Gov. Rick Snyder is praising Detroit pensioners for approving the city’s bankruptcy restructuring plan, saying “it was hard.” But Snyder admits the bankruptcy is far from a done deal. Other creditor groups are still opposed to the plan and are likely to fight it in court next month. That’s when the trial phase of the bankruptcy begins.
Now that pensioners have voted in favor of the city’s bankruptcy restructuring plan, attorneys will use the results in the case’s confirmation hearing. WDET’s Sandra Svoboda spoke with Wayne State Law Professor Laura Bartell about what the balloting means and what the next steps are in the historical case.
Sandra Svoboda: As you look at the vote from the pensioners on the Plan of Adjustment, what strikes you about the results?
Laura Bartell: It was overwhelming support, which, in fact, was a little surprising I think most people thought they would support it but perhaps not by such a large margin.
SS: What does the city do with the results now?
LB: This is only one step that the city has to take to get its Plan of Adjustment confirmed. It now will have a trial in the bankruptcy court where it will argue to Judge Rhodes that all of the requirements of Chapter 9 for confirmation of a Plan of Adjustment have been satisfied.
SS: What do we expect the creditors to say about that?
LB: The creditors who voted no will argue that the plan does not satisfy the requirements for a “cramdown” under the bankruptcy code in that they will argue that the plan discriminated unfairly against them and is not fair and equitable to them, both standards that must be satisfied to confirm.
SS: Explain what the “cramdown” means exactly.
LB: Cramdown is simply a plan that is confirmed over the objection of one of more classes of impaired claims. You always have to have at least one class of impaired claims voting yes in order to confirm a plan.
SS: What recourse do the financial creditors have who are really going to be taking pennies on the dollar compared to the pensioners.
LB: Their argument is that the plan cannot be confirmed. If Judge Rhodes nevertheless confirms the plan, their only recourse is appeal.
SS: Do we have any indication of what the judge will think of this or how he’ll use the results going forward?
LB: The judge has always shown great sympathy to the pensioners. I do not believe that he will conclude that the plan unfairly discriminates in favor of the pension or is not fair and equitable to all creditors. My best guess, under the circumstances that he will confirm.
SS: Of everything that’s surrounded this case, the pensioners really had the most emotional, maybe, element to them. Does this vote remove that at all?
LB: Oh no, obviously, they are being hurt. Bankruptcy hurts people and in this case it hurts real people in Detroit and around the country who were relying on those pensions to live. That’s emotional, confirmation or no.
SS: The favorable vote from the two classes of pensioners, police and fire in one group and the non-uniform workers and retirees in another, brings the grand bargain into play. How unique is this outside funding in bankruptcy cases?
LB: It is unique as you say. It has never been accomplished before in any other bankruptcy and I doubt it will ever be replicated.
SS: In the future when other municipalities are maybe in the situation of considering bankruptcy, what do they take away from the vote this week in informing their own case?
LB: They will certainly see that it is possible to get a favorable vote from pensioners whose pensions are being cut. Now in other cases they’re not likely to have the grand bargain funds to sweeten the pot for those pensioners so they will have to allocate the funds they do have available in such a way as to encourage a favorable vote by those pensioners.
SS: Between now and trial what should we look for developing in the case?
LB: The bond insurer Syncora has argued consistently that it was entitled to Detroit’s casino revenues. The bankruptcy judge and the district court have now ruled against Syncora allowing those funds to become part of the bankruptcy estate and therefore allocated to other creditors. Syncora has appealed that decision to the Sixth Circuit. The Sixth Circuit has scheduled a hearing on that appeal at the end of July. That will be a major decision that could affect the ability to confirm the Plan of Adjustment.
Detroit Free Press reporter Matt Helms joins Next Chapter Detroit’s Sandra Svoboda to review the results of voting on the Plan of Adjustment by creditors and pensioners. Detroit retirees voted to accept the pension cuts, and with “yes” votes from the majority of both classes of pensioners, the city is one step closer to solidifying a potential restructuring plan.
Detroit’s pensioners passed the city’s bankruptcy restructuring plan — including cuts to their monthly payments, cost-of-living allowances and health care benefits — by wide margins, according to court documents filed last night.
The favorable vote from both the police and fire fighters as well as non-uniform, general service workers means the “grand bargain” money becomes available to fund pensions. The deal includes $195 million from the state, $366 from private foundations and $100 million pledged by the Detroit Institute of Arts. Terms of the grand bargain mean that museum’s collection cannot be sold to pay creditors and that pensioners agree to drop and not file in the future litigation related to the bankruptcy or the emergency manager law.
