Detroit files plan for fixing debt, emerging from bankruptcy
Updated On: Feb 21 2014 05:59:34 PM EST
Detroit's emergency manager filed a plan Friday to restructure the city's $18 billion debt by making cuts to pensions and creditors while offering a blueprint for emerging from the largest municipal bankruptcy in U.S. history.
View/download: Plan of Adjustment
An early draft of state-appointed Emergency Manager Kevyn Orr's plan called for city pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion during the next 40 years. That draft also detailed plans to help pensioners keep more of what they are owed by using state and private funds to protect against the sale of city-owned art at the Detroit Institute of Arts.
"My advisers and I have now expended many months in negotiations, including within Bankruptcy Court-mandated mediations, with all classes of creditors to get to this point, and we are satisfied with the progress made thus far," Orr said in a statement. "However, there is still much work in front of all of us to continue the recovery from a decades-long downward spiral. We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end."
The plan still faces numerous obstacles. Most aspects are still being negotiated in mediation sessions with stakeholders.
"The proposed plan of adjustment is a gut punch to Detroit city workers and retirees," said AFSCME Council 25 President Al Garrett. "The plan essentially eliminates health care benefits for retirees and drastically cuts earned pension benefits. Retires cannot survive these huge cuts to the pensions they earned. The plan is unfair and unacceptable."
Garrett said his union would "fight for a more just result."
Court appeals are all but certain even after the final version is approved in bankruptcy court.
Complete coverage: Detroit bankruptcy
Related: Detroit EM prepares plan of adjustment for bankruptcy court
The early draft included the possible spinoff of the city's Water and Sewerage Department to a regional authority. The city would receive $47 million annually under a lease deal.
Orr included in his early draft a promise of millions of dollars from foundations, the state and the Detroit Institute of Arts to prevent any possible sale of city-owned pieces in the museum to bolster at-risk pensions.
The city also would establish a voluntary employees' beneficiary association that would provide health care benefits to retirees.
The plan was accompanied by a disclosure statement, which outlined the level of reinvestment, including municipal services, planned during the next 10 years.
Orr had hoped creditors would sign off on the plan before he submitted it to U.S. Bankruptcy Judge Steven Rhodes. But the clock was ticking because Rhodes had set a March 1 deadline. Nevertheless, with negotiations ongoing, changes are expected.
Orr has said the city's debt is at least $18 billion. About $6 billion is Detroit Water and Sewerage Department debt, which is secured by water bill payments. An additional $12 billion is unsecured, meaning it's not covered by a revenue stream. That 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.
Pension officials have disputed that figure.