LIVE BLOG: Judge to rule on city’s plan to exit bankruptcy

LIVE BLOG: Judge to rule on city’s plan to exit bankruptcy

It’s today. After a five-week trial — spread out over two months — Judge Steven Rhodes is set to confirm or reject the city’s Plan of Adjustment. He’ll issue his ruling from the bench at 1 p.m. We’ll be live blogging from the courthouse here.

2:55 p.m.

The judge’s full ruling is here.

2:46 p.m.

Judge Rhodes thanked attorneys, mediators and his staff for their work in the case. Then he made a direct statement aimed at Detroit residents.

“Your enduring and collection memory of what happened here, and your anger about it will be exactly what will prevent this from ever happening again,” he said. “I ask you, for the good of the city’s fresh start, to move past your anger. Move past it but join in the work that is necessary to fix this great city. Help your leaders do that. This is your great city.”

2:43 p.m.

In the final part of his ruling, Rhodes made three appeals. His first was to labor, urging union leaders to consider pension funding and long-term concerns of retirees during collective bargaining. They “should take a much broader and longer view,” he said.

His second appeal was to the state of Michigan, and he cited the state’s Revised Municipal Finance Act that states the Michigan Treasurer should protect the credit of the state and municipalities. But he said the constitutional provision protecting pensions should not be overlooked.

“It requires the state to take full responsibility to vigorously supervise and regulate its municipalities to ensure adequate pension funding,” Rhodes said.

Rhodes notes that the Michigan constitution “does not single out municipal bonds,” and he said that “bond obligations can no longer be the first municipal budget obligation in this state.

“Moreover, the constitutional protections for municipal pensions can only be realized through honest, complete, realistic accounting and actuarial disclosures,” he said.

His third appeal was directly to the governor about the composition of the financial review commission. “The law by itself is not enough. The effectiveness in ensuring the long-term feasibility of the plan and the city’s fiscal health will (rely on) its members have the skill, standing, expertise, experience, independent, and commitment that are the most outstanding that can be found and without question,” Rhodes said.

He said the mayor and city council president’s presence on the commission could “skew voting,” and “equally importantly, it also risks undermining the public’s perception of the legitimacy and independence of the commission.”

2:27 p.m.

Rhodes appointed his own independent expert witness to review the Plan of Adjustment, Martha Kopacz. She testified about her findings at the end of the confirmation hearing/trial.

Today Rhodes reviewed some of her testimony and reports, including her conclusion that the plan was on the edge of feasibility because of the small margins of debt-revenue it provides for. He noted she found the plan feasible and reasonable.

2:21 p.m.

As far as the constitutional claims, Rhodes said the U.S. Constitution does not protect the creditors with constitutional, civil rights claims in bankruptcy. But their lawsuits (and potential damages being awarded) against individual city employees can continue. “A third-party release would deny injured parties their just relief,” Rhodes said.

2:11 p.m.

A few views on Twitter:

 

2:08 p.m.

Judge Rhodes is discussing why some classes received better treatment (higher recovery rates) than others, getting at the issue of “unfair discrimination.” He said the city’s decision to preserve pensions (with smaller reductions than financial creditors took) is “necessary to its mission” as a municipality.

He is noting that some of the provisions in the Plan of Adjustment that “appeal to the court’s conscience.”

2 p.m.

Rhodes says within the next few days, he will establish a process for the review of fees in the case. He also criticized the Detroit Fire Fighters Association public statements criticizing his ruling that creditors could not object to fees in the case.

1:57 p.m.

Judge Rhodes predicts the city will pay more than $100 million in “professional fees” related to the case. That’s about 10 percent of the city’s annual operating budget. He also calls them “reasonable” in the case.

1:56 p.m.

Throughout his reading of his decision approving the Plan of Adjustment, Judge Rhodes has praised the Detroit Institute of Arts and recognized its importance to the city, region and state. He called the museum “an invaluable beacon” for education, worldwide attraction and civic pride.

“Every great city in the world actively pursues these values. These are the values Detroit must pursue to uplift, inspire and enrich its residents and its visitors,” Rhodes said. “To sell the DIA art would forfeit the city’s future. The city made the right decision.”

1:52 p.m.

Judge Rhodes addressed the assertion raised by some creditors that the city should raise taxes to increase its revenues.

