Detroit’s state-appointed Emergency Manager Kevyn Orr has filed a plan to restructure the city’s $18 billion debt through cuts to pensions and creditors while at the same time offering a blueprint for how the city will emerge from the largest municipal bankruptcy in U.S. history.
An early draft of Orr’s plan called for city pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion over the next 40 years. The draft also detailed plans to help pensioners keep more of what they are owed. This would be done by using state and private funds as protection against the sale of city-owned art at the Detroit Institute of Arts.
Obstacles to Bankruptcy
There are still numerous obstacles to this early plan and most aspects are still being negotiated in mediation sessions with stakeholders. Even after the final version is approved in bankruptcy court there are most likely to be court appeals.
Orr’s early draft included a possible spinoff of the city’s Water and Sewerage Department to a regional authority. Under a lease deal the city would receive $47 million annually.
Orr also included a promise of millions of dollars from foundations such as the state and the Detroit Institute of Arts, in order to prevent any possible sale of city-owned pieces in the museum to help support at-risk pensions.
Under the plan the city would establish a voluntary employees’ beneficiary association to provide health care benefits to retirees.
The plan was accompanied by a statement outlining a einvestment plan that will be put into practice over the next ten years.
Orr had hoped creditors would sign off on the plan before the submission date of March 1, a deadline set by U.S. Bankruptcy Judge Steven Rhodes. But with negotiations ongoing, changes are expected.
$18 Billion in Debt
Orr has said the city’s debt is at least $18 billion; $6 billion is Detroit Water and Sewerage Department debt (which is secured by water bill payments). An additional $12 billion is unsecured (not covered by a revenue stream) which includes about $2 billion in general obligation bond debt, $5.7 billion in unfunded retire health care obligations, and $3.5 billion in unfunded pension liabilities.
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Source: Huff Post, Detroit Files Plan To Fix Debt, Leave Bankruptcy, February 21, 2014