Detroit's bankruptcy trial began Tuesday. (Courtroom illustration)
Detroit’s bankruptcy trial began Tuesday in federal court, a high profile reminder that all parties must do what they can to bring about a swift resolution to any outstanding issues.
It is in the best interest of the city, pensioners, and creditors to see that the so-called “grand bargain” — the $816 million plan to lessen pension cuts and preserve city-owned art — reaches final closure and is adopted as quickly as possible.
While many elements of the bargain have been largely settled by the thousands of individuals its terms affect, pensioners and creditors have had their share of disagreements.
Syncora Guarantee Inc., one of the creditors, still stands to lose hundreds of millions of dollars in the bankruptcy deal. It and another firm backed more than $1 billion of investment in Detroit. These firms are unsecured creditors and have held out for a larger settlement since the beginning, including selling pieces from the Detroit Institute of Art’s collection.
It should be noted that Chapter 9 bankruptcy is different from Chapter 11. In cases like Detroit’s, the court can’t order an asset liquidation.
There is very little precedent in Chapter 9 cases. And even though Syncora continues to press its claim of unequal treatment, the lack of case law gives the court some latitude.
In addition, city pensioners — who Syncora has argued have been given preferential treatment — are not protected by the Pension Benefit Guaranty Corporation, unlike pensioners in the private sector.
Negotiators are considering giving the company city assets such as the Coleman A. Young Municipal Airport and other Detroit real estate, most of which doesn’t generate revenue for the city.
In the case of the airport, costly updates are sorely needed, and the city can’t spare limited funds on modernizing it.
Trading the airport is an intriguing proposal since the city has no plan for dealing with it, and the proposal would free Detroit from spending millions operating and updating the facility.
While Syncora has been the stick in the mud in a situation where all parties are sacrificing, its requests are not completely invalid. It’s true the company will fare worse than the city’s pensioners, who have been asked to take single-digit percentage cuts to retirement benefits and swallow some changes to healthcare plans.
No one comes out of bankruptcy completely unscathed, as has been made clear in Detroit’s case.
The city and negotiators must resolve these outstanding issues using all possible options, and be willing to settle with terms — even if they aren’t ideal.