“Raising taxes is not a viable option for the city,” Rhodes says of the potential for Detroit to raise money for creditors through tax hikes on property. The city is at tax saturation, and raising taxes would bring in little extra revenue while driving more people out.

1:48 p.m.

Here’s what the governor has to say.

“People will long remember that when Detroit arrived at this troubling hour, its residents and leaders – with supporters statewide – started to pull together as one. Our state has rallied around its largest and iconic city. It is no longer Detroit vs. Michigan, but the embracing of Detroit, Michigan.

“This day marks the end of the nation’s largest municipal bankruptcy, resolved quickly and successfully as a result of cooperation, compromise and a shared vision from many parties. And it offers hope to hundreds of thousands of residents who call Detroit home.

“This difficult process inspired an unprecedented ‘Grand Bargain,’ where our philanthropic and business communities joined with lawmakers from both parties to lessen the impact on pensions and extend vital services. And we deeply appreciate the sacrifices from retirees who have agreed to take less to help their fellow Detroiters and Michiganders.

“Much work remains, but we are resolved to continue moving forward collaboratively. Our goal is to restore the vitality of this great city from downtown through the neighborhoods, with the quality of life that Detroit’s families deserve. We won’t settle for anything less.

“Detroit’s journey is far from over. But there is no mistaking that Michigan’s largest city is stronger. Its brightest days are to come.”

1:44 p.m.

Emergency Manager Kevyn Orr’s spokesman, Bill Nowling, released this statement from Orr.

“With Judge Rhodes’s historic decision, Detroit moves further along the path toward financial stability and success as a viable and attractive place to live, work and invest,” said Mr. Orr.  “My team and I are pleased that Judge Rhodes agrees that the Plan is the best way for the City to
resolve its financial difficulties and remain on solid financial footing. 

“This decision would not have been possible without the hard work, compromise and sacrifice of so many people and organizations that put aside their considerable differences and came together for the benefit of Detroit’s future. Throughout this entire process, we have benefited  from the leadership of many people – namely, Governor Rick Snyder, Mayor Mike Duggan, Judge Rhodes, U.S. Chief Judge Gerald Rosen and his team of federal mediators, the Detroit City Council, the Michigan Legislature, the foundation community, the Detroit Institute of Arts and its supporting organizations and the leadership teams and advisors of all of the City’s counterparties. “

“Importantly, we also have been inspired by the tireless resolve and deep commitment to Detroit of the City’s workers, retirees and citizens.  Their strength of character gives me great confidence in Detroit’s future now that it will have the financial resources and discipline it needs to fulfill its vast potential.”

1:41 p.m.

Judge Rhodes has been talking for about 40 minutes, reviewing he settlements and explaining why he approves them. (Details below.) Now he’s going into whether the plan is proposed in good faith, is in the best interest of creditors and the reasonableness of attorney fees.

Then he’ll cover whether the plan unfairly discriminates and is fair and equitable, specifically because two classes of creditors voted against the plan.

He’l follow that with a discussion of the constitutional claims in the case end with feasibility requirement.

1:38 p.m.

The judge reviewed why he approves of the settlement with holders of the $388 million in unlimited tax general obligation bonds, which are backed by the city’s property tax revenues. The settlement calls for a 74 percent payment to holders, the highest in the case. Rhodes likes that the agreement prevents lengthy, costly litigation.

“The city’s success on the merit of litigation was a coin toss,” Rhodes said. The scenario of failure in a lawsuit, he described as “dire.”

Regarding the $164 million in outstanding limited tax general obligation bonds, Rhodes said the 34 percent recovery for creditors is reasonable.

1:29 p.m.

The judge is discussing why he is approving the Detroit Institute of Arts-related provisions, which include the museum pledging $100 million toward pension funding and the museum’s collection not being sold to pay creditors.

“The court was particularly impressed with the testimony of Annmarie Erickson,” he said. She’s the chief operating officer at the museum. Here’s some of her testimony.

He noted no creditors asked for the artwork as collateral when they loaned money to the city. (Several creditors asked for the art to be sold to pay them during the bankruptcy case.)

“The court concludes that the DIA settlement was a most reasonable and favorable settlement for the city and its creditors. The court readily approves it,” Rhodes said.

1:25 p.m.