Of those who voted, about 82 percent of police and fire pensioners and 73 percent of general service workers voted to accept the plan. About half of those pensioners eligible to vote actually voted, according to court records. For the general service pensioners, the terms include 4.5 percent cuts to monthly payments, an elimination of cost-of-living increases and payback of some money they already received in annuity funds. For police and fire, monthly pensions are untouched but cost-of-living increases are cut.
Bankruptcy Judge Steven Rhodes will consider the results during the confirmation hearing on the plan, scheduled to begin Aug. 14.
The city met its July 21 deadline by 33 minutes, filing the vote results in bankruptcy court at 11:27 p.m. EDT.
At exactly 4:06:22 p.m. today, Detroit’s bankruptcy hits the one-year mark. Detroit News business columnist Daniel Howes said it well:
“There will be no celebrations at 4:06 p.m. Friday, only quiet acknowledgment that the largest municipal bankruptcy in American history is marking its first year.”
The Detroit Free Press marked the anniversary with a package of stories last weekend that explored the year in court, the effect in the communities and the new political structure at city hall. Later this week, the Freep published a report predicting a population decline that will make the future even more challenging.
The costs of this municipal bankruptcy itself are high, to be sure, the highest in history. As of June, the city had been billed $75 million by 19 law firms and financial consultants involved in the case, Crain’s Detroit Business reported.
While not everyone likes the negotiated terms that are emerging in the settlement, there is no doubt Detroit’s bankruptcy is moving toward resolution faster than anyone could have expected a year ago. It still faces a confirmation hearing, scheduled to begin Aug. 14, and Judge Steven Rhodes will undoubtedly see in the mirror the proverbial King Solomon as he tries to find the fairness and reasonableness to creditors, including city retirees, in the plan. He also knows he’ll be setting legal precedent as he crafts the settlements and restructuring plans, which will be used in future municipal bankruptcy cases across the country.
We can describe with relative certainty a few elements of the next stage of this case: The pensioners will take cuts to their monthly checks and pay hundreds of dollars more out of pocket for health care. International media will print, broadcast and post more photos of blight juxtaposed against the RenCen as they try to chronicle the decline and possible resurgence thanks to bankruptcy of this city. Courts will decide the legality of the state’s emergency manager law, the remaining pre-trial issues in the Chapter 9 case and future appeals. Lawyers will make more money. Mayor Mike Duggan and the city council will eventually assume control of the city’s departments with “clean” balance sheets and a responsibility to all the city’s neighborhoods, residents, business owners, investors and oversight committees created by the state in the terms of the $195 million pension contributions.
Whether we see real improvements in access to jobs, quality education for children and adequate public safety for everyone remains to be seen. Lansing, quick to congratulate itself for the package of bills providing money and oversight, could do more and should be pressured to do so. What could possibly be on that agenda? How about statewide reform to municipal finance and a re-examination of revenue sharing, regional transit to help Detroiters get to jobs in the suburbs and help with collecting income tax from Detroiters who work outside of the city. Those three elements would be a start but the governor and the Legislature have been silent on those issues.
Many of us will continue to frame the city’s bankruptcy with the competing if extreme truths that “there will be a course change to reroute Detroit’s economic decline, failure of public institutions and creating protections against corruption” and “the bankruptcy is undermining unions, codifying the legality of slashing public benefits and creating huge billing tallies for silk-stocking law firms.” Hopefully how we define the bankruptcy’s causes will not limit our ability to emerge from it and restore city services, improve life for residents, ensure fiscal stability and make countless other improvements.
As for the Emergency Manager’s future plans when his term expires later this year? He told WWJ radio’s City Beat Reporter Vickie Thomas that he’ll “leave quietly,” saying he was surprised by the level of public scrutiny the case brought to him and the city.
“I think it’s appropriate for me, when this does come to an end, to exit quietly — I’m off the stage — and let the regular order return and let the city’s sort of healing process take; and let the patient recover on their own,” Orr told Thomas.
Another seven corporations and two foundations are contributing nearly $27 million toward the Detroit Institute of Arts’ $100 million portion of the grand bargain,
At a new conference this morning at the museum, representatives from the Roger S. Penske and Penske Corporation, Quicken Loans and the Rock Ventures Family of Companies, DTE Energy, Blue Cross Blue Shield of Michigan (BCBSM), Meijer, Comerica Bank, and Consumers Energy as well as the JPMorgan Chase Foundation and Delta Air Lines Foundation made the announcement.
