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for his office moved to contest a ruling by a lower court judge that it violates the state constitution and must be withdrawn.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On Friday, a county judge, Rosemary Aquilina, ordered it withdrawn, in part on the urging of the pension funds and unions which fear deep cuts in pensions and other benefits for the city’s current and retired workers.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
News
Disruption at Waterloo after a person was hit by a train
newsCancellations and disrupted service after person hit by train
Arts and Entertainment
music
Arts and Entertainment
The almost deserted Liverpool Echo Arena on Monday
tvCan X Factor last in the face of plummeting numbers auditioning
News
Kirsty Bertarelli is launching a singing career with an album of songs detailing her observations of “real life”
news
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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: Photographer / Floorplanner / Domestic Energy Assessor

£16000 - £25000 per annum: Recruitment Genius: A Photographer/ Floor planner /...

Ashdown Group: Front-End Developer - Surrey - £40,000

£30000 - £40000 per annum: Ashdown Group: Front-End Developer - Guildford/Craw...

Recruitment Genius: Customer Service Assistant

£13500 - £15000 per annum: Recruitment Genius: A Customer Service Assistant is...

Recruitment Genius: Sales Executive - OTE £35,000

£16000 - £35000 per annum: Recruitment Genius: An ambitious and motivated Sale...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence