News Column

Detroit Bankruptcy Triggered by Time, Not Lawsuits

July 19, 2013
Detroit Bankruptcy

Detroit emergency manager Kevyn Orr said Friday that what drove the decision for him to petition for the largest municipal bankruptcy filing in U.S. history was less about pre-emptive lawsuits opposed to the plan than it was about simply running out of time.

"We're dealing with 60 years of deferred maintenance in 18 months," Orr said during a news conference at Wayne State University the day after Detroit's $18.5 billion bankruptcy filing, referring to the length of time in which he'll oversee the city.

Still, Orr singled out retirees and pension fund lawsuits filed in recent days to try to stop the state-approved bankruptcy filing, based on the argument that the state's constitution prevents the city or state from cutting protected pension benefits for retirees. Orr deflected criticism from union leaders and pension officials that he wasn't bargaining in good faith in recent weeks, citing lawsuits opponents filed.

"That's the very thing I had pleaded for not to happen," said Orr, who stood next to Michigan Gov. Rick Snyder at the news conference. "Anyone who thinks I wasn't negotiating in good faith, when they're suing me, look at that context."

Snyder, who approved the filing, said the decision to file did not come lightly, but the state was left with little choice.

"This has been a long period of decline," he said. "It's time to do something about it. ... The 700,000 people in Detroit deserve a better answer."

Detroit, buried under as much as $20 billion in debts and liabilities, became the largest city to file for Chapter 9 bankruptcy protection on Thursday, dwarfing previous insolvencies by billions of dollars. Bankruptcy analysts say the case is likely to set precedents in how troubled municipalities deal with creditors _ including bond holders and pensioners promised lifetime retirement benefits _ when cities run out of money.

Detroit's crisis was driven by forces beyond its control _ the decline of manufacturing, flight to the suburbs of both businesses and residents _ but also decades of mismanagement and, at times, corruption. And with that residential flight, businesses left town or closed down outright. Peaking in the 1950s at nearly 2 million, Detroit's population now stands around 700,000.

The worldwide economic crash in 2008 and the national housing crises in many ways pushed Detroit over the edge, exacerbating blight with thousands more homes and businesses abandoned and not generating revenue for a city in desperate need of cash to keep basic services going.

By Orr's calculation, more than $9 billion of Detroit's liabilities are for underfunded pensions and the costs of retiree health care, money he said Detroit simply does not _ and will not _ have the money to pay.

Appointed by the state to oversee Detroit in March, Orr said his goal was to reach settlements to try to avoid a bankruptcy. But it became clear in recent days that many creditors and the city workers and retirees he asked to bear the brunt of the cuts would not agree to painful deals outside federal bankruptcy court.

Bankruptcy lawyers say the filing could be resolved relatively quickly, but some suggest protracted legal fights could drag on for years.

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(c)2013 Detroit Free Press

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Source: Copyright Detroit Free Press (MI) 2013


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