“Does anybody think it’s okay to have 40-year-old trees growing through the roofs of dilapidated houses?” asked emergency manager Kevyn Orr at a news conference with Michigan Gov. Rick Snyder (R). “Does anybody think our children should walk through the streets, dark, home from school at night in October? Does anybody think that they should call the police and not be able to come on time because they’re already out on calls? No.”
Defending the decision to file for bankruptcy, Snyder said: “Now is our opportunity to stop 60 years of decline.”
But the widely expected move stirred cries of protest from bondholders and anxiety among the city’s 9,700 workers and 20,000 retirees. Harrison J. Goldin, who was comptroller of New York during the city’s 1970s fiscal crisis and who is now advising municipal bond insurer Ambac Assurance, warned that “the State of Michigan is making a grave error.” (Ambac said it had up to $170.3 million of exposure to two of the city’s general obligation bonds.)
Standard & Poor’s dropped Detroit’s bond rating to its lowest level, predicting that the city would struggle to persuade a bankruptcy judge to back far-reaching restructuring and then would have trouble getting investors to trust the city again.
“Once you file bankruptcy, you don’t just flip a switch and everything is fine,” said Steve J. Murphy, S&P’s managing director for public finance. “The challenge is, you’re severely damaging your reputation and credit standing.”
In a hint of the difficult road ahead, an Ingham County Circuit Court judge on Friday ordered that Detroit’s federal bankruptcy filing be withdrawn. Judge Rosemarie Aquilina said it violated state constitutional protections of pension benefits.
In response, state Attorney General Bill Schuette asked the Michigan Court of Appeals to stay the trial court rulings while appeals proceed.
Orr said that during the bankruptcy, employees would be paid and the city would pay its bills — and perhaps, for the first time in awhile, pay those bills on time. He said there will be a hotline that city vendors can call if they do not get paid.
Orr also said he would appoint a committee to represent retirees in negotiations over underfunded pension plans.
But, he said, there was little choice other than bankruptcy, given Detroit’s towering debt and limited tax revenue. Comparing the city’s revenue to its basic spending needs and debt payments, he said, “There’s no way home from that equation.” He added: “I’d be happy to listen to any other plan someone can come up with given the restraints we’re working under. The reality is . . . with $12 billion in unsecured debt, there’s precious little we can do.”