What was the city supposed to do?
Cash was burning like a California wildfire, much of it dedicated to health care and debt. Detroit’s solutions were temporary and dangerous, buying time by borrowing more, pledging city assets. The city wasn’t insolvent because it weaved and dodged its way around financial obligations, from bills to pension contributions.
What was the city supposed to do? That’s what Bruce Bennett, the Jones Day partner defending the Detroit’s Chapter 9 bankruptcy filing, asked repeatedly in federal bankruptcy court Wednesday.
Without solving the underlying crisis, “there may not be a city to reorganize.”
Chapter 9 was the only way to reduce debt and enable the city to provide services.
Bennett is now defending the city’s decision to file for bankruptcy, even as thousands of union members and retirees try to preserve benefits and pensions they were promised for life but which may be paid instead as pennies on the dollar.
Seventeen cents on the dollar is a current estimate.
Bennett was looking at the numbers, stating the rational position that Detroit cannot survive using tax revenues to pay off debt rather than provide services. That taxes cannot be raised because they’re already the highest city taxes in the state.
There’s a constitutional principle at issue, too, one the unions have seized on as a way to escape from bankruptcy. And they may just have a legitimate argument as they contend that Public Act 436, the hastily conceived, passed and signed emergency manager law to replace Public Act 4, may not withstand sustained scrutiny.
But the unions, who are contesting the bankruptcy, want Judge Steven Rhodes to bring bankruptcy proceedings to a halt and declare the city ineligible. Their lawyers contend PA 436 was a legislative ploy to paper over “the will of the people” who voted out the previous law, and that the $5.8 million in appropriations attached to the bill was a device designed solely to prevent another public referendum on the new law.
Sarella Johnson, the plaintiff in a similar lawsuit challenging PA 436, sat in a satellite courtroom watching the proceedings on a video screen.
“This is a crucial matter,” Johnson said.
The case has become the Detroit resident’s life: “ ... This goes to whether any state has the right to bypass our constitution. It’s not personal. It’s not about me.”
In a case where all solutions are imperfect and create pain and suffering for some, many or all, the constitutional argument might well be the most sound — and the most lethal: A ruling for the plaintiffs could dismantle the emergency manager law, along with the bankruptcy proceedings.
Such an outcome would leave the city rudderless, as it’s thrust into a state of emergency that nobody could reasonably argue.
Creditors would have no assurances, city employees would be in chaos, the city’s pioneering developers would be twisting in the wind.
Of course, this doomsday scenario is theoretical. It’s impossible. Except that this is Detroit, where we know so well that anything can happen.