August 19, 2014 at 1:00 am

Daniel Howes

Bankruptcy restructuring plan may test city pols

The soft opening Monday of Detroit’s landmark bankruptcy trial, scheduled to begin late next week, is coming down to a simple test:

Can a restructured city of Detroit, freed from $7 billion in debt, cumbersome labor contracts and bad financial decisions, do what its bankruptcy team says it can for as long as it says it can? And can the city do so under a mayor and the City Council obligated to execute a plan neither drafted, assuming it passes muster of U.S. Bankruptcy Judge Steven Rhodes?

Emergency Manager Kevyn Orr will be gone once the historic “confirmation trial” concludes this fall. His restructuring consultants, investment bankers and bankruptcy lawyers will take new gigs elsewhere. Left behind would be a court-approved plan designed to produce a feasible, financially self-sustaining major city — provided theory can become disciplined practice.

“The restructuring would make a difference in terms of economic growth rates for the city of Detroit,” Robert Cline, a tax forecaster, said in the first testimony of the historic bankruptcy trial set to open Aug. 29 and get into full swing after Labor Day.

The city’s economy would continue to strengthen, as much a marker of continuing private investment and public enthusiasm as any governmental restructuring under court order. And income tax revenues likely would increase modestly over the next decade or more despite what is expected to be a continuing loss of population.

Bottom line: Detroit’s emergence from bankruptcy, not yet guaranteed, is coinciding with a rare alignment in politics, economics and civic-mindedness that improves chances the largest Chapter 9 in American history won’t repeat itself to become a doubly embarrassing Chapter 18.

Gov. Rick Snyder and the Legislature’s Republican leadership back the process and its people, including Mayor Mike Duggan and Council President Brenda Jones. More than dozen foundations and donors to the Detroit Institute of Arts are mustering nearly $500 million to bolster city pensions and protect the collection.

With the debatable exception of Metro Detroit’s suburban counties — chiefly Oakland and Macomb, with their deep reservations over details for a regional water authority — the region’s political, civic, business, even union leadership appear to be broadly supportive of the bankruptcy.

Its priorities of protecting people and critical assets over bloodless financial institutions now forced to reckon with the riskiness of their bets is winning broad support. For a region deeply marinated in decades of division, the process is proving to be remarkably free of partisanship, traditional geographic pettiness and contention.

Except among the few holdouts like FGIC and Syncora Guarantee Inc., whose strategy for the trial is shaping up to a multi-pronged attack on the plan, the architects of the “grand bargain” and the alleged dreamers on Orr’s team who don’t buy the argument that Detroit can tax its way to more lucrative settlements with creditors.

Those guys must be from out of town. Detroit’s current predicament is partly attributable to the flawed assumption that government can raise tax rates, reduce basic services and dopey residents will finance the scheme with property taxes — until roughly half of them don’t, revenue plummets and bankruptcy is the only way out.

Not that everyone agrees that it is, but that doesn’t matter now. As the city prepares to defend its restructuring plan in a high-profile trial, the simple fact is that critics of the historic bankruptcy will get their way. Control and accountability soon will return to the mayor’s office and council chambers, along with an unprecedented opportunity offering enormous political upside for incumbents.

But they’ll have to break from a legacy of dithering and deliver in ways their predecessors manifestly could not. The Bing administration and a majority of the Charles Pugh-led council agreed to restructuring actions under a consent agreement with the state Treasury Department but wasted nearly a year bickering and complaining, guaranteeing an emergency manager and bankruptcy.

Repeating the same mistakes is a dead loser, as much for the city, its residents and its businesses as the Duggan administration and council. The weeks and months after emergence from Chapter 9 offer the city’s elected leadership the chance to demonstrate by what it does, not what it says, that a second chance will be not be squandered.

If nothing else, it’d be one of those rare times when good policy and good politics are indistinguishable from good ol’ common sense. And the winners would be anyone with an interest in Detroit’s road back from oblivion.

daniel.howes@detroitnews.com
(313) 222-2106
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.