Pensions Spared Worst Pain In Detroit Recovery Plan
The city of Detroit is asking unsecured creditors to accept its plan to spend $1.5 billion on new services and infrastructure to make the city more livable, while offering to repay just 20 percent of what it already owes them for past improvements.
Retirees would fare much better under Detroit's long-awaited plan to erase $18 billion in long-term debt. The city is proposing to trim their pensions by just 10 percent to 25 percent, thanks to an unusual deal in which private foundations and the state of Michigan would chip in about $700 million to prop up the city's pension funds. Secured creditors, meanwhile, would be paid in full.
The 120-page plan of adjustment, accompanied by a 440-page disclosure statement, was submitted to federal court on Friday. While detailing who will get paid and how much, it also lays out a long-term vision for Detroit's recovery, after its decades-long slide that culminated in a Chapter 9 bankruptcy filing last July.
Emergency Manager Kevyn Orr wants to set aside $1.5 billion over 10 years for capital improvements, blight removal, and equipment and technology upgrades to make the city more livable. One third of that would be dedicated to blight removal over the next five years.
Orr's plan is just that - a plan. Nothing is set in stone yet, and in fact, it's likely to be picked apart and attacked in the coming months, especially by creditors who believe they're getting the raw end of the deal. They will review the plan, and have a chance to vote on it, but U.S. Bankruptcy Judge Steven Rhodes is the ultimate decider. He could decide to 'cram down' a plan, even if the creditors object.
Gov. Rick Snyder, who used his broad powers to appoint an emergency manager and then steered the city into bankruptcy last summer, called for everyone to get on board so Detroit could exit bankruptcy quickly. 'Let's use this plan as a call to action for a voluntary settlement as part of the mediation process to resolve the bankruptcy more quickly and soften the tough but necessary changes,' he said in a statement.
The governor has been heavily involved in Detroit's restructuring from the beginning, including his offer to provide $350 million in state aid as part of a deal hammered out by the case's chief mediator, Gerald Rosen. He persuaded 10 large philanthropic organizations, including the Ford Foundation and the W.K. Kellogg Foundation, to pledge $370 million to protect the Detroit Institute of Arts' prized collection from being auctioned to fund city pensions.
State legislators have yet to approve any state aid, however, and if the charitable funds don't come through, Orr warned that retirees could recover less in pension money.
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