July 17, 2014 at 8:24 am

Daniel Howes

First year of Detroit's bankruptcy could have been much worse

Detroit — There will be no celebrations at 4:06 p.m. Friday, only quiet acknowledgment that the largest municipal bankruptcy in American history is marking its first year.

It could have been much worse. Instead of dire predictions the case would become mired in protracted (and circular) legal wrangling, epic labor-management struggles, dismemberment of valued city assets like the Detroit Institute of Arts, brutal cuts to city pensions, even civic unrest, the opposite is mostly true.

The confrontation long manufactured in huge quantities here didn’t happen. The widely predicted gutting of pensions — notwithstanding the undeniable reductions in retiree health care — is proving overblown. The certainty that DIA holdings would be sold to high bidders from Russia, China and Dubai looks highly unlikely. And laments the people would pay but the banks wouldn’t? Not true.

A year into this historic bankruptcy, the city synonymous with the scourges of American urban decline, chronic dithering and entitlement run amok is less than four weeks from a culminating “confirmation trial” before U.S. Bankruptcy Judge Steven Rhodes, evidence of the power of leadership, preparation and vision in a town sadly missing all three for way too long.

There are casualties in the process, starting with pensioners who will lose some or all of their cost-of-living adjustments and nearly all of their retiree health care. Labor contracts are being tightened; some services privatized; and financial creditors are learning of the real risk in lending to a financial wreck like Detroit, pre-Chapter 9.

Yes, it could have been much worse. A status quo that didn’t work, and probably wouldn’t anytime soon, could have collapsed into an uglier municipal crack-up with human collateral damage that threatened to tarnish further Detroit’s slowly rehabilitating image, permanently sully state and local decision-makers and derail a downtown revival years in the making.

“A year and a half ago, if you told a number of us this was going to happen we wouldn’t have believed it,” said Dave Meador, vice chairman and chief administrative officer of DTE Energy Co. “But it is happening.”

The “it” is many things: a proposed restructuring that aims to erase $7 billion in debt from the city’s books; some $1.5 billion freed up to reinvest in improving city services; union and pension fund leaders who surveyed the alternatives and acted responsibly; a “grand bargain” to inject the equivalent of $816 million into city pensions, and mostly keep them whole, in turn rescuing the DIA’s collection from the predations of creditors and conveying the art to a charitable non-profit.

It’s Rhodes, a well-known judge presiding over what is expected to be his final case before beginning a transition to “recall status.” His disciplined management of the case, coupled with appointment of a mediation team headed by Chief U.S. District Judge Gerald Rosen, pushed the massive case along thanks to marathon sessions in what the mediators call “the shark tank.”

“It can be done if you have the leadership, like Judge Rhodes and Judge Rosen,” said Matthew Cullen, president and CEO of Rock Ventures LLC, an affiliate of the Quicken Loans Inc. family of companies. “We’d been bankrupt for 20 years” in Detroit. “We’re finally acknowledging it.”

An unprecedented coalescing of disparate leaders, institutions, companies and political parties are critical components, too. A Republican governor and party leadership in Lansing acting like responsible problem-solvers, not Detroit-haters of lazy caricature; a mayor of Detroit whose proscriptive, pro-business, do-what-works drive confounds Democratic stereotypes and is the right match for the challenge he faces.

Thirteen regional and national foundations pledged $366 million to bolster pensions they do not owe for a museum they do not own. A dozen (and counting) corporations — including $1 million from Walker-based Meijer Inc. — are contributing $52.8 million to the DIA’s portion of the “grand bargain,” augmenting $195 million approved by the state Legislature.

This historic case isn’t over; the final outcome depends on Rhodes and a lot of bankruptcy lawyering still to take place. But it should be increasingly clear that Chapter 9, as difficult as it is for those most affected, is coming at a time when Detroit, writ large, is demonstrating the wits to navigate it.

Had it come five years ago — as two hometown automakers gutted through their own bankruptcies, the Great Recession raged, a divided Lansing squabbled interminably, and before mortgage impresario Dan Gilbert moved his first employee downtown from Livonia — the outlook would be starkly worse.

Instead, there’s a broad coalition of leaders in business and philanthropy, the city and suburbs, both sides of the political aisle, who are pulling together (and in the same direction) in ways few have ever seen here — much of it before the city’s bankruptcy lawyers filed for protection under Chapter 9 at 4:06 p.m. last July 18.

“And then you had the bankruptcy,” said Dan Loepp, CEO of Blue Cross Blue Shield of Michigan, which Thursday pledged $2.5 million to the DIA “grand bargain” effort. “No one wanted to let go. You had a combination of people just not letting go — and they continue to invest.”

They still do, despite another trying chapter in Detroit’s spasmodic revival that is still to be finished.

daniel.howes@detroitnews.com
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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.