Detroit emerges buoyant
Detroit city government was just eight weeks away from running out of cash when Emergency Manager Kevyn Orr, at the direction of Gov. Rick Snyder, took the city into bankruptcy in July 2013.
Employees were taking furlough days to stretch the dwindling dollars. The city was buried under a crushing debt of $18.5 billion, with the bulk of it tied to the legacy costs of pensions and retiree health care.
There was virtually no revenue stream — half of property owners had stopped paying their taxes and water bills, and collection of the income tax was intermittent. The city had no practical ability to raise taxes, and because of its dismal credit rating, no ability to borrow.
It had no marketable assets except for the collections of the Detroit Institute of Arts, so creditors were banging their shopping carts against the museum's doors.
Detroit was staring insolvency in the face, and its residents and even some of its leaders had little appreciation for how rapidly financial conditions were deteriorating.
With the approval of the plan of adjustment Friday, however, Detroit's debt load is $7 billion lighter. That will free up $140 million to $160 million a year in debt service revenue that can go directly into rebuilding the municipal infrastructure and improving services.
Pension reforms and a new health care trust for retirees should make legacy costs manageable at least for the near future. The city has contracts with all of its unions that begin establishing a common-sense relationship with labor.
It has resolved the long, contentious issue of regionalizing the Water and Sewerage Department, with a new authority ready to take over management of the system.
"Without the bankruptcy, it would have been hard to reach a reasonable water agreement," says Robert Daddow, deputy executive of Oakland County.
It's also unlikely the DIA could have ever become untied from the city without the filing. Now it has transformed into a private nonprofit, so that its art will never again be jeopardized by shortfalls in Detroit's finances.
The plan of adjustment is designed to boost the city's commercial development. The city turned its creditors into potential investors, crafting innovative settlements that should bring exciting new projects to the riverfront. That's essential if Detroit is to rebuild and stabilize its tax base.
"Because of the work that was done before the bankruptcy, during bankruptcy and during the exit from bankruptcy, we're seeing a Detroit that will be in control of its future," says House Speaker Jase Bolger, who helped shepherd passage of the "grand bargain" that saved the DIA and mitigated pension cuts.
Detroit had three objectives when it filed its case: Ameliorate $18.5 billion in debt; restructure city services to retain and attract residents and businesses, and make sure it has the operating assets it needs. All three goals were met.
"This will go down in history as not only the largest municipal bankruptcy, but also the best run and most successful," says Sandra Pierce, chair and chief executive of FirstMerit Michigan and chair of the city's financial advisory board. "It worked."
Detroit's journey through bankruptcy was nothing less than a triumph. Considering where the city was when it went into Chapter 9 and where it is today as it emerges from both the court case and emergency management, the risk of filing for bankruptcy unquestionably paid off.
Building off bankruptcy
When the case was filed, the expectation was that retirees could expect pension cuts of roughly 30-35 percent. It was also expected city services would have to be slashed, and assets would have to be sold.
Neither happened. Despite the fears of early protesters, the interests of residents and retirees were indeed placed ahead of the banks. Creditors walked away with deep reductions in what they were owed. Even creditors whose bonds were secured by tax revenue or hard assets lost a quarter or more of their investments.
The case was large, complicated and messy. Its tentacles reached throughout the region and state. And with little precedent for a municipal Chapter 9 filing, the course was largely uncharted.
It could have come off the rails at 100 different points, and dragged on for years by costly appeals.
Lots of things went Detroit's way to keep that from happening. Credit the skills of the people running the bankruptcy, Snyder and Orr, who made protecting Detroit their highest priority. Also applaud the federal judges overseeing the case, Gerald Rosen and Steven Rhodes, who committed to a no-appeals outcome.
Give a shout-out as well to the spirit of the city. Alarmists openly predicted civil unrest if an emergency manager was put in place.
Instead, residents embraced their community, if not entirely the state takeover. Voters elected a reform-minded mayor and council in the midst of the bankruptcy.
Private investors kept pouring capital into the surging downtown and Midtown districts. The transformative M-1 Rail project began even as the trial was getting started.
Detroit's revival never slowed, the city never gave up, and it never allowed bankruptcy to break it. Today, it has the best shot it's had in decades to achieve its long-awaited renaissance.
Where Detroit goes next depends on its ability to sustain good government practices, visionary leadership, an attractive investment climate and, most importantly, a commitment to improving the quality of life in its neighborhoods.
But the city has something today it didn't have 18 months ago when this process began: A good chance.
The first in a five-part series. Follow it at detroitnews.com/opinion.