Where things stand with Detroit's bankruptcy plan

Staff Writer
Columbus CEO

DETROIT (AP) — More than a year after Detroit filed for the largest public bankruptcy in U.S. history, a federal judge is hearing evidence on whether he should approve the city's plan to emerge from billions of dollars in debt. Here's a look at the past, present and future of the city's finances:


For decades, Detroit paid its bills by borrowing money while struggling to provide the most basic of services for residents. The city, once fueled by the massive auto industry it gave birth to, shrunk from 1.8 million people six decades ago to fewer than 700,000 now.

So, when Detroit finally succumbed and filed for bankruptcy in July 2013, its long-term debt exceeded $18 billion. The city expects to get that down to $5 billion if Judge Steven Rhodes approves the plan put forth by state-appointed emergency manager Kevyn Orr.


Rhodes has scheduled dates into mid-October, if needed, to determine whether the city's plan is fair to creditors and feasible for the city. The judge will hear from city leaders, including Orr and Mayor Mike Duggan, and creditors who oppose the plan. Both sides have up to 85 hours to present their arguments and testimony, and Rhodes also has his own experts to advise him.


The strongest opposition to the plan has come from bond insurers, such as New York-based Syncora Guarantee. Syncora has said its claim is about $400 million and that Detroit has unfairly discriminated against financial creditors primarily through what's been called the Grand Bargain — a court-mediated agreement finalized this summer.

That deal among the state, major corporations and foundations promises more than $800 million over 20 years to support city retiree pensions. General retirees would take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. It would also stave off the sale of city-owned pieces in the Detroit Institute of Arts — home to hundreds of paintings and sculptures by Van Gogh, Bruegel the Elder, Renoir and other masters — to help pay off the city's debt.


Creditors have been negotiating with the city to try to reach settlements. But given that they have been offered pennies on the dollar compared to the amounts promised pensioners, further deals are unlikely.


Rhodes can force the entire plan on creditors — even if some don't like it — because some significant creditors, notably some 30,000 city pensioners and employees, have already voted in favor of it as part of the Grand Bargain. Such a ruling is referred to in bankruptcy court as a "cram down."

He could also approve part of it and urge changes if he does not think parts will work. It could be a month or more after the trial for Rhodes to reach his decision, given the complexity of the case.

Regardless of how Rhodes rules, appeals are certain. Syncora, for instance, has said the plan is unfair, will be too costly to defend and will ultimately fail.