Detroit Journalism Cooperative

Detroit’s bankruptcy trial wrapped up Monday with closing arguments.

At issue: whether the city’s plan of adjustment to restructure its debt is “fair and equitable” to its various creditors, as required by Chapter 9 of the municipal bankruptcy code.

Judge Steven Rhodes must also decide if the plan is “feasible”—whether Detroit can balance its books and avoid slipping back into bankruptcy.

City of Detroit

Detroit emergency manager Kevyn Orr took the stand again Tuesday in the 22nd day of the city’s bankruptcy trial.

Orr testified mostly about Detroit’s recent settlement with bond insurer Financial Guaranty Insurance Corporation. That deal is outlined in a draft of the ninth version of Detroit’s plan of adjustment (the city’s proposal to “adjust” its debts in bankruptcy court).

Detroit skyline
Ian Freimuth / flickr.com

Members of the United Nations Human Rights Commission heard testimony in Detroit this week from citizens who are struggling to secure affordable water and housing.

Nicole Hill is a Detroiter who has had her water shut off twice this year. Hill says the water department tells her she owes more than $6,000 — a number she vigorously disputes.

“I have asked for a hearing, and I was told that I could possibly get a hearing date sometime in 2015,” she said.

For Mignon Jennings, the cost of her water bill has put her in danger of losing her Detroit home.

“$3,000 for a water bill for one year? That’s ludicrous. That’s crazy. And I believe something needs to be done.”

The UN panel has criticized Detroit’s policy of cutting water service to people with delinquent bills.

Panel members issued recommendations on the situation Monday. They also met with Mayor Mike Duggan.

Duggan's chief of staff, Alexis Wiley, defended the administration's response to the water shutoffs, pointing out that the number of customers on payment plans has almost doubled to about 33,000 since Duggan announced his 10-point plan on dealing with them in August.

Wiley said the meeting was unproductive. "Unfortunately, it became clear shortly into the meeting that the UN representatives had reached their conclusions and prepared their recommendations before the meeting had even begun," she said in a statement, that also accused the UN of singling out Detroit for criticism of a "standard practice among utilities."

Wikipedia

Detroit has reached a settlement with its last major holdout creditor in bankruptcy court.

Bond insurer Financial Guaranty Insurance Corporation holds $1.1 billion in Detroit debt. It insured a bad deal on city pension debt whose legality has been questioned.

FGIC had been the city’s last big foe in bankruptcy court. By signing onto the plan of adjustment Detroit has proposed to restructure its debts, it’s removed another hurdle slowing down the city’s exit from bankruptcy.

After a week-long recess, Detroit’s bankruptcy trial resumed Tuesday.

City lawyers spent more than two weeks making their case for Detroit’s proposed plan of adjustment to restructure its debts in bankruptcy. They rested last week.

Now, objecting creditors get their chance to argue that plan doesn’t meet the requirements of the municipal bankruptcy code.

Laura Bartell, a professor of bankruptcy law at Wayne State University, said the trial has gone “swimmingly” for the city so far.

The city of Detroit wrapped up its case in bankruptcy court today, with Detroit’s two top elected officials as the final witnesses.

Mayor Mike Duggan and City Council President Brenda Jones both took the stand.

Their testimony is key, because the city needs to convince Judge Steven Rhodes that its proposed plan of adjustment is feasible—and that city leaders will work together to execute it post-bankruptcy.

Jones had publicly opposed emergency manager Kevyn Orr, and his decision to file for bankruptcy.

Sam Beebe

Detroit emergency manager Kevyn Orr will continue testifying today in Detroit’s bankruptcy trial.

Orr, a bankruptcy lawyer, took the stand for the first time Wednesday afternoon. He’s the main architect of Detroit’s bankruptcy restructuring plan, formally known as a plan of adjustment.

That plan is ultimately what’s on trial; Judge Steven Rhodes needs to approve it for the city to emerge from bankruptcy.

But while Orr is a crucial witness for the city, there was nothing particularly new or noteworthy about his initial testimony.

I once knew an opinion pollster who told me he could usually determine how anyone was going to vote without ever asking who they were going to vote for.

He did this by asking a series of litmus-test type questions about someone’s life, background and beliefs.

If you were a single mom with limited income, for example, that probably indicated you were a Democrat – unless you were a fundamentalist Christian. White professional male with a six-figure income?  Likely Republican if in business, for example. But probably not if he is a nonreligious professor.

Detroit Emergency Manager Kevyn Orr speaking at the University of Michigan.
U of M

After voters rejected the state's old emergency manager law in November 2012, Michigan lawmakers quickly came up with a replacement.

State-appointed emergency managers could still take control over local governments and school boards, but under the new law, they could do so for a limited amount of time. 

