02.26.14

No Delay on the Final Laps.  U.S. Bankruptcy Judge Steven Rhodes yesterday rejected requests to delay his proposed schedule for consideration of Detroit’s exit plan from municipal bankruptcy, noting his plan was designed to provide a “just, speedy, and inexpensive determination of this case,” and that the Motor City would run out of cash if it takes too long: “The problem with delay is the city will not have any more money to pay you if this is put off two or four or six months,” U.S. Bankruptcy Judge Steven Rhodes told attorney Carole Neville, who represents Detroit retirees. “(Detroit) is not a retail operation with a Christmas season coming.” In the wake of a brief hearing in his federal courtroom yesterday, Judge Rhodes filed a written order keeping Detroit’s bankruptcy case on track for a June 16th trial at which the city must prove it can shed its debt in a fair and equitable manner. Nevertheless, retirees and other creditors pressed for the court to slow down the pace and to give them additional to file objections to the city’s plan of adjustment. Judge Rhodes granted them two additional business days, setting a deadline of April Fools’ Day.  Ms. Neville, citing some 34 missing exhibits to both the 120-page plan of adjustment and the accompanying 440-page disclosure statement filed with the court  last Friday, emphasized that no creditor had agreed to Detroit’s plan to restructure $18 billion in debt and urged the court to slow the process in order for the city and various groups can reach agreements, noting that among the missing documents are details about the structure of future retiree health insurance benefits, the terms of the state’s pledge of $350 million toward city pensions, and an overall plan to shield the Detroit Institute of Arts collection from a sale in exchange for private donor and foundations’ contributions of another $465 million into pensions. Robert Gordon, attorney for the city’s two pension funds, said the missing documents are “critical” to creditors understanding how the plan affects current and retired city workers. The city, however, noted that “Time is of the essence in this bankruptcy case,” telling the court there would be supplemental documents filed but otherwise disagreed that the city had omitted information. Before he adjourned the 40-minute hearing, Judge Rhodes urged the city to clarify for creditors how much they will be paid under the plan, and when.

Under the Judge’s schedule:

  • Creditors will have a deadline of April 1st to file objections to the city’s plan of adjustment—and that date will mark the date upon which depositions on objections may begin—with the Judge determining the challenges would bisected into legal and factual objections—with a separate trial for each category.
  • Judge Rhodes set a deadline of April 4th for the Motor City to respond to all objections,
  • April 14th for both a status hearing and to entertain objections to the disclosure statement, and
  • April 28th to hear legal objections to the plan of adjustment (which could include a battle over whether Detroit can legally be forced to sell Detroit Institute of Arts property).
  • June 11 for a final pre-trial conference for June 11th;
  • June 16 for a trial date on the factual objections to the city’s plan, and
  • Then set aside nine additional days throughout June for the trial if necessary.

Balancing Interests. For Judge Rhodes the challenge is to weigh two competing interests: the Motor City’s creditors want more time to challenge the plan of adjustment that proposes unprecedented cuts to the vast majority of the city’s 100,000+ creditors versus a sustainable future for the city of Detroit. Thus, during yesterday’s hearing, Judge Rhodes expressed apprehension that delays could exhaust the rapidly eroding resources the city has, especially since its resources are draining faster every day as it seeks to reach resolution of the most equitable allocation of its estimated $18 billion in long-term obligations. Nevertheless, Judge Rhodes instructed the city to make sure that its plans clearly explain to creditors how much each of them would receive and when they would receive it—leading Detroit’s lead bankruptcy attorney, Bruce Bennett, to note that a separate insert would be sent to retired city workers, so that each could assess how much her or his benefits would be cut in plain language. According to the city, under some scenarios, city workers and retirees could see up to a 34% cut to the money owed to their pension funds. Judge Rhodes also reminded objectors yesterday that unlike a corporate federal bankruptcy case, “[T]his is not a retail operation with a Christmas season coming.”

State of the Motor City. In his first State of the City address this evening, Detroit Mayor Mike Duggan is expected to announce an additional $20 million to kick-start demolition of fire-damaged abandoned houses using untapped insurance funds. Mayor Duggan’s address is expected to focus heavily on blight removal and making city services more responsive to people in neighborhoods, so he will announce that funds from an escrow account set aside by the insurance industry will fund a “blight blitz” that could facilitate the removal and clearance of more than 2,300 houses, with the funds from a pool that insurers set aside for the city to help fund demolitions of homes beyond repair after fires―part of the $520 million disclosure plan that emergency manager Kevyn Orr submitted to the U.S. Bankruptcy Court last Friday. The escrow money went unspent amid a bureaucracy noted for turning back tens of millions in federal grants after missing deadlines or not following legal guidelines.

“No peace — no justice.” Outside of Judge Rhodes’ courtroom, other Motor City residents unhappy with the twin plans filed by Kevyn Orr yesterday announced a planned protest this Sunday, vowing to “shut the city down,” claiming the plan of adjustment announced last week that would reduce pensions by up to 34% was unacceptable and racist. The protestors have submitted their own ‘plan of adjustment’ to the court, the “People’s Plan for Restructuring Toward a Sustainable Detroit.” The ten-page document claims the city’s insolvency could be resolved without hurting city retirees and residents, if the banks and city’s bondholders bore all the losses. Cecily McClellan, a Detroiter and city health department retiree, declared: “As pensioners, we are going to the streets!” Ms. McClellan, who is a vice president of the Association of Professional and Technical Employees, is helping to head up a protest at 2 p.m. Sunday at Central United Methodist Church in downtown Detroit. The group’s recommendations in the “People’s Plan” for extricating Detroit from history’s largest municipal bankruptcy include requiring automatic payroll deduction of city taxes for anyone who works in Detroit and a full restoration of state-funded revenue sharing to the city — demands that require acts of the Legislature, over which city bankruptcy overseers and U.S. Bankruptcy Judge Steven Rhodes have no control.

Less Harried in Harrisburg.  Harrisburg Mayor Eric Papenfuse, joined by Pennsylvania Governor Tom Corbett and Dauphin County officials will formally announce the end of the city’s receivership this afternoon in City Hall, in the wake of Pa. Commonwealth Judge Bonnie Leadbettor’s affirmation yesterday officially terminating the capitol city’s receivership―a moment which Mayor Papenfuse called “a development of monumental importance for the people of Harrisburg and for the city’s future.” Harrisburg had adopted a financial recovery plan last summer in lieu of seeking federal bankruptcy protection, leading to Judge Leadbetter’s approval last September of Harrisburg’s “Harrisburg Strong” recovery plan, which erased $600 million of debt. William Lynch, the state-appointed receiver since September 2011, will speak at the press conference. Harrisburg City Council members and Dauphin County Commissioners also will attend the event.

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