The “grand bargain” is the combination of state money ($195 million), philanthropic funding ($366 million pledged from 10 foundations), and the DIA’s commitment to raise money for Detroit’s two pension funds. The money becomes available as long as the city’s pensioners approve the Plan of Adjustment, which includes giving up the ability to litigate over provisions of the bankruptcy and the state’s emergency manager law. In exchange, the city agrees not to sell the museum’s artwork to raise funds for creditors.
“We are extremely pleased to see this very generous corporate support for the grand bargain and City of Detroit pensioners from these major Michigan businesses,” DIA Board Chairman Eugene A. Gargaro Jr., said in a statement. “They all have a long history of civic and community support and these leadership pledges demonstrate their strong commitment to Detroit’s future. We thank them for helping the DIA to fulfill its $100 million Grand Bargain commitment and know that other donors will join in this great success story for our city and our state.”
The $26.8 million comprises $10 million from Roger S. Penske and Penske Corporation, $5 million from DTE Energy, $5 million from Quicken Loans and the Rock Ventures Family of Companies, $2.5 million from BCBSM, $1 million from Meijer, $1 million from Comerica Bank, $1 million from JPMorgan Chase, $800,000 from Consumers Energy and $500,000 from Delta Air Lines Foundation.
With the new funds, the DIA has reached nearly 80 percent of its $100 million commitment, officials said.
The union representing Detroit firefighters is the only major employee group without an agreement as part of the city’s bankruptcy proceedings. The Detroit Fire Fighters Association also does not support the city’s Plan of Adjustment. Attorneys representing the union will be in court today arguing against certain provisions in the plan, specifically its 10-year provisions for pensions. The fire fighters and their attorneys maintain this violates collective bargaining rights.
WDET’ Next Chapter Detroit Bankruptcy Blogger Sandra Svoboda talked about the union’s objections with Jeffrey Pegg, president of the Detroit Fire Fighters Association.
Here’s the audio of that conversation, which is transcribed below.
Sandra Svoboda: Can you give me a summary of the Detroit Fire Fighters Association’s involvement with the bankruptcy case so far?
Jeffrey Pegg: As it pertains to mediation we are constantly trying to negotiate a collective bargaining agreement, but for the last year it’s been very difficult. We have been close several times only later to have the rug pulled out from underneath us and say that what we discussed can’t be done now so it’s been very frustrating as someone that’s used to collective bargaining.
SS: Your 850 members are currently working with an expired contact but you’re also negotiating with Jones Day and the city right now as part the bankruptcy proceedings, and is the main issue there future pensions?
JP: It’s future pensions, it’s retiree health care, yes.
SS: One of your objections to the Plan of Adjustment is that it contains ten years of information about contracts, employee costs and also pensions. Can you explain to me a little more on the basis of that objections?
JP: The pension part of it, the hybrid plan, that they put in the POA is for ten years and our objection is that you cannot put a mandatory subject to collective bargaining in bankruptcy pleading for more than the term of the bankruptcy, and that it’s also not a debt of the city currently that they are deciding. It’s a going-forward cost so how can you put in this plan, a going-forward cost that is a mandatory subject to collective bargaining. I believe it’s a really good argument that we have that we’re hopefully successful on.
SS: Why is the fire fighters association the last remaining group to reach some sort of agreement with the city?
JP: Well, in my opinion, the Detroit Fire Fighters Association has been the strongest union in the city since we started. We are not difficult to deal with. We are very reasonable people but we are not just going not just sit there and lay down and agree to terms that disagree with us wholeheartedly. We understand that the current situation in the city and the temperature is that they easily could impose terms on us and that our backs are really against the wall but we have to make sure that we get the best that we can for our members. So that’s my opinion about why we’re last, is that really we are the strongest union in the city and it really I think that’s one of the main reasons why.
After hearing several mentions of Detroit’s water shut offs during bankruptcy court today, Judge Steven Rhodes asked a city attorney to return to the afternoon sessions with someone who could answer his questions about the Detroit Water and Sewerage Department. Here’s The Michigan Citizen’s story about the testimony from objectors and the judge’s request.
WDET’s bankruptcy reporter and Next Chapter Detroit blogger Sandra Svoboda and Detroit Free Press reporter Matt Helms join Craig to discuss Detroit’s financial crisis. Sandra and Matt agree that the bankruptcy is still very much a court operation. But as the city continues through the process, some of the real changes could begin to become apparent by this fall. Here’s their segment.