Sept. 02--The City of Detroit must prove over the course of a bankruptcy trial that starts today that it has a viable and fair plan to correct the financial mistakes of its past and revitalize services that are so desperately needed in the city's neighborhoods.
The historic proceeding -- officially called a plan confirmation hearing -- will feature an exhaustive examination of Detroit emergency manager Kevyn Orr's sweeping plan to slash more than $7 billion in liabilities and reinvest $1.4 billion over 10 years to improve services.
"It will be very tiring for everybody involved, but this is what they've been leading up to all along," said Melissa Jacoby, a University of North Carolina Chapel Hill bankruptcy law professor who has been closely tracking the case. "There's no way over the finish line without this."
U.S. bankruptcy Judge Steven Rhodes has the power to determine whether Detroit's plan of adjustment treats creditors fairly, follows the law and gives the city a reasonable shot at restoring basic services.
Following the trial, which could last through Oct. 17, Rhodes will decide whether to confirm the plan -- which would allow the city to emerge from bankruptcy -- or reject it altogether.
Alternatively, the judge could nudge the city to alter the plan in certain respects, which is viewed as a real possibility.
Right now, the blueprint to boost services includes a comprehensive plan to remove blight, invest in police and fire protection, overhaul dilapidated information technology systems and retrain city workers.
The backbone of the plan is the grand bargain, which would allow the city to accept the equivalent of $816 million over 20 years from the state of Michigan, nonprofit foundations and Detroit Institute of Arts donors to reduce pension cuts and transfer the DIA to an independent charitable trust.
The grand bargain won crucial support from pensioners and unions, but bond insurers Syncora and Financial Guaranty Insurance Corp. have waged a vigorous battle against the plan.
Rhodes will decide whether the plan is fair, even though pensioners are getting six times more than the insurers, according to the city's calculations.
"Rhodes is going to have a lot of latitude," said John Pottow, a University of Michigan bankruptcy law professor. "There's a lot of swirling, uncertain legal stuff."
Here are answers to key questions about the trial:
What kind of exhibits will be introduced?
The city and creditors have collectively listed several hundred exhibits, including financial projections, studies, depositions, e-mails, memos, news articles and expert reports.
Who will testify?
Nearly 80 potential witnesses could appear during the trial, including Orr, Mayor Mike Duggan, City Council President Brenda Jones, numerous city and creditor consultants, DIA officials, Detroit billionaire Dan Gilbert, business executive Roger Penske and former U.S. auto task force member Ron Bloom.
Can the public attend?
Yes, the entire proceeding is open to the public. Hearings start at 8:30 a.m. and take place at the Theodore Levin U.S. Courthouse at 231 W. Lafayette Boulevard in downtown Detroit. Cell phones, cameras and voice recorders are not allowed.
How is the time split up?
The city and creditors supporting the plan get 85 hours to present their case. Objectors get 85 hours, too.
Will Rhodes allow individual objectors not represented by an attorney to testify?
More than 600 individual people objected to Detroit's restructuring plan, and the judge will allow several to present their own evidence and witnesses -- an exceedingly rare move.
Is a settlement possible?
The city is still in confidential negotiations with Syncora and FGIC. It's not uncommon for debtors to reach settlements with creditors during trials. A settlement with the insurers could drastically shorten the trial.
What happens if Orr is voted out of office?
Detroit City Council can vote Orr out of office starting Sept. 27, but it's likely that the state and the city will reach a deal to ensure Orr at least remains in control of the bankruptcy until it's over.
When will Rhodes rule?
It could take weeks or even months following the trial's conclusion. By comparison, it took nearly a month for Rhodes to declare that Detroit was eligible for Chapter 9 bankruptcy after an eligibility trial in fall 2013.
How can I follow live coverage?
The Free Press will be live-blogging the trial every day at Freep.com. You can also follow reporters on Twitter @NathanBomey, @MattHelms, @JoeGuillen, @TBaldas, @BrentSnavely and @AlisaPriddle.
Contact Nathan Bomey: 313-223-4743 or firstname.lastname@example.org. Follow him on Twitter @NathanBomey.
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