Much has been made of the pensions versus art, Detroit creditors versus everyone in the city’s bankruptcy case. The sides are usually predictably drawn.
But this weekend, the Washington Post weighs in with an editorial picked up by newspapers around the country. It recounts, of course, a bit of how the city got to this situation, citing “mismanagement” on several levels. Then, the authors get to the municipal bond-related portion of the story:
Lenders have come to treat tax-backed municipal debt as nearly risk-free, and no doubt Detroit’s bankruptcy experience may cause some to reprice the risk of financing municipal governments, not only in Michigan but also around the country.
That future, WaPo writes, may not “be an entirely bad thing” if the effect is better managed municipalities. Then we get the discipline that seems to have been so badly missing for decades:
Surely banks that took fees to help Detroit fund its pensions with $1.4 billion in dodgy “certificates of participation”deserve to be taught a lesson.
We’ll see what kind of teacher Bankruptcy Judge Steven Rhodes is later this year.
The last day of February was the deadline for creditors to object to the ambitious schedule set by Bankruptcy Judge Steven Rhodes for Detroit’s case. And object they did.
Reuters reports that one creditor, Syncora Guarantee Inc. “warned that lawsuits will be filed over the Detroit Institute of Arts’ collection, which the city is not selling at this point to help pay its $18 billion in debt.” In its filing, Syncora also threatened a long legal battle over the Detroit Institute of Arts collection, according to The Detroit News.
While all that was going on in federal court, the city was mailing ballots to 170,000 creditors, the Detroit Free Press reports, seeking their approval on the Plan of Adjustment filed Feb. 21 and how it would restructure the city’s debt.
Also Friday, citing the millions of dollars it would cost the city, Judge Rhodes granted the city’s request to disband a creditors committee, set up by the U.S. Trustee in December. The panel included bond insurer Financial Guaranty Insurance Co and the city’s two pension systems.
Earlier this week, our Detroit Journalism Cooperative partner through New Michigan Media, The Michigan Citizen, analyzed the Plan of Adjustment finding:
Activists say what is most significant in Orr’s plan is the transfer of assets, which includes Belle Isle, the Detroit Institute of Arts and Detroit’s Water and Sewerage department. The plan protects the banks, but does little to adequately improve city services or improve quality of life for Detroit residents.
Journalists and analysts around the country continue to dissect Detroit’s Plan of Adjustment and Disclosure Statement. Here is a collection of articles and posts about what some of the possible ramifications are on issues ranging from the city’s technology systems to pension fund disclosures to bond markets.
Reuters reports that Fitch Ratings finds the plan “hostile” for bond holders. “Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan.” Fitch sold the city $1.45 billion certificates of participation (COPS) for pension payments the 2005 and 2006, the subject of a city lawsuit filed last month.
Technology upgrades for police and better information systems for record keeping across city departments are part of the $150 million provision in Detroit’s Plan of Adjustment. The Detroit Free Press reports the investment could be returned threefold, as explained by Charles Moore, a city restructuring consultant with Conway MacKenzie. “This is better collection practices, improved pricing for fees, permits and licenses, and all of this is enabled by improved technology,” Moore says.
In its “Revenge of the 99 %” article, The Economist collects reactions from the bond markets to Detroit’s Plan of Adjustment and analyzes what it all means. But the author warns against too much sympathy for the bond insurers, who are looking at a mere 20 percent payout under the city’s Plan of Adjustment. “Another reason not to shed any tears for Detroit’s bondholders—despite their raw deal—is that it was their disastrous restructuring of the city’s pension debt in 2005 that became a key factor in driving the city to bankruptcy,” he writes.
Meanwhile, the Society of Actuaries, a professional association of risk experts, is calling for openness and transparency by Detroit’s pension funds, as reported by The New York Times DealB%k. The group argues for the release of the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. “We think it would be a useful benchmark for plans to have,” said Robert W. Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.” Will Detroit’s pension funds change their course of resistance to such disclosure? And what are the implications of the release of such information?
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
Bankruptcy Judge Steven Rhodes today issued a list of dates for hearings and deadlines related to the Detroit Bankruptcy and the city’s Plan of Adjustment.
Friday, Feb. 28: Deadline for Objections or Comments Regarding the Timeline
Friday, March 14: Deadline to request that the city include additional information in the Disclosure Statement
Friday, March 28: Deadline to file objections to the Plan of Adjustment or Disclosure Statement and to serve written discovery requests regarding the plan’s confirmation
Friday, April 4: Deadline for the City to file a response to objections to the Disclosure Statement
Wednesday, April 9: Deadline for attorneys with objections to “meet and confer” with City representatives
Friday, April 11: Deadline for City to file its combined response to objections to the plan
Monday, April 14: 9 a.m. hearing on unresolved objections to the Disclosure Statement and initial status conference on plan confirmation
Friday, April 18: Deadline to comply with written discovery requests
Monday April 28: 9 a.m. arguments on objections to the Plan of Adjustment that raise legal issues
Friday, May 9: Deadline to complete non-expert depositions and to designate expert witnesses and submit expert reports
Friday, May 23: Deadline to counter-designate experts and submit reports
Friday, June 6: Deadline to complete expert depositions
Tuesday, June 10: Deadline to submit pretrial briefs and proposed pretrial order
Wednesday, June 11: 9 a.m. Final pretrial conference on confirmation of the Plan of Adjustment
Monday, June 16: 9 a.m. Trial on confirmation of the Plan of Adjustment
The Detroit Free Press’s personal finance columnist, Susan Tompor, profiles several Detroit retirees and what the Plan of Adjustment’s proposed cuts to their pension payments mean to them. Firefighters. Landscape architects. Librarians. How much are their pension payments, and how will the cuts change their lives?
Now when the stress of the job should be long gone, about 24,000 city retirees are taking on a new kind of stress as they’re forced to deal with personal budget cuts. In Detroit, the average general system retiree’s benefit is less than $20,000 a year. For police and fire retirees, it’s about $34,000.
Emergency Manager Kevyn Orr’s initial proposal includes cuts of up to 10 percent for retired police and fire fighters, while retirees from other city departments would lose up to 34 percent. Tompor explains in detail what that means to several retirees, their families and their lives.
From pensioners and poverty to municipal bond markets and the mighty backlash, national and local media offered up some thought-provoking reading over the weekend after Detroit filed its Plan of Adjustment and Disclosure Statement Feb. 21.
Here are five readings we thought worth sharing:
Detroit residents who work outside the city limits could find themselves paying income tax they owe to the city under a measure Emergency Manager Kevyn Orr slipped into Friday’s filings. The Detroit News reports on what it would take at the state level to collect the estimated $140 million that’s missing from the city’s coffers.
Religion and Ethics Newsweekly weighed in focusing on the effects on pensioners and the role the religious community has (hasn’t?) played in the bankruptcy’s aftermath. “Detroit is a city where people desperately need hope.”
Bloomberg reported “The filing opens a new, potentially more contentious phase of the biggest U.S. municipal bankruptcy” in its article examining how the Plan of Adjustment relies on creditor settlements.
CNBC focused on bond insurers and the backlash to the Plan of Adjustment, finding “investors directly in the line of fire made clear Friday they were braced for a legal battle.”
The New York Times looked to post-Katrina New Orleans for lessons Detroit could learn from, writing “The scale of the two cities and the nature of their calamities differ, but Detroit can learn from New Orleans, where a fix that appeared rational to some experts and civic leaders was thrown aside for a way forward that has been slower and messier but politically more palatable and, many here believe, fairer.”