Week Two of Detroit Bankruptcy: One Year Later

THE DEALS & SETTLEMENTS

Detroit’s Chapter 9 case concluded with creative and sometimes controversial settlements. Here’s how they played out for pensioners, the regional water system, the Detroit Institute of Arts and others.

By Nancy Derringer
Bridge Magazine, Detroit Journalism Cooperative

Detroit’s historic municipal bankruptcy was, in the end, a negotiation. No one walked away from the fiscal wreckage of the old Detroit with everything they wanted; the reorganization of the city’s assets and obligations left everyone involved with wins and losses.

The parties to a municipal bankruptcy, especially this one, cover a dizzying spectrum, from Wall Street bond insurers to elderly retirees to residents of the city itself, who had been living on dark streets, standing on corners waiting for police cars and buses that came late if they came at all.

The city, as a whole, at least won some fiscal stability, albeit with new oversight and other terms.

Most parties lost financially and still describe the bitterness.

Art lovers may have gotten the sweetest piece of the pie.

The Detroit Institute of Arts’ collection, the crown jewel at the top of the asset sheet, was preserved, its assets protected from sale to creditors to pay debts. It was the centerpiece of the so-called grand bargain negotiated by Chief U.S. District Judge Gerald Rosen, who acted as chief mediator in the case.

The collection was essentially ransomed for $816 million, contributed by the state, local foundations, some private businesses, labor unions and the DIA itself. The money is being used to at least partially protect the pensions of city retirees. Delivering those works of art to the safety of a newly formed nonprofit — separate from the city and protected from present and future claims — seemed to ease the whole settlement process.

“Without that first settlement, it’s hard to see how the case would have come together as well as it did,” said Judge Steven Rhodes, who presided over the case. “I have called that settlement and (Rosen’s) work on the case in that settlement miraculous and I stand by that.”

Other parts of the settlement weren’t so sexy though they touch millions of people in Michigan.

The Great Lakes Water Authority, a city-suburban organization that will oversee water and sewer services to most of the southeast Michigan region, also came out of the bankruptcy settlement. It puts together a complicated deal for parties that have not always played well together in the past, and all hope the new regional authority will both protect vital infrastructure and offer some relief to impoverished homeowners who cannot pay their water bills.

The city’s non-public safety retirees — many of them elderly, unable to return to work and entirely reliant on their pensions — dodged the biggest bullet when the grand bargain left their monthly checks only 5 percent lighter than they had been. But they won’t get any more cost of living increases, and the biggest hit came in an area the elderly rely on most of all – health care. The city slashed its obligation to fund retiree health care by 90 percent, leaving those affected to find their own solutions.

William Davis, a Detroit Water and Sewerage retiree, puts it this way: “The whole thing was just wrong and as far as we’re concerned it was illegal.”

 

Police and firefighters have a separate system, and endured less pain, but health care for them, too, will be more expensive.

Residents had, in many cases, nowhere to go but up. And life has improved for many. Streetlights have been replaced, more buses are on the street and police and ambulance services are improving. Rhodes said he believes that all things considered, the city is in relatively good shape as it faces the future.

“I think that the bankruptcy has shined a light on the city of Detroit and it has turned out to be a very positive light,” he said. “People all over the country and indeed all over the world have been rooting for the city of Detroit now to succeed.”

This Week's Features