The new law, Public Act 436, allows for local governments to end a state-appointed emergency manager's term after 18 months. From the law:

If the emergency manager has served for at least 18 months after his or her appointment under this act, the emergency manager may, by resolution, be removed by a 2/3 vote of the governing body of the local government. If the local government has a strong mayor, the resolution requires strong mayor approval before the emergency manager may be removed. 

Orr started work as Detroit's emergency manager on March 28, 2013, so his 18 months is up in the next few days.

Almost everyone thought Detroit City Council and Mayor Duggan would vote to end Orr's appointment, but with Detroit's bankruptcy process wrapping up in court, the talk has changed.

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.

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.

Paul Hitzelberger / United Photo Works

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.

user andrea44 / Flickr

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


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.

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

A recent order from the court reads like a Facebook argument.

It started with Syncora, a major bond insurer that claims Detroit owes it more than a billion dollars.

The company filed an objection to the “grand bargain” that’s been coming together to save the Detroit Institute of Arts and protect the city’s pensioners.

Basically, Syncora says it and other Wall Street creditors are getting treated like the bad guys, while the DIA and the pensioners are clearly the hometown favorites.

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.

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."

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.

Civil rights groups are asking to meet with Detroit officials about a controversial water shut-off campaign.

The ACLU and the NAACP want to meet with Detroit Mayor Mike Duggan and Emergency Manager Kevyn Orr to find a “fair, humane, and meaningful review process,” which would include adequate notice and a hearing to determine whether individual water customers can’t or won’t pay their bills.

Sean_Marshall / Flickr

I know what you’re thinking.

This building that once housed Wayne County’s administrative office is perhaps "one of the nation’s finest surviving examples of Roman Baroque Revival architecture, with a blend of Beaux-Arts and some elements of the Neoclassical style."

I was thinking the exact same thing.

Well, I was really thinking it’s a beautiful building in downtown Detroit and I hope it gets some attention.

Lester Graham / Michigan Radio

Detroit is going to hold a little get-together to persuade former residents to come back home.

Mayor Mike Duggan wants former Detroiters to visit the city for a homecoming. The idea is to attract people who wrote off their relationship with the city. The "Detroit Homecoming" is aimed to bring them back for a visit, a little flirtation. After all, Detroit should be getting through its messy bankruptcy by then. It will be a little brighter, with thousands of  new LED streetlights. The parks are being mowed.

Sam Beebe

Today was the deadline for Detroit retirees to vote on the city’s bankruptcy restructuring plan, known formally as a “plan of adjustment.”

The California firm tallying the votes had to receive them by today.

All creditors get to vote on the plan of adjustment. But pensioners’ votes are particularly key—especially when it comes to the future of the “grand bargain.”

That’s the deal to use more than $800 million in public and foundation money to minimize pension cuts, and protect the Detroit Institute of Arts’ collection from being sold to pay off creditors.

Paul Hitzelberger / United Photo Works

In Detroit, controversy is raging over one of the few things the bankrupt city has in abundance: water.

So far this year, Detroit has shut off for 17,000 customers as it tries to collect millions in overdue bills.

But many residents are upset with how the city is going about it—and question whether some are getting special treatment.

“Here we are, giving out water…and we still owe on the water bill”

State of Michigan / Michigan.gov

Detroit emergency manager Kevyn Orr has given the city’s leaders a pay raise.

Orr signed an order hiking city appointees and elected officials’ pay by 5% on June 30th. It went into effect July 1.

Detroit Mayor Mike Duggan seemed genuinely surprised to hear that news on Tuesday.

It’s been almost six months since Mike Duggan took over as mayor of Detroit. He took over a city however, run by someone else: state-appointed Emergency Manager Kevyn Orr.

But, that doesn’t mean Duggan has been denied all the rites of passage of the job including the schlep to Lansing to ask the state Legislature for something. Every mayor has to do it. And Duggan had to go to Lansing with a really big ‘ask.’ We’re talking about the $195 million dollar rescue package for his city (that’s right, ‘rescue,’ ‘settlement.’ Just don’t call it a ‘bailout.’)

Getting the Republican-led state House and Senate to go along with sending almost $200 million dollars to a Democratically-controlled city was not an easy task.

Sarah Cwiek / Michigan Radio

This week, the Detroit Journalism Cooperative is looking at how the city is functioning under bankruptcy.

Mayor Mike Duggan says his top priority is reversing the city’s long population decline.

But there are a couple key quality of life issues Duggan has no control over. One of them is the city’s schools.

Here’s the story of one Detroit family’s effort to find good schools.

Meet the Hills

Sam Beebe

The judge in charge of Detroit’s bankruptcy case tentatively agreed Thursday to tour parts of the city—despite concerns about his safety.

City lawyers have been pushing Judge Steven Rhodes to take a city bus tour for some time now.

They say the judge needs to see the conditions in Detroit neighborhoods firsthand, to help him make informed decisions in the case.

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