Detroit — Detroit’s bankruptcy judge on Wednesday warned the deadline is fast approaching for the city to submit a realistic plan to settle its debts, and urged the parties to “use the next 37 days wisely.”
The words of caution from U.S. Bankruptcy Judge Steven Rhodes came after he turned down a request to establish a creditor art committee to reappraise the DIA collection and delayed an immediate decision on an effort to block severe cuts to retiree health care.
“Now is not the time for defiant swagger, dismissive pound-the-table, take-it-or-leave-it proposals,” Rhodes told attorneys for the city, retirees and creditor groups.
The court-imposed deadline for Detroit’s plan of adjustment is March 1. Rhodes stressed the plan must be feasible — and achieving it could mean changes to pensions and bargaining agreements.
“The court must be very plain about this,” Rhodes said, noting his denial last week of a $165 million agreement the city reached with two banks to settle a troubled pension debt.
“It (the plan) will ... be challenging for the city to actually implement. To meet feasibility, the city must prove it will overcome the structural cash-flow insolvency and much more. Please use the next 37 days wisely.”
Earlier Wednesday, attorneys for unions and retirees made an emotional plea to halt implementation of a new health care plan.
Rhodes put off until Tuesday a ruling on the motion to block the cuts that Emergency Manager Kevyn Orr is seeking to impose beginning March 1.
The Official Committee of Retirees, the American Federation of State, County and Municipal Employees and two retiree associations are suing over Orr’s plans to end traditional city insurance for retirees. Orr wants to give retirees younger than 65 a $125 monthly check to use toward purchasing private health insurance.
“You are going to have people who are seriously harmed as a result of this,” retiree attorney, Sam Alberts told Rhodes. “ For these people who do not get health care it’s literally life or death.”
Robert Hamilton, an attorney for the city, advocated for dismissal of the request for an injunction. He countered that the retiree claims have no merit and Detroit is not attempting to unilaterally modify or eliminate benefits. “The city has determined that it cannot afford to perform those obligations and it must breach those obligations,” Hamilton said.
Bruce Miller, an attorney for AFSCME, argued in court Wednesday against the health care changes. After court, he agreed with Rhodes’ assessment that it’s critical for the parties to negotiate in good faith.
Miller added the city is proposing a massive reduction in retiree health care and he wants a “good deal.”
“Can you imagine what that means to people who have an income of $18,000 a year?” Miller said. “The city has to dig in, stretch and do what’s necessary.”
Rhodes also rejected a bid to have the court establish a committee to conduct a second appraisal of the DIA’s works, saying the court “lacks authority.” Even if it did, he added, that discretion should not be exercised.
The creditors contend Detroit’s recent valuation of art is too conservative. The New York-based auction house Christie’s Appraisals has valued 1,741 pieces of city-purchased art at $454 million to $867 million.
Alfredo Perez, an attorney for Financial Guaranty Insurance Co., told Rhodes that the value of the collection is a key issue. “My client looks to it as an asset that can be monetized,” he said.
Jones Day attorney Bruce Bennett said the city has been “exceptionally careful” in its valuation of the art and said it “will be dealt with” in the city’s plan.
Steve Spencer, a financial adviser to FGIC, said in a statement late Wednesday the company is disappointed.
“We are also troubled by the policy implications of the state favoring art ahead of the economic realities and recovery interests of the City’s pensioners, bondholders and other unsecured creditors,” Spencer said.
Staff Writer Chad Livengood contributed.