Celebrate Chocolateville! Moody’s yesterday reported that Central Falls, R.I., also known by some of its citizens as Chocolateville—where we commenced this Center’s efforts to look at municipal fiscal distress two years ago, is reporting a $1.6 million surplus—less than two years after exiting municipal bankruptcy. Central Falls, only one square mile in size, filed for Chapter 9 bankruptcy protection on Aug. 1, 2011. Unsurprisingly, Moody’s terms its exit a credit positive. On the hot Spring day when we met at City Hall with Central Falls’ bankruptcy receiver, former Rhode Island Supreme Court Justice Robert Flanders, the small, former mill city was plagued with problems contributing to its insolvency: low civic engagement, a small tax base, and the departure of business. Its old industrial base was gone. It was unclear whether a community of one square mile could actually have a sufficient economic base to recover. The key to the Central Falls story included signs of financial distress—signs which had already become apparent in 1991— but, absent political will, had engendered no changes. As in Detroit, San Bernardino, Stockton, Vallejo, and other cities, the inability of Central Falls’ leaders, employees, citizens and taxpayers to reach an agreement to avert insolvency and default triggered the 2011 filing for federal Chapter 9 municipal bankruptcy protection—a critical tool to avoid default and loss of access to credit markets so that the city could continue to provide essential services—and so that the city’s budget could be restored to balance. Central Falls emerged from municipal bankruptcy later that year—in the wake of restructuring its budget to eliminate its deficit and adopting a five year plan. The plan of adjustment included a very sharp 55% cut in pensions for its retirees—the only debtors not represented by counsel in the city’s chapter 9 process. Many still feel the actions related to the pensions were too drastic. The lack of any advocate to represent Central Falls’ retirees in municipal bankruptcy was an issue, in fact, that I raised directly with Detroit Emergency Manager Kevyn Orr just a year ago in Detroit—as, like in Central Falls, Detroit also had a significant number of retirees not represented by either of the Motor City’s two public unions. But there are significant distinctions also in the two municipal bankruptcies: The Rhode Island constitution does not provide protections for pensions—unlike the Michigan and California state constitutions, and, in its plan of adjustment, Rhode Island’s law gives bondholders priority in a bankruptcy filing: the city’s bondholders emerged unharmed from the bankruptcy, in contrast to other creditors such as city pensioners. In its report, Moody’s noted: “These credit positive results provide evidence that the city’s six-year recovery plan, developed as part of the bankruptcy process, is on track to stabilizing the city’s financial operations,” in the wake of Chocolateville’s report late last week of a surplus. Moody’s rates the small city B1 with a positive outlook, but contrasts the good news from Rhode Island with Vallejo, which likewise emerged from chapter 9 federal bankruptcy in 2011, but remains in structural imbalance and projects a deficit in 2014, attributing the difference to Central Falls’ combination of annual property tax increases, ongoing spending controls, and savings in pension and healthcare-related costs. The city transferred $1.79 million to its capital reserve fund during fiscal 2013 to fund some of the more than $125 million in deferred maintenance, a requirement of the recovery plan.
One More Lap. The Motor City yesterday said it intends to file a new or revised plan of adjustment and disclosure statement on Monday in an effort to address a number of complaints from some of its 100,000+ creditors of insufficient information, promising it will provide updated agreements as a result of ongoing negotiations. Because of the revisions, the city has asked—and Judge Rhodes has approved—a two day extension of the deadline for creditors to object to the disclosure statement, noting to the federal court that such an extension would give creditors more time to review the amended plan and revise their own objections as well as “confer with the city regarding remaining disputes, all with the goal of substantially paring down the number of objections that are filed with, and therefore must be resolved by, the court. “Creditors now have until April 3 to file objections and the city has until April 10 to respond to the challenges. The city wants to begin soliciting creditor votes on the plan on April 14.
Will the Third Time Be a Charm? U.S. Bankruptcy Judge Steven Rhodes has scheduled a hearing for next Thursday on still another iteration of the Motor City’s proposed swaps settlement—only this time, the city has omitted the previous provision under which the counterparties would have agreed to support its plan of debt adjustment (even though the counterparties have still agreed to sign off on the plan). The newly revised, 25-page version includes some tweaks, but otherwise differs little from the versions which Judge Rhodes has twice rejected—Detroit would pay $85 million to UBS AG and Merrill Lynch Capital Services Inc. in a series of quarterly payments―scheduling its final payment after October 15th, the city’s proposed bankruptcy exit date―with proceeds of a post-petition financing. The swaps would remain in force until the full payment is made. Given his two previous rejections, it is not clear what is different in this third effort that would trigger a change in Judge Rhodes’ tune. The swaps in question hedge about $800 million of $1.4 billion of pension certificates of participation that the city is separately trying to repudiate as illegal. In its revised proposal, Detroit values the swaps at $288 million and proposes to allocate the $85 million equally between the two banks.