Rhodes described why the Annuity Savings Fund recoupment plan is approved. Now he’s on to the state contribution agreement, which brings in $195 million of state money to the city’s two pension funds as part of the “grand bargain.” He said part of his approval is a consideration of what would happen if the state’s responsibility was litigated. (The settlement agreement contains a provision that pensioners will not file suit about the issue.)

“If the state loses it would be responsible for the Detroit pension underfunding of $3 billion,” Rhodes said. He added then the state would be responsible for all municipal pension underfunding under such a scenario, which would be “disastrous.”

1:19 p.m.

The Detroit Regional Chamber of Commerce is first in with a statement about the approval. Find it here.

1:17 p.m.

From the judge on the pension cuts in the plan:

“The pension reductions are minor compared to any reasonable, foreseeable outcome without the settlement and the grand bargain. At the same time, the court must acknowledge these reductions will cause real hardship and in some cases they are severe.”

On the widespread influence of the bankruptcy:

“This bankruptcy is about the shared sacrifice that will take place because the city is insolvent.  … All of the city’s impaired creditors are making shared sacrifice.”

1:12 p.m.

Rhodes last year ruled pensions could be impaired in the bankruptcy, despite the Michigan’s constitution’s guarantee.

“The court stands by that decision,” Rhodes said today. “Now at the confirmation stage the court must determine if the plan’s treatment of the pension claims meets the legal requirements for plan confirmation and approval.”

He recognized individual pensioners’ objections to the plan and the cuts.

“They credibly state they worked hard of the city, they did nothing wrong and these impairments will cause them serious hardship,” Rhodes said.

1:07 p.m.

Rhodes says the grand bargain is the centerpiece of the Plan of Adjustment. “It is a collection of settlements among a number of parties with an interest in the city’s two pension plans and protecting the city’s art.” He listed the numerous employee, retiree, pensioners, foundations and governmental entities involved.

He’s not recounting some of the settlements contained in the plan, starting with the pensions.

1:12 p.m.

Rhodes last year ruled pensions could be impaired in the bankruptcy, despite the Michigan’s constitution’s guarantee of them.

“The court stands by that decision,” Rhodes said today. “Now at the confirmation stage the court must determine if the plan’s treatment of the pension claims meets the legal requirements for plan confirmation and approval.”

He recognized individual pensioners’ objections to the plan and the cuts.

“They credibly state they worked hard of the city, they did nothing wrong and say these impairments will cause them serious hardship,” Rhodes said.

1:04 p.m.

Judge Rhodes says he approves the plan, including the exit financing.

He’s now going to discuss “major issues related to confirmation.” These includes good faith, best interest of creditors, professional fees, unfair discrimination, fair and equitable treatment and constitutional claims against the city.

“Please settle in. This will take some time.”

1 p.m.

Court is in session. Judge Rhodes is on the bench, reading in his ruling. He’ll file a written copy of it later. For now, we’ll transcribe what he’s saying as quickly and completely as we can.

At the city’s table of attorneys: Detroit Emergency Manager Kevyn Orr,  Heather Lennox, Greg Shumaker and Robert Hertzberg.

Some eight rows of wooden benches in the courtroom are filled with attorneys who made arguments in the case. Some, like Alfredo Perez, who represents bond insurer Financial Guaranty Insurance Co., started out objecting to the Plan of Adjustment but through mediation reached a settlement and now supports the plan.

Also in the crowd, Mayor Mike Duggan, City Council President Brenda Jones and city general counsel Butch Hollowell. They’re in the front row. Eugene Dryker, who served as a mediator is sitting in the jury box.

Also House Speaker Jase Bolger and Rep. Thomas Stallworth.

A guide to the attorneys in the case, including a map of where they’re from, can be found here.

9 a.m.

Meanwhile, here’s a round up of some of today’s coverage in advance of the ruling:

From the Detroit Free Press: Historic Ruling: Judge to decide Detroit bankruptcy today

From The Detroit News: All eyes on Detroit for bankruptcy ruling Duggan: Detroit EM office is empty

From WXYZ-Channel 7: Judge to announce decision in Detroit’s bankruptcy case

From WDIV-Channel 4: Judge set to make decision in Detroit’s bankruptcy

From National Public Radio: Judge to rule Friday on Detroit’s bankruptcy exit

From Reuters: Detroit’s dash through bankruptcy awaits court’s nod  Detroit breaks new ground in bankruptcy settlements