Detroit— The city defended its plan to restructure debt and emerge from bankruptcy protection and offered a preview of its legal strategy for a July trial in federal court.
The city’s legal team said the debt-restructuring plan is fair and equitable and in the best interest of creditors despite objections filed by banks, bondholders and others.
The city also defended a $660.8 million plan to soften pension cuts and shield the Detroit Institute of Arts’ collection. The “grand bargain” helps Detroit’s most vulnerable creditors and preserves a core cultural asset, the city’s lawyers wrote in a 256-page filing late Monday.
The filing urged U.S. Bankruptcy Judge Steven Rhodes to overrule the objections and confirm the city’s restructuring plan.
“Perhaps most importantly, it enables the city to adjust its crushing debt burden while still providing for desperately needed and long-delayed reinvestment in the city to enable it to provide nearly 700,000 residents with basic municipal services,” bankruptcy lawyer Heather Lennox wrote.
Rhodes has scheduled a July 24 trial on the feasibility of the plan to shed $9 billion in debts.
Bond insurers Financial Guaranty Insurance Co. and Syncora Guarantee Inc. have attacked the city’s plan as discriminating against bondholders and other unsecured creditors in favor of pensioners. The plan fails to monetize the city’s valuable art collection, a Syncora lawyer wrote in an earlier filing.
The Detroit Police Officers Association called the city’s plan “illegal and punitive” because it seeks to penalize the union for not agreeing to the city’s terms for a new contract by imposing a less generous benefits package than other unions supporting the plan have received.
The plan does not discriminate unfairly, Detroit’s lawyer countered. The city is offering a better payout with good reason, Lennox wrote. “The lifeblood of any city is its employees and its residents,” she wrote. “If the city is to recover from its decades-long downward spiral and to function properly, it must have a workforce that is incentivized and motivated to provide the services that the city needs to function and attract residential and commercial growth.”
The agreement includes money from the state, 12 regional and national foundations, and the DIA. The proposed money would soften cuts to Detroit pensioners and shield the DIA collection from creditors.
A majority of pensioners also must vote in favor of the deal before July 11 or the $466 million in private money over 20 years and the state’s promised lump-sum payment could go away — triggering deeper pension cuts.
The Michigan House on Thursday approved $194.8 million in aid for Detroit pensioners as part of an 11-bill package that imposes post-bankruptcy state oversight of the city for at least 13 years. Gov. Rick Snyder has urged the Republican-controlled Senate to quickly approve the package.
Senate Majority Leader Randy Richardville, R-Monroe, has indicated the Senate may address the package next week.
On Tuesday, the DIA’s lawyer defended the grand bargain. “The DIA settlement is in the best interest of the city and its creditors, as it will preserve one of the city’s most important cultural institutions, an anchor of the Midtown community, and an essential component of the city’s revitalization,” DIA attorney Arthur O’Reilly wrote.
Emergency Manager Kevyn Orr has warned that general retirees could face pension cuts of at least 27 percent if legislators don’t approve tax dollars for a bankruptcy settlement fund.
In a separate filing Tuesday, Michigan Attorney General Bill Schuette said taxpayers won’t be responsible for covering any Detroit pension shortfalls. The city is obligated to cover its pension obligations, Schuette said.
Staff Writer Chad Livengood contributed.