Battle to keep bankrupt Detroit solvent...and without a bailout

 

The governor of Michigan today defended last week’s bankruptcy filing by Detroit even as lawyers for his office moved to contest a ruling by a lower court judge that it violates the state constitution and must be withdrawn.

“This is a very tough decision, but it’s the right decision,” Governor Rick Snyder, a Republican, said on NBC’s Meet the Press. “The citizens of Detroit deserve better than they’re getting today. There were no other viable options.” Kevyn Orr, the Detroit emergency manager appointed by Governor Snyder to try to navigate the city out of some $18 billion (£11.7bn) in debt, announced the move – the largest municipal bankruptcy petition in US history – late Thursday.

On Friday, a county judge, Rosemary Aquilina, ordered it withdrawn, in part on the urging of the pension funds and unions which fear deep cuts in pensions and other benefits for the city’s current and retired workers. The legal wrangle may not delay the bankruptcy filing for long, however, with state officials asking a federal judge to intervene and decide the matter as early as today. In the view of most legal experts, once a bankruptcy petition has been filed, it becomes a matter of federal law putting it beyond the reach of a county court.

With President Barack Obama due in two Midwestern states this week – Illinois and Missouri – to tout his economic recovery plans, pressure is rising from some quarters for a federal bailout of Detroit. Even though  bail-outs came for the car industry, whose roots are in Detroit, five years ago, such a lifeline may not materialise for the city.  Nor, for the moment at least, is the city asking for it, as Mayor Dave Bing underscored yesterday on the ABC network.

“I think it’s very difficult right now to ask directly for support,” he said. “We’re not the only city that’s going to struggle through what we’re going through.  We may be one of the first. We are the largest, but we will absolutely not be the last. And so we have got to set a benchmark in terms of how to fix our cities and come back from this tragedy.”  When asked if the city might ask for a federal bail-out, he said: “Not yet”. Among those urging a bail-out is Steven Rattner, former special advisor to the president on the car industry. “No one likes bailouts or the prospect of rewarding Detroit’s historic fiscal mismanagement,” he wrote in the New York Times. “But apart from voting in elections, the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.”

Issuing her ruling on Friday, Judge Aquilina said Mr Orr should withdraw his petition at once. “I’m finding the actions that were taken in filing bankruptcy as overreaching and unconstitutional,” she said.

Mr Orr has reassured city workers and retirees that their benefits and pensions would remain untouched for at least half a year as the bankruptcy process is pursued. Detroit has to consider about 100,000 creditors. They notably include the roughly 200,000 retirees of the Police and Fire Retirement System and the General Retirement System.

“We have made a decision that for the balance of this year, the next six months, we’re not touching pensions or health care,” Orr said in the Free Press newspaper. “So all pensioners, all employees you should understand: it’s status quo for the next  six months.”

The unelected man with the power

Michael Fletcher

Kevyn Orr has become the face of Detroit’s historic bankruptcy. Until recently, the lawyer was perhaps best known for helping guide Chrysler through its wrenching but ultimately successful 2009 bankruptcy.

Now Mr Orr has rocketed to national prominence for his lead role in trying to free Detroit from at least $18bn (£11.9bn) of debt. He is also charged with restoring to the city basic services that have eroded to dangerous levels.

His decision last week to file the largest municipal bankruptcy in the nation’s history has triggered anger among the city’s creditors as well as its 9,700 current employees and 20,000 retirees, who stand to lose money and benefits.

Mr Orr said bankruptcy offered the best hope for the kind of renewal he envisioned for Detroit in March when he left his cushy job as a partner at the law firm Jones Day to serve an 18-month term as the emergency manager for Detroit.

The $275,000-a-year job gave Mr Orr extraordinary power to run Detroit. He can tear up contracts, hire and fire workers and liquidate city assets. It also put him in the crosshairs of some of Detroit’s civil rights and political leaders, who saw the state-mandated emergency manager role as an undemocratic, and maybe unconstitutional, taking of power. Washington Post

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Web Designer / Developer

£12000 - £16000 per annum: Recruitment Genius: New Full-time, Part-time and Fr...

Recruitment Genius: Multidrop Van Driver

Negotiable: Recruitment Genius: Due to rapid expansion, this family owned comp...

Recruitment Genius: Electrical Engineer

£26500 per annum: Recruitment Genius: This company is going through a period o...

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral