Orr (Paul Sancya / AP)
Detroit’s bankruptcy has entered the Let’s Make a Deal stage, with creditors facing the choice of whether to accept the plan laid out by Emergency Kevyn Orr or bet that there’s something better waiting behind a curtain.
They’d be smart to take the deal. While there’s a slight chance the pensioners and banks could fare better by mounting a prolonged fight, it’s more likely they’ll do worse.
Pensioners particularly should weigh the merits of Orr’s plan of adjustment. This process began with them facing the loss of half to two-thirds of their benefits, had they been treated the same as other creditors.
Orr is offering them a much better deal. While most banks and bondholders are being asked to accept an 80 percent reduction in what they’re owed, general service retirees will lose 34 percent, and police and fire retirees 10 percent of their monthly checks.
But if they settle quickly, those numbers improve considerably, to a 26 percent loss for general service pensioners and 4 percent for retired cops and firefighters.
Both groups, buoyed by the Sixth Circuit Court of Appeals decision to hear their claim that the state Constitution forbids reducing pensions, may decide to pursue their court battle.
If they do, they’ll scuttle a deal put together by Gov. Rick Snyder and supporters of the Detroit Institute of Arts to raise $820 million to spare the DIA collections and mitigate the sacrifice of pensioners.
Those funds depend on a settlement. Without that money, and if the pension funds lose in court, retirees will lose considerably more of their benefits.
The Legislature must do its part as well. The governor’s pledge of $350 million over 20 years still must be approved by lawmakers. If those funds can assure a settlement, it will be a better deal for the state than taking the risk of being on the hook for Detroit pensions.
Creditors are still hoping to wring more value out of the DIA artworks. That’s a long bet.
The reality is the financial numbers aren’t going to improve. If they drag their feet, they risk the court cramming down a deal that’s even less favorable.
A key element of the plan still to be worked out is the formation of a regional authority to buy and run the Water and Sewerage Department.
Suburban communities are balking, saying they don’t have the information they need to decide if the deal is in their best interests.
Orr should give them the data they are asking for, and make his case that the authority is better for the region.
Detroit residents should be ecstatic about what Orr is proposing. His plan frees up hundreds of millions of dollars to improve city services.
Most notable is $520 million to attack blight, part of a total of $1.5 billion for capital improvements over the next decade.
That should silence critics who were convinced the bankruptcy filing was simply a means of draining Detroit of its assets.
If this plan ultimately becomes the framework for the settlement — and there are still weeks if not months of mediation sessions before that will be known — Detroit will be better positioned for a return to viability.