Steven Rhodes: Engineer of Detroit’s bankruptcy
Bankruptcy Judge Steven Rhodes was getting ready to retire in 2013 when U.S. District Court Chief Judge Gerald Rosen asked if he was willing to take on one last case.
Detroit was broke. The city was filing the biggest municipal bankruptcy in American history. Could Rhodes see it through?
Rhodes, 66, said he never seriously considered saying no. He knew there would be a “tsunami” of legal filings. Unrelenting media attention. Nights and weekends lost.
But for the chance to help Michigan’s biggest city — the city where he’d worked for decades — it was worth it. Rhodes accepted the appointment.
“Judges make decisions,” Rhodes said. “I’d been doing that for 28 years and was prepared to do it for another one and a half or two years — whatever it took.”
The judge added that he knew “the lawyers would be really good and the issues would be really interesting. Those are the things judges love about their jobs — good lawyers and good issues.”
Rhodes’ reputation for handling cases quickly would come in handy on the Detroit case, which wrapped up in 18 months. Municipal bankruptcy attorneys can be expensive. Every moment they were on the clock, money was being spent that could be used to light streets or hire police officers.
Rhodes counts it as less a regret than a necessity that democracy had to be taken from Detroiters to get the city’s finances figured out. The decision had to be taken out of their hands, the judge said.
“Emergency management was absolutely necessary,” Rhodes said.
Another necessity was assurance that Detroit wouldn’t wind up in dire straits again a few years after bankruptcy. That’s why the Detroit Financial Review Commission, a state-controlled oversight board, was established to oversee the city’s finances post-bankruptcy.
“There is a payment to the pension system that will have to be made in a few years, but city leaders and the financial review commission assure me they’re ready,” he said.
Detroit’s bankruptcy plan dissolved more than $7 billion of the city’s $18 billion of debt, enhanced its credit rating and included a 10-year, $1.7 billion investment in city services.
Rhodes has said “the smartest thing” he did during the bankruptcy was to appoint Rosen as a mediator. It was Rosen who helped negotiate the $816 million “grand bargain,” the fund that helped shore city pensions and protect Detroit Institute of Arts artwork from sale.
Without the “grand bargain,” Rhodes said he would have had to decide on a bankruptcy plan over the objections of creditors. “It would have been very contentious.”
Rhodes took issue with media coverage at the case at times, saying he had hoped that organizations covering the case had filed a legal challenge to the prohibition on cameras in federal courtrooms.
“The people of the city of Detroit — if not the people of Michigan — had a personal stake in the outcome of the case,” Rhodes said. “They should be able to have direct access to the court process, be it broadcasting or webcasting.”
Rhodes isn’t entirely retired.
He is advising Gov. Rick Snyder’s office on statewide municipal pension reform. And last week, Rosen appointed Rhodes to help mediate a settlement between Volkswagen and owners of vehicles that are emitting higher than allowed emissions.
He’s also keeping a foot in the bankruptcy world. The governor of debt-ridden Puerto Rico has hired Rhodes as a part-time consultant as the commonwealth seeks to avoid default.
And though Puerto Rico’s case is very different from Detroit’s, the core problem is the same, he said.
“There’s been a certain amount of kicking the can down the road by refinancing debt at ever-increasing interest rates and ever-increasing onerous terms,” Rhodes said. “At the same time, there have been creditors willing to lend the money, knowing the risks associated.
“It’s time for that to stop.”
James David Dickson
Occupation: Retired bankruptcy judge, U.S. District Court for the Eastern District of Michigan
Education: Bachelor’s degree, Purdue University; Juris Doctorate, University of Michigan Law School
Why honored: For presiding over the highest-profile bankruptcy case in U.S. history