The fate of Detroit in his hands: Judge reviews plan to write off $7bn of debt and rescue city from bankruptcy

Today a judge will review a debt restructuring plan to rescue Detroit from bankruptcy. The scheme protects pensions, but creditors claim it has left them shouldering an unfair share of the burden

Allowing Detroit to declare bankruptcy was one thing, getting it out of it was always going to be another. How do you magically slash $18bn (£10.1bn) in debt and simultaneously put a city as proud – and as dilapidated – as Motown back on its financial feet again?

With great grit and speed, it seems. And a touch of ruthlessness. A process that could have taken years will instead come to a climax starting on Tuesday morning in the courtroom of Judge Steven Rhodes.

It will be his job to review a sweeping debt restructuring plan that has been hammered out in marathon negotiations in the months since the original bankruptcy filing in June 2013. He can approve it if he deems it fair and workable or reject it if he doesn’t. The fate of Detroit, literally, is in his hands.

Most parties to the potential deal, but not all, want it approved. Thus America’s biggest municipal bankruptcy in history would be brought to a swifter-than-expected end and the city would be freed to begin addressing its many urgent woes, ranging from the blight of so many abandoned buildings, the decrepit state of its emergency services and the disrepair of the city infrastructure – fixing the street lights (half don’t work) would be a start.


“None of it will get wiped out until the plan is confirmed and the judge issues an effective date,” Bill Nowling, spokesman for the city’s emergency manager Kevyn Orr, remarked of the debt. “And it happens really fast after that. I think – with the exception of a few remaining holdouts – all of our creditors recognised we could not let the city languish in endless bankruptcy proceedings.”

The climb back would still be a long one. Once the cradle of the American car industry and the sounds of Motown, Detroit has seen its population plummet from  1.8 million people in 1950 to barely 700,000 today. Its very life and its tax base have been eaten away by middle-class flight that only accelerated as violent crime rose and services declined. Communities all across the Midwest have experienced similar decay as industries have foundered and jobs have vanished. But nowhere has it been on the scale seen by Detroit.

The plan now on the table would eliminate $7bn of the city’s debt as it were overnight. And it would put $1.5bn directly into its coffers to begin the task of reviving its services, for example updating the computer networks of the emergency responders that are older than some of the people who have to work  with them.

Most striking is the relative lack of pain that would be inflicted on city workers and particularly its retired workers who feared their pensions might have to be slashed. There are twice as many municipal pensioners in Detroit as there are city employees actually working. While annual cost of living increases have been scrapped, the levels of pension payments are mostly preserved. 

Also seen off have been demands from some creditors that the city sell off the contents of the Detroit Institute of Arts, its most cherished cultural entity.

The city negotiators got there in part by tapping into the generosity of private donors, philanthropic foundations and the coffers of the state of Michigan which together rounded up $816m. Dubbed the “grand bargain”, that money protected pensioners and the Institute of Arts. However, there remain scores of other creditors – institutions and ordinary investors – who will argue before the court that they are being short-changed and unfairly treated.

The Michigan Theatre was saved from demolition by being transformed into a car park The Michigan Theatre was saved from demolition by being transformed into a car park (AFP/Getty)

Most vociferous has been a bond insurance company called Syncora Guarantee which in court filings last week complained that the man most responsible for formulating the plan, Detroit’s bankruptcy mediator Gerald Rosen, has unfairly and illegally favoured city pensioners over  unsecured creditors like Syncora. The company described what Mr Rosen had engineered as biased and a “quasi-political manoeuvre”.

“It has been a very fast-track bankruptcy, which Syncora has no issue with,” a company lawyer, James Sprayregen, said. “Syncora’s issue is the lack of transparency of the process and the unfair treatment of its claims.”

READ MORE: The rise and fall of Detroit
Detroit cuts off water to thousands of residents
Corruption at Detroit's City Hall

Judge Rosen is expected to hear from no fewer than 80 witnesses, all representing groups with a stake in the outcome, including large creditors and bondholders who stand to receive only a fraction of what they are owed – bond insurers like Syncora would get only pennies on the dollar – and the big municipal unions. The latter will argue that in fact they are sharing in the pain, but that there is no alternative to accepting the deal.

“No one may be happy with the plan of adjustment, but it should bring this insolvency to an end,” Bruce Babiarz, of the Police and Fire Retirement System, said on the eve of the trial.

“Many are looking forward to getting on with their lives knowing that their pensions are secured and there is optimism for the future of what was once among the greatest cities in the world.”

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Recruitment Genius: 1st Line Technical Support Engineer

£19000 - £23000 per annum: Recruitment Genius: This IT and Telecoms company ar...

Recruitment Genius: Assistant Manager - Visitor Fundraising

£23000 per annum: Recruitment Genius: The Visitor Fundraising Team is responsi...

Recruitment Genius: Developer

£30000 - £35000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Trainee Sales Account Manager - OTE £25,000

£15000 - £25000 per annum: Recruitment Genius: Are you outgoing, ambitious, en...

Day In a Page

War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future
Berlusconi's world of sleaze: The astonishing lifestyle once enjoyed by Italy's former PM

Berlusconi's world of sleaze

The astonishing lifestyle once enjoyed by Italy's former PM
Disney plans galactic domination with endless Star Wars spin-offs

Disney plans galactic domination with endless Star Wars spin-offs

Films and theme parks are just the beginning. Disney believes its control of the now decades-old franchise can bring in merchandise and marketing millions for years to come
Could the golden age of the gaming arcade ever be revived in the era of the Xbox?

Could gaming arcades be revived?

The days when coin-ops were the only way to play the latest video games are gone. But a small band of enthusiasts are keeping the button-pushing dream alive
Edinburgh Fringe 2015: The 'tampon tax' has inspired a new wave of female comedians to reclaim period jokes

Heard the one about menstruation?

Yes, if you have been at the Fringe, where period pieces are taking centre stage