Silicon Detroit? Metro Detroit’s technology industry is the second-most robust among Midwestern cities and is growing faster than even Silicon Valley and other national tech hubs, a study released today reports (http://www.andersoneconomicgroup.com/Portals/0/upload/2013%20Tech%20Report-WEB%20 (compress).pdf.)In a forward to the report, Dan Gilbert writes:
If you haven’t spent meaningful time living, working and playing in metro Detroit, your perspective of the city and region is likely compromised by stories of financial challenge and images of blight. But the nearly 250,000 workers in our growing technology industry are participating in limitless career opportunities that are perhaps as great here as anywhere in the country. Fueled by a robust infrastructure of world-class universities, industry-leading companies and a rich cultural base, this community is growing and creating jobs at an exceptional rate. Today, we are proud to be home to one of the country’s fastest growing technology hubs. In addition, we are home to one of the country’s most exciting startup scenes. Once again, Automation Alley’s Technology Industry Report confirms that our city and region have – without doubt – a very bright future. Now, more than ever, our civic and business leaders – including Automation Alley and its members – are collaborating in unprecedented ways. For example, a group of 28 locally-based corporations (many of them well-known national brands and businesses), representing a total market value of $208 billion, recently launched a national campaign – ‘Opportunity Detroit’ – making a long-term commitment to job creation and community investment in Greater Detroit. It’s initiatives like this that change the lens and allow the world to view Detroit from the perspective of innovation, creativity and growth.
Southeastern Michigan is home to 242,520 technology industry jobs — everything from app makers and web coders to architects and engineers — and is among the nation’s leaders in STEM (science, technology, engineering and mathematics) graduates. Tech jobs make up 10% percent of the tri-county area’s total employment, according to today’s report, which is authored by East Lansing-based Anderson Economic Group LLC and includes data from the U.S. Census County Business Patter program and Bureau of Labor Statistics, among other sources. Shravan Goli, president of Dice.com, an Iowa-based career site for technology professionals, said there are about 1,100 tech job postings for the Metro Detroit area on the site every day. He said the average tech salary in Metro Detroit grew 7% last year to $81,832 — a figure that outpaced a 4% increase nationally. Today, engineering remains a strength, the region’s life science jobs have more than doubled from a year before, and thousands of patents are being issued in a variety of fields, including a resurgent auto industry. The industry grew by 15% from 2010 to 2011, the most recent data available, and outpaced California’s Silicon Valley, which declined 4%. That region of California was home to 225,769 tech jobs in 2011, 10,000 fewer than in 2010, the study said. Thus, today’s report notes: “Detroit — long considered the capital of the auto industry — has grown to become a leading hub for technological innovation in America…Southeast Michigan is a world-class center for technical talent, expertise, products and services.” The report showed Metro Detroit leads the nation in concentration of architecture and engineering jobs. The region was home to 78,420 jobs in 2012, representing 3 percent of such jobs nationwide.
The People of Detroit. As this eBlog has followed the perils, failures, and successes of state and local leaders attempting to address signal failures, the reports have focused on appointed persons—whether they be federal bankruptcy judges, receivers, bankers, or elected officials. The federal law, chapter 9, is nearly impervious to easy explanation—much as it was in the Senate Subcommittee on the Constitution when it began its journey in 1988 to former President Reagan’s desk. Even municipal elected officials are largely removed from the process. As one of my oldest, wisest, and most experienced colleagues adds: it is almost a complete mystery to state elected leaders. Therefore, you can probably imagine that to the citizens of Detroit, this process in which non-Detroiters—at enormous expense—are mapping out the Motor City’s future, there is anger and frustration. For those of you thinking about what will happen on April Fools’ Day, you could join the people of Detroit in a mass filing of people’s objections to the Plan of Adjustment and the Disclosure Statement the during the Demonstration at the Federal Courthouse in downtown Detroit at 10 am. Most people will only file objections to the Plan of Adjustment:
OBJECT TO BANKERS’ PLANS TO DESTROