them without a fight.

Now the bankruptcy court overseeing Detroit's bankruptcy has ordered FGIC, along with several others, into mediation with the city.

From the order:

It is hereby ordered that, unless otherwise excused by the mediator, the above-named noticed parties shall appear, with counsel and party-representatives with full and complete settlement authority, for continuing mediation on Friday, September 12, 2014, at 10:00 a.m., and continuing day-to-day thereafter as deemed necessary, until released by the mediators…

Robert Snell of the Detroit News reports that FGIC negotiators walked out of talks with the city two weeks ago.

Now, with the Syncora deal close to inked, FGIC is being compelled to try it again.

In a statement Wednesday, FGIC said the firm remains open to a good-faith settlement following the Syncora deal.

“The latest deal reinforces our view that the city has abundant sources of incremental value available ...,” the company said. “However the issue at hand is their willingness to distribute this value fairly and equitably...”

Syncora went from a deal that was going to give the company around 10 cents on the dollar, to a deal that's giving them around 26 cents on the dollar.

Aside from Syncora and FGIC, the other creditors ordered into mediation are:

  • UBS AG
  • SBS Financial Products Co., LLC
  • Merrill Lynch Capital Services, Inc.
  • Ambac Assurance Corp.
  • Black Rock Financial Management
  • Official Committee of Retirees
  • Wilmington Trust Company, National Association, as successor to U.S. Bank National Association, as Trustee and Contract Administrator

Ian Freimuth / Flickr

We saw big news out of Detroit this week: a deal over a southeast regional water authority and a tentative deal between the city and one of its largest creditors.

Meanwhile, lawmakers are back to the state capitol after their summer recess. And the two big statewide races for governor and the open U.S. Senate seat in Michigan are heating up.

Today on Stateside, we take a step back and see how these events fit together and impact one another.

Daniel Howes is a columnist with Detroit News. He says the good news in Detroit this week shows that leadership matters.

"What you're seeing here is a remarkable alignment of both political and business leadership across the state behind this Detroit bankruptcy effort," says Howes. 

Rick Pluta is the capitol bureau chief for the Michigan Public Radio Network and co-host of It's Just Politics. He says in the next few weeks, he's watching for what Detroit emergency manager Kevyn Orr puts in place in his final days to set the city up for what comes next. 

"A high level of control will have to be restored to the city," says Pluta.

* Listen to our conversation with Daniel Howes and Rick Pluta on Stateside today at 3 pm. We'll post the audio around 4:30 pm.

Ian Freimuth / Flickr

  

Two of the loudest voices objecting to Detroit's bankruptcy adjustment plan have been bond insurers Syncora and Financial Guaranty Insurance Corporation, known as FGIC. Both companies were left holding the bag in a $1.4 billion pension deal, the "swaps."

Things just got much colder and bleaker for FGIC. That's because Syncora and the city have struck an 11th-hour deal.

Syncora now is willing to receive 26 cents on the dollar of what it is owed, up from 10 cents under the city's previous plan, plus a package that includes an extended lease on operation of the Detroit-Windsor Tunnel and a parking deal.

Detroit's riverfront.
Ian Freimuth / Flickr

Judge Steven Rhodes has suspended Detroit's bankruptcy trial until Monday so the city can work out details of a deal with one of its major creditors.

News of the potential deal broke last night. Syncora, a bond insurer, stands to lose $400 million in Detroit's bankruptcy.

Alisa Priddle of the Detroit Free Press reports the deal the city is trying to work out with Syncora would be worth 26 cents on the dollar vs. 10 cents on the dollar under the city's current plan.

More from the Freep:

Among the goodies are $23.5 million in payment in the form of B-notes; a long-term lease on a centrally located parking garage; a 20-year extension of the lease to run the U.S. side of the Detroit-Windsor Tunnel to 2040; and $6.2 million in credits towards the purchase of some parcels of land in the future.

The pause in the trial also gives the city time to reach other settlements with other creditors. One of the biggest is Financial Guaranty Insurance Co.

FGIC insured a deal made under the Kwame Kilpatrick administration that shored up the city's pension liabilities.

Here's how that deal was described by the Freep last spring:

Under former Mayor Kwame Kilpatrick, Detroit sold the pension obligation certificates of participation to boost funding at the city’s General Retirement System and Police and Fire Retirement System to nearly 100%. The city also bought so-called swaps, or derivatives, to permanently lock in steady interest rates around 6% on the arrangement. But three years later, as the national economy tanked, interest rates plummeted, souring the deal.

Robert Snell and Christine Ferretti of the Detroit News spoke with one of Syncora's lawyers, Ryan Bennett.

Bennett said the deal before Syncora now relies on the city settling its issue with FGIC. 

Bennett said he’s not aware of any deals in the works between the city and FGIC. But the holdout creditor could benefit as well from the “shared asset pool” and that Syncora’s tentative agreement “sets a path” for FGIC, he said.

The Freep's Priddle reports that an FGIC lawyer said they need to "better understand the deal" and it will affect the witnesses he calls when the bankruptcy trial resumes next week.

*This post has been updated.

Detroit skyline.
user JSFauxtaugraphy / Flickr

This Week in Michigan Politics, Jack Lessenberry and Emily Fox discuss how  Syncora, the biggest opponent in Detroit's bankruptcy trial, has reached a tentative agreement with the city. Fox and Lessenberry also discuss Detroit's new water authority, and what to expect from the legislature in the few weeks before the November election.

Detroit has hammered out a deal with its fiercest foe in bankruptcy court, possibly smoothing the way for the city to leave bankruptcy quickly.

Bond insurer Syncora Guarantee, Inc. had fought the city’s proposed plan of adjustment at every turn.

That restructuring plan would have forced the company to take hundreds of millions of dollars in losses.

Kate Boicourt / IAN

After months of tense mediation in bankruptcy court, Detroit and suburban leaders have finally reached a deal on the city’s water system.

The 40-year agreement between the city and Wayne, Oakland, and Macomb counties will create the Great Lakes Water Authority.

Under the deal, Detroit will retain ownership of the whole system, and control over city operations.

The GLWA will lease and operate Detroit water system assets outside city limits. And it will pay Detroit $50 million a year to improve water infrastructure inside the city.

user rob zand / Flickr

A big piece of Detroit's bankruptcy puzzle was put in place today: the newly-created Great Lakes Water Authority, as the city finally came to agreement with Wayne, Oakland and Macomb counties to create a regional water authority to provide water to some 40% of Michiganders.

Michigan Radio's Sarah Cwiek says the agreement stipulates that the rate increases for all the customers will be limited to no more than 4% a year over 10 years. 

That won't necessarily mean that 4% would be the cap of the rates for all communities, since different communities set their own water rates, including taxes and surcharges. 

"How much you will actually spend depends on where you live," says Cwiek.

As Detroit gives up control of direct operation and leases out the assets that are outside the city limit, the revenue of $50 million a year is expected to be committed to capital upgrades for the Detroit water system itself. 

* Listen to the full interview with Sarah Cwiek above.

Detroit Federal Courthouse, where the Detroit bankruptcy proceedings are taking place
User: cseeman / Flickr

The historic Detroit bankruptcy trial is in its third day.

The opening salvos have been fired, and they've begun calling witnesses.

Detroit News business columnist Daniel Howes has been at the courthouse. He says that history is unspooling in Judge Steven Rhodes' courtroom, but there’s a distinct lack of public interest.

“You go in the media overflow room, and there’s like two people sitting there … There were protesters the first day, there was none really to speak of the second day,” says Howes.

Yet it’s still a very important proceeding that’s going on here. If the city wants to win the trial and reach the "grand bargain," Howes points out, the bankruptcy team has to prove that it had done its homework and looked into alternatives to raise cash to pay creditors.

“What Syncora and FGIC  (Federal Guaranty Insurance Company) are saying is, (the bankruptcy team) didn’t even do the work. Basically they are saying they are a bunch of lazy people that had a preconceived goal in mind and didn’t even do the basic blocking-and-tackling analysis to get to the conclusion that they drew,” says Howes.

*Listent to the interview with Daniel Howes above.

Detroit Institute of Arts
Maia C/Flickr

Things got heated today at Detroit's bankruptcy trial.

Syncora, a bond insurer that is arguably one of the city's biggest opponents in this trial, is coming out swinging.

And you're going to hear that name a ton during this trial, so let's recap real fast.

Who is Syncora? 

Syncora is a company. They insure bonds. They decided that they were willing to insure bonds that Detroit sold.

So they have hundreds of millions of dollars to lose here.

user andrea44 / Flickr

This Week in Michigan Politics, Jack Lessenberry gives an overview of what's at stake in Detroit's bankruptcy trial.


Detroit skyline.
user JSFauxtaugraphy / Flickr

The official name for it is the “plan confirmation hearing.” The commonly used term is “Detroit’s bankruptcy trial.” And it begins today.

Stephen Henderson is the editorial page editor at the Detroit Free Press. He joined Stateside today to talk about what will be decided and the big questions in the trial.

“(The central question) really has to do with the grand bargain,” says Henderson, “which brings into the bankruptcy proceeding more than $700 million from people who have nothing to do with this proceeding.”

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.

Detroit's historic bankruptcy case is entering the home stretch. The crucial, final trial phase begins Tuesday in a Detroit courtroom.

The trial will decide the fate of a plan to wipe out billions of dollars in debt and help Detroit emerge from bankruptcy as a new, revitalized city.

This trial is a big deal, but don't expect anything with lots of courtroom drama. For one thing, it's federal bankruptcy court — and there's no jury.

Ross Kuhn / via Facebook

Some Detroit residents and activists are trying to put water shutoffs on hold—again.

The Detroit water department resumed its residential water shut-off program for delinquent customers this week. It’s trying to collect more than $80 million in back payments.

The city had put the controversial program on hold for about a month, while holding water assistance fairs and giving those who struggle to pay their bills time to get on payment plans.

The Detroit Institute of Arts
Flickr

A New York lender called Art Capital Group is offering a $4 billion loan to the city of Detroit if it puts up its art collection as collateral.

Detroit News business columnist Daniel Howes said the city would be wise to pass on this offer.

The proposal is being backed by holdout bond insurers Syncora, and the Financial Guaranty Insurance Company.

Howes said the proposal would put DIA art one step closer to being sold, pensioners would receive a lot less money, and the loan would be spread around to other creditors.

Howes said city officials said they were not interested in discussing the deal, and that they say they will stand behind the "Grand Bargain" because it is money in hand and the deal will help avoid legal issues.

Howes also said the offer is just now coming up to stall the bankruptcy trial.

Read Howes column in the Detroit News here.

*Listen to the full interview with Daniel Howes above. 

Detroit skyline.
user JSFauxtaugraphy / Flickr

Bridge Magazine writer Mike Wilkinson recently wrote a piece that explored the dollars-and-cents of Detroit, post-bankruptcy and beyond.

It's titled “Can Detroit Pay Its Bills Post-Bankruptcy?”

Wilkinson said though Detroit has been cash strapped for a while in terms of debt, it does generate a lot of money. It has the highest income tax and property tax in the state. It is the only city in the state allowed to levy a utility tax. And it has an averaged $179 million in casino taxes.

“It’s raising more money than Cincinnati, Chicago, Kansas City, Orlando, in terms of per person,” Wilkinson said.

Assuming that Kevyn Orr’s Plan of Adjustment is approved by Judge Rhodes, will this revenue be enough to pay the bills? Wilkinson wrote in his piece, “Revenues alone do not a budget make.”

And Eric Scorsone, an MSU professor and expert on city finances, said in order to answer that question, we must ask what will Detroit spend the money on?

“The truth is it would be very easy to overspend again as Detroit has in most of its history, and that’s going to be the real challenge for the political leadership of Detroit.” Scorsone said.

The Detroit water department recently announced a temporary break in its campaign to cut service to delinquent customers—but some people are still being shut off.

Last week, water officials agreed to a 15-day “pause” in water shutoffs, which have ramped up since March as the department tries to collect millions in delinquent payments.

Detroit retirees voted overwhelmingly to approve emergency manager Kevyn Orr's plan of adjustment.

That plan includes the unprecedented "grand bargain"--a mixture of public and private funds that will minimize cuts to city pensions, while protecting the Detroit Institute of Arts' assets from other city creditors.

But retirees aren't the only group of creditors who voted on the plan. Other groups did as well--and not all voted "yes."

Detroit Institute of Arts

The proposed "grand bargain" that would soften the blow to Detroit pensioners while preserving the city's art collection has cleared a major hurdle.

That's because city retirees have voted for the plan by an overwhelming margin.

As city creditors, pensioners got to cast ballots for or against emergency manager Kevyn Orr's bankruptcy restructuring. The grand bargain is an integral part of that plan of adjustment.

We should know how Detroit retirees voted on the proposed “grand bargain” later today.

City pensioners had until July 11th to vote on the city’s bankruptcy restructuring plan, formally known as the “plan of adjustment.”

The grand bargain is just one part of that plan.

It would use more than $800 million in combined state and private foundation dollars to backstop city pension funds, minimizing retiree losses.

Kenny Karpov

Hundreds of protesters gathered near city hall in downtown Detroit Friday, to demand the city stop ongoing water shutoffs.

More than 17,000 Detroit households have had their water shut off for non-payment since March, though many have since had service restored.

City officials say the shutoffs are a necessary measure, because too many people simply don’t pay their bills--starving the water system of up to $100 million in revenues.

Detroit skyline.
user JSFauxtaugraphy / Flickr

Tomorrow afternoon at 4:06 is the one-year anniversary of the largest municipal bankruptcy in American history.

Detroit News Business Columnist Daniel Howes has been talking with top business leaders in Detroit for a "temperature check" on how this first year has gone.

He said that the kind of leadership and coalescence that happened in the past year was something he’s never seen before in this community.

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