Update: Detroit Moves Forward with Bankruptcy Proceeding


This is a brief update to my earlier post that dealt with the city of Detroit’s Bankruptcy filing. In the earlier post entitled “A New Beginning or End for Detroit” I discussed the political and economic ramifications of the once proud city’s fall into the financial abyss known as a bankruptcy court. I have not wavered in my belief that the filing for bankruptcy was in Detroit’s best interests.

I was not surprised when Detroit filed for bankruptcy protection. The news outlets had reported the city’s financial problems for months. The economic situation in the Motor City was not only desperate, it was dire.  On July 18, 2013 the city’s Emergency Manager, Kevyn Orr, filed the petition with the court on behalf of Detroit. Since his appointment Mr. Orr had engaged in long and arduous negotiations with the city’s largest and most powerful unions and pensioners. Retirees who had long served the City of Detroit were sweating the negotiations. They worried that a bankruptcy filing could result in a drastic cut in the pensions and other vested benefits.  About 38% of Detroit’s annual budget was being spend on “legacy costs such as pensions and debt service. Orr’s cost cutting strategy was no secret; Detroit would cut 11.5 billion in municipal debt down to about 2 billion. Consequently if this cut was spread evenly across all the creditors, each would receive about 17% of what was owed them. Yet, not all the creditors stood on equally footing. Many of the creditors were people who made up the very fabric of the city. It might not be too easy (or politically expedite) to blow off their claims. We cannot ignore the fact some creditors had sacrificed more than 20 years of their lives into securing their investments.

Today, after a protracted and bitterly contested preliminary proceedings, Federal Judge Stephen Rhodes ruled that Detroit could move forward with its bankruptcy petition. Judge Rhodes denied the applications of pensioners, public unions, and other large impacted creditors to derail the filing. The court was keenly aware of Detroit’s deep financial problems. In addressing the magnitude of the problem Judge Rhodes stated that “This once proud and prosperous city can’t pay its debts. It’s insolvent…At the same time, it also has an opportunity for a fresh start.” In announcing his decision to a packed court, Judge Rhodes spoke for more than an hour and dwelled on Detroit’s illustrious past. Now Detroit must prepare a reorganization plan that the court will sign off on. Because of the more than 500 lawsuits against it, the city was forgiven for not negotiating in good faith prior to the filing.

The political landscape in Detroit has changed drastically since the filing of the bankruptcy petition. In my opinion it only made sense that the leaders and the political party that ran Detroit’s finances into the ground should be held accountable for the debacle.

The question that every seems to be asking is if racial considerations played a factor in Detriot’s fall from grace. Once the brash and politically savvy Coleman Young took over the mayor’s office, Detroit’s disenchanted Black community had their man in office. When the 1967 riots razed much of the inner city, Whites decided it was time to move to the suburbs. Soon they were followed by middle class Blacks who wanted safer neighborhoods and better public schools. As Detroit’s tax base dwindled, its revenues began to dry up. Detroit politicians kept borrowing money to keep up public spending. It was only a matter of time before the bad economics caught up with the politicians and city. In my opinion the filing of the bankruptcy also spelled the end to Detroit’s political élite.

On November 5, 2013 Detroit voters in record low numbers cast their votes in the mayoral election. They elected  Mike Duggan by a margin of about 10%. When he takes office in January 2014 he will become the first White mayor of the Detroit in the last four decades. Exit poll surveys and post-elections interviews revealed that Blacks did not vote along racial lines. Most Blacks voted for the candidate irrespective of his skin color that offered the best chance of restoring Detroit to respectability. Mayor Elect Duggan will assume office of a Detroit that is in bankruptcy, has a soaring crime rate, and who citizens are suffering from low morale. He will also have to deal with the thousands of pensioners who lost a substantial amount of their investments due to the bankruptcy proceeding. Perhaps Mayor Elect Duggan’s biggest challenge will be repairing the City’s relationship with the State Legislature in East Lansing. Some commentators say that Duggan is in a no-win situation; I disagree with this assessment. In my opinion Duggan takes over a city that cannot not sink any lower. The fact that he was elected mayor is the first step in the reclamation of Detroit.

Published by Paul Hunter Jones

I was raised in Great Neck, New York. In 1975 I received a B.A. degree from Alfred University. Three years later I graduated from the University of Michigan School of Law and have been practicing law in New York ever since. I am a Republican though I will vote according to the better policy or stance. Politics, law, and finance are my interests. I give special thanks to Cheryl Jones of Lexington South Carolina, my sister, and Eliana Trout Blanco of Santa Marta, Colombia, a one of the kind friend, for their contributions in the writing of this blog.

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