Detroit Emerges From Bankruptcy with Hopes of Turning City Around

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detroit-bankruptcyDetroit was the largest American city ever to file for bankruptcy and, after 16 months, the city has amazed observers by officially exiting bankruptcy status with a promise of $816 million in new funds and a plan to lift up the city by focusing on cleaning up Detroit’s blighted neighborhoods.

While the process was extremely contentious and will involve significant pain to many parties—particularly the pensioners, many of whom were already living close to the edge and who accepted a 4.5 percent cut in their pensions and elimination of annual cost-of-living increases—bankruptcy experts were amazed by the speed and efficiency with which Detroit was able to get through it all.

Laura Bartell, a bankruptcy professor at Wayne State’s Law School, told the Detroit News it was “astonishing” for the process to be complete in 16 months.

One of the most remarkable aspects of the agreements is something being called a “grand bargain,” which involved getting private charitable foundations from around the country to come together along with the state and pledge $816 million over 20 years to soften the pension cuts and also protect the extremely valuable art works from such masters as van Gogh and Matisse at the Detroit Institute of the Arts from creditors. It was an unusual request to make of foundations, but about a dozen came through—charities like the New York-based Ford Foundation, which pledged $125 million, the Michigan-based Kresge Foundation ($100 million) and the Miami-based Knight Foundation ($30 million).

Judge Rhodes said the grand bargain “borders on the miraculous.”

But as Rhodes stated on Friday in his nearly two-hour oral decision, there would be plenty of pain coming out of the agreement, particularly for the city’s 680,000 residents.

“This will cause real hardship and, in some cases, it is severe,” Rhodes said. “This bankruptcy, however, like most, is about shared sacrifice that is necessary because the city is insolvent and desperately needs to fix its future.”

Rhodes told elected officials to take advantage of this new opportunity to turn things around.

“We give the city back with the fresh start and second chance the city needs,” Rhodes said.

 

He said the plan was fair, feasible and in the best interests of creditors and residents who endure an inferior level of city services.

“Detroit’s inability to provide adequate municipal service runs deep and has for years,” Rhodes said. “It’s inhumane and intolerable and it must be fixed. This plan can fix these problems.”

“This whole thing is horrible,” retiree William Davis, who spent 34 years working in the Detroit Water and Sewerage Department, told the Detroit News. “The money is coming from the backs of the retirees.”

But Rhodes also had a message about the anger.

“I urge you now not to forget your anger,” Rhodes said. “Your enduring and collective memory of what happened here, and your memory of your anger about it, will be exactly what will prevent this from ever happening again. It must never happen again.”

After Rhodes’ speech, Emergency Manager Kevyn Orr called the ruling a “legal tour de force.”

A huge part of the agreement will focus on fighting blight—the 80,000 abandoned buildings and houses that dot the landscape.

Nearly one-fourth of the $1.7 billion the city plans to spend as it emerges from bankruptcy goes to urban blight. But even with $420 million planned, that’s still far below the $846 million needed for the job as estimated in a May report by the Detroit Blight Removal Task Force, a coalition of experts from the government and public and private sectors.

But removing blight will be necessary to fulfill new mayor Mike Duggan’s pledge to increase Detroit’s population, reversing a decades-long trend that has plagued the Motor City after the auto industry fled.

Duggan over the summer said if he fails to bring people back to his city, then he shouldn’t be mayor anymore.

“The single standard a mayor should be defined on is whether the population of the city is going up or going down,” Duggan told the Wall Street Journal.

But Margaret Dewar, a professor of urban and regional planning at the University of Michigan, said, “A more achievable goal would be to slow the rate of population loss.”

Residents say they are already starting to see improvements, such as long-dark streetlights turned back on and garbage again being picked up regularly.

“The blight has got to go,” said Thomas Wilson Jr., a 67-year-old resident of the city’s northwest side. “But I don’t look at the glass as half-empty. I look at it as half-full or more than half-full. I’m the eternal optimist. And Detroit is going to be OK.”

 

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