Detroit draws first map toward comeback
Plan cuts payments to retirees, creditors
DETROIT — Detroit presented its first full road map for leaving bankruptcy Friday, outlining an elaborate plan to restructure $18 billion in debt, demolish thousands of blighted homes and invest in the brokendown infrastructure that has made the city a symbol of urban decay.
If approved by a judge, the wide-ranging proposal would sharply reduce payments to some retirees and creditors. Pension holders could expect to get 70 percent to 90 percent of what they are owed, while many banks would receive as little as 20 percent.
The plan, sure to be the subject of court challenges, envisions a leaner, cleaner and safer Motor City after its crushing financial burdens are lifted. “There is still much work in front of all of us to continue the recovery from a decadeslong downward spiral,” Kevyn Orr, the city’s state-appointed emergency manager, said in a statement. His so-called plan of adjustment, he said, “provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work.”
The state is focused “on protecting and minimizing the impact on retirees, especially those on fixed, limited incomes,” Michigan Gov. Rick Snyder said, as well as “restoring and improving essential services” and “building a foundation for the city’s long-term financial stability and economic growth.”
The governor called the plan “a critical step forward.” But it leaves unanswered many questions, including whether creditors and labor unions will accept the deal or fight it, and how long that process might take.
The package calls for awarding police and fire retirees at least 90 percent of their pensions after eliminating cost-of-living allowances. Other retirees would receive at least 70 percent.
It still doesn’t seem fair to Janice Pegg, 67, who receives the pension left by her husband, Victor, a Detroit police officer who died two years ago. “He earned these benefits through his hard work, through his labor, through
“There is still much work in front of all of us to continue the recovery from a decades-long downward spiral.”
—Kevyn Orr, Detroit’s state-appointed emergency manager
wage freezes back when he was employed,” she said. “I thought that that would be money [with which] I would be able to take care of myself.”
Mr. Orr has said he’d like the city to emerge from the nation’s largest municipal bankruptcy by the fall, when his term is up.
St. John’s University law professor Anthony Sabino, a bankruptcy attorney, said the plan could spark an argument between city workers and retirees and police and firefighters. Mr. Orr “wants to have the firefighters and police have 90 percent and other city workers cut back to two-thirds,” he said Friday. “The other unions will say, ‘Even if we’re uneven, we should be closer.’ It does create an inequity that is going to have to be addressed in court.”
Detroit’s woes have piled up for generations. In the 1950s, its population grew to 1.8 million people, many of whom were lured by plentiful, well-paying auto jobs. Later that decade, Detroit began to decline, as developers starting building suburbs that lured away workers and businesses.
Starting in the late 1960s, automakers began opening plants in other cities. Property values and tax revenue fell, and police couldn’t control crime. In later years, the rise of autos imported from Japan started to cut the U.S. auto industry’s size. By the time the industry melted down in 2009, only a few factories for GM and Chrysler were left.
D etroit lost a quarter-million residents between 2000 and 2010. Today, its population could fall as low as 680,000, Mr. Orr said. Of the city’s $18 billion in debt, about $12 billion is unsecured, he said, meaning there is no tax revenue or other money to pay it.
Detroit wants to spend $500 million to knock down as many as 450 abandoned, decaying properties each week. The buildings are the city’s most visible eyesores and criminal activity magnets.
As they demolish problem properties, officials want to reinvest by giving police, firefighters and ambulance crews better equipment to produce faster response times. The plan also calls for fixing the city’s troubled electrical grid and streetlighting, which has deteriorated to where many neighborhoods descend into blackness every night.
One of the touchiest issues is the fate of about 2,800 cityowned treasures in the Detroit Institute of Arts. Those masterpieces have been at risk of being auctioned to raise money to repay creditors. Foundations and others have pledged $365 million toward pensions to keep the art from being sold. The governor has said he will seek $350 million from the state to aid that cause, while the museum raises $100 million.
But that money depends on both pension systems approving Mr. Orr’s plan. The foundations “are looking to get this thing done,” he said.
Mr. Orr had hoped that creditors would sign off on the plan before he submitted it to U.S. Bankruptcy Judge Steven Rhodes. But the clock was ticking because Judge Rhodes had set a March 1 deadline. The proposal still faces numerous obstacles, and most aspects are still being negotiated in mediation sessions with stakeholders.
A vote for the plan by one class of creditors would be enough to send it to the judge, who would then hold hearings to determine if the plan should be approved over other creditors’ objections. Appeals are almost sure to persist, even after the bankruptcy court endorses a final version.