While Detroit’s bankruptcy and revitalization were discussed at the Mackinac Policy Conference (and on the porch of the Grand Hotel), attorneys for the city and several of its creditors were in court in Detroit today, addressing several issues related to the Chapter 9 proceedings and the voting on the city’s Plan of Adjustment.
First, it was revealed that thousands of retirees received inaccurate ballots and will need to vote again, writes Robert Snell in The Detroit News:
The city sent an estimated 2,000 ballots with inaccurate data about money Detroit wants to recoup from current and former workers. The current and former workers, who are covered by the city’s General pension fund, will be sent new ballots with accurate information and get a chance to vote again. “It will undoubtedly result in ‘no’ votes that might otherwise have been ‘yes’ votes,” U.S. Bankruptcy Judge Steven Rhodes said during a hearing Wednesday. “This is very, very unfortunate.
“Who do we hold responsible for this?” Rhodes asked Detroit bankruptcy lawyer Bruce Bennett. Bennett, one of the lead lawyers from the Jones Day law firm, said he didn’t know. Rhodes demanded a name on Friday.
Second, Judge Rhodes said millions of water customers have not paid enough for Detroit Water and Sewerage Department services and could pay more soon. The Detroit News reports:
The 4 million customers across Metro Detroit will pay more if U.S. Bankruptcy Judge Steven Rhodes approves the city’s debt-cutting plan. The failure to pay more for water service led to a shortfall in the city’s pension funds that would be fixed if Emergency Manager Kevyn Orr spins off the utility to Wayne, Oakland and Macomb counties for about $47 million a year. City bankruptcy lawyer Heather Lennox said rates need to be hiked in the city’s debt-cutting plan to pay for capital improvements.
“We are predicting modest rate increases,” she told Rhodes during a hearing Wednesday. A possible spinoff of the Detroit Water and Sewerage Department is one of the more controversial aspects of the city’s restructuring plan.
Detroit’s bankruptcy is far from over.
Judge Steven Rhodes still has July 24 scheduled as the day to begin confirmation hearings on the Detroit’s Plan of Adjustment — the document that explains how the city proposes to restructure its debt and operations post bankruptcy. But between now and then, there are plenty of outstanding issue he’ll address in court documents and hearings. Here are few that are pending:
First, creditors continue to pressure Judge Rhodes to delay the hearing. At a May 22 status conference, attorneys for several creditors urged the judge to postpone by a few weeks the July date. “There are many different creditor issues, any one of which, in my world as a complex litigator, could itself be a multi-year litigation,” said Stephen Hackney, a Chicago-based attorney for bond insurer Syncora. “I can’t come as a surprise to us that there are complicated issues to work through and complicated issues on discovery.”
To help along issues related to document production and witness lists, Judge Rhodes ordered attorneys for Detroit’s creditors to form a Committee on Discovery and Trial Efficiency, which they did. He has told the attorneys he hopes they can work out discovery-related issues themselves, but he will continue last week’s status conference on May 28 where he will continue to hear updates about the discovery process…and undoubtedly continued objections from attorneys to the timeline.
“I cannot adequately represent my client as the schedule is currently constructed,” said Guy Neal, an attorney with the Sidley Austin law firm from Washington D.C. who represents National Public Finance Guarantee, which insures about $1.8 billion worth of Detroit Water and Sewerage Department bonds. “We’re stuck on discovery but not even deposition discovery. We’re stuck on document discovery.”
Second, while it’s largely the city that’s pressing for the ambitious court schedule, Judge Rhodes’s appointed (and paid) expert witness has complained the city is preventing her from doing the necessary work to evaluate the feasibility of the city’s plan. An attorney for Martha Kopacz filed a letter with the court stating, in part, that the city’s accounting firm, Ernst & Young, was not providing her with complete financial information about the city. Kopacz wants the information on which the city is relying to make multi-year financial projections.
Judge Rhodes issued an order that he would consider Kopacz’s complaint at a May 28 hearing.
Third, the issue came up at last week’s hearing what would happen with the city’s contract with Jones Day law firm if the Chapter 9 case continued past September. That’s when the Detroit City Council could vote to remove Emergency Manager Kevyn Orr from office. Orr, of course, is a former partner with the Washington D.C. law firm, and the previous City Council voted to contract with the firm.
In court, the Jones Day attorneys said they weren’t sure what would happen if the bankruptcy case wasn’t settled by Orr’s exit date. “We have not had discussions to my knowledge going beyond that,” said Gregory Shumaker, a Jones Day attorney. “The mayor, the city council, it would be up to them whether Jones Day would continue its representation of the city.”
A day later the Detroit Free Press reported what Mayor Mike Duggan thought about that issue:
Mayor Mike Duggan’s office said Thursday he won’t support extending Kevyn Orr’s time as the city’s emergency manager or keeping on his former law firm, Jones Day, if Detroit’s bankruptcy extends beyond Orr’s expected exit date in late September. … Duggan made clear that if the bankruptcy proceedings extend beyond Sept. 25, he won’t support keeping Jones Day as the city’s law firm in bankruptcy. “We have no intention of keeping Jones Day,” Duggan’s spokeswoman and chief of staff, Alexis Wiley, told the Free Press. “We have every intention of running this city, and that means both services and finances.” Wiley declined to discuss how Duggan would handle the bankruptcy after ditching Jones Day, or which lawyers would pick up where the firm left off.
The Detroit bankruptcy story is far from ending.
The chief mediator in the Detroit bankruptcy case named two federal judges as mediators for continuing discussions toward a regional water authority. U.S. District Judges Sean Cox and David Lawson will facilitate discussions between the city and Macomb, Oakland and Wayne counties as they return to negotiating under the direction of Bankruptcy Judge Steven Rhodes. This morning, Rhodes ordered the parties back to the table to renew talks about an authority with shared governance between the city and the counties.
“The creation of a regional water authority is not only in the best interest of the city but also in the best interest of all the customers of the city’s water department,” Judge Rhodes said. “The customers of the water department, since we’re talking about a governmental function here, ought to have the opportunity to participate in the governance of that water authority and the governance of the delivery of water services, and that can only be done through a regional authority.”
The city has issued a “Request for Information” seeking proposals from private companies to manage the system after talks about the regional authority broke down. Suburban county leaders said the city’s proposals called for the non-Detroit municipalities to put too much money into the department and objected to their contributions potentially being moved to the city’s general fund.
With Judge Rhodes’s order today, the parties will resume talks.
A court filing in the bankruptcy case in Detroit shows a deal regarding the city’s water system between the city and suburban counties appears to have fallen through. Sandra Svoboda, from NextChapterDetroit.com, and Nathan Bomey, from the Detroit Free Press, discuss the situation and its implications with Craig.
Wayne County has filed a motion as part of Detroit’s bankruptcy case requesting a mediator to assist in stalled negotiations over a regional water authority. Ficano says the region should do everything it can to avoid private ownership of the Detroit Water and Sewerage Department. He spoke with WDET’s David Cassleman.
London’s The Guardian newspaper asks “Why does anyone still live in Detroit?” in an article published last week and authored by a native Detroiter now living in New York.
In the first five paragraphs, the article manages to pack in descriptions of the city’s problems with crime, police response, blight, population decline, lack of mass transit, crumbling roads and water infrastructure, lack of grocery stores and retail, and the difficulty of non-motorized transportation.
Whew. That’s an impressive litany of woes jammed into the top of an article, packaged between photos of a tagged abandoned house and a party store’s outside wall advertising liquor, lotto and check cashing.
In the remaining 2,100 words of the piece there is one paragraph devoted to Mayor Mike Duggan’s campaign promises, the city charter change to council elections by district and a description of how Emergency Manager Kevyn Orr has “made blight removal and service provision a priority.” One subsequent paragraph summarizes foundation dollars and other private contributions that could provide some support for improvements. Another few paragraphs describe the goals and challenges of the Detroit Future City plan.
The ‘Live in Osborn’ effort gets some rhetorical love in the article, with a description of improvements planned in that east side neighborhood. The blight removal efforts are as “the easiest answer, though not necessarily the best.”
But the article’s conclusion?
“Perhaps Detroit needs a hero to battle its hydra.”
Detroit’s Emergency Manager Kevyn Orr sat down with the Michigan Chronicle, one of the state’s leading African-American newspapers. In a wide-ranging interview, Orr and Publisher Bankole Thompson discussed the Detroit Water and Sewerage Department, specifically what happened with negotiations to create a regional authority, how that proposal collapsed and how privatizing the department might work.
Here’s one exchange:
Michigan Chronicle: Can you explain what you meant by leasing as an option?
Kevyn Orr: We were going to create an authority, which would essentially lease the department and operate it and pay the city a lease payment. That would be $47 million a year. Our county partners don’t want to do that. That’s fine. So we are going to move away from the lease concept more to a contract. There are operating contractors out there who would bring greater efficiency to the system. That’s what they do. We would also entertain requests for information about an outright purchase.