A federal judge on Friday approved Detroit’s plan to emerge from the largest municipal bankruptcy in U.S. history, fueling hopes that the revival of a city that for decades has been a national symbol of urban decline is at hand.
The city’s blueprint for moving forward allows it to shed $7 billion of its staggering $18 billion debt, even though many creditors — including some bond holders and the city’s 21,000 pensioners — will have to endure far smaller cuts than were originally contemplated.
The series of deals hammered out with creditors, coupled with a “grand bargain” that brought an outpouring of state and philanthropic help to protect the Detroit Institute of Arts’ world- class art collection, will allow the Motor City to emerge from bankruptcy less than 16 months after officially tumbling into insolvency.
“Much work remains, but we are resolved to continue moving forward collaboratively,” said Michigan Gov. Rick Snyder [R], who decided to put Detroit into bankruptcy in July 2013, allowing the city to break contracts and write down debt to put its fiscal house in order. “Our goal is to restore the vitality of this great city.”
Still, some of the compromises that made Detroit’s rapid exit from bankruptcy possible are also raising concern about whether the city will have the financial room needed to grow its revenues and improve vital services in the crucial years to come.
“There is no question that the plan is tight,” said Charles M. Moore, senior managing director of Conway MacKenzie, a management consultant firm that worked on a plan to restructure moribund city services in connection with the bankruptcy.
The road map out of bankruptcy approved by Judge Steven W. Rhodes would reduce pensions for former city workers by 4.5 percent, while cost-of-living increases will be eliminated. Former police officers and firefighters would see cuts to their pensions’ cost-of-living increases while bond holders endure a variety of substantial cuts.
The plan also contemplates Detroit investing $1.7 billionover the next nine years — a vast sum for a city that for decades has been trimming investments and in recent years had capital expenditures of just $10 million, Moore said.
The money will go toward new computer systems, firetrucks, ambulances and other infrastructure aimed at reviving city services that in many cases had failed to function in recent years. Currently, city police officers have no systematic way to know what previous calls a particular address had made when responding to 911 calls. And at one fire station, Moore said, firefighters have resorted to leaving a soda can on top of a printer to alert them when an urgent call comes in.
“The condition of operation of the city is so poor that it is not something that can be addressed overnight,” Moore said.
The city’s exit from bankruptcy was swift when compared with the handful of other cities — including Vallejo and Stockton, Calif., — that have sought court protection from creditors in recent years. The move also seemed to trigger an unusual measure of cooperation between Detroit and the rest of Michigan, which has had a strained relationship with its largest city.
Not only did the Republican-led legislature approve a bailout plan for the city, but leaders of counties surrounding Detroit agreed to form a regional water authority with the city, ending decades of acrimony over that service.
“Our state has rallied around its largest and iconic city,” Snyder said. “It is no longer Detroit vs. Michigan, but the embracing of Detroit, Michigan.”
Experts do not believe that the city’s relatively smooth trip through bankruptcy will encourage other fiscally stressed municipalities to follow suit.
For one, it is costly: Detroit spent upward of $150 million on lawyers and other experts needed to move the deal along. In addition, the deal leaves the city — which has lost more than a quarter of its population since 2000 — with precious little financial wiggle room going forward. The city still faces huge problems with public safety, blight and economic development, which led to its long slide into bankruptcy.
“The big hurdle is whether or not they can get the services and infrastructure in place to build the city back up,” said John J. Ramirez, a restructuring lawyer who represented a group of Detroit bond holders.
While Detroit has experienced a surge of investment in its downtown and Midtown districts, the services that will make much of the sprawling, 138-square mile city viable, remain troubled. The school system, which is operating under its own emergency manager, is confronting steep fiscal problems and low achievement rates, discouraging many families from living in the city.
Meanwhile, Detroit’s blight removal efforts are only beginning to gear up, meaning the city likely faces years of flat property values and revenue.
But given the city’s decades-long decline, Detroit leaders applauded the bankruptcy exit plan, saying it gives the city a shot at a fresh start.
“With Judge Rhodes’s historic decision, Detroit moves further along the path toward financial stability and success as a viable and attractive place to live, work and invest,” said Kevyn Orr, a Washington lawyer whom Snyder appointed last year to manage the city under Michigan’s controversial emergency manager law.
The agreement ends Orr’s tenure, and Detroit’s elected officials are back in charge, although the city’s finances will be overseen by a state Financial Review Commission.
Mayor Mike Duggan, a Democrat, pledged to continue making improvements to once-moribund city services. Even before the approval of the bankruptcy plan, he said, his administration has been implementing some of its elements. He said ambulance response times have decreased and thousands of new street lights have been installed in a city where 40 percent of them did not work a year ago.
He said the money being freed for investments as part of the deal will facilitate further improvements. Duggan, who chafed under the emergency manager structure limiting his powers, said “this plan allows us to continue to improve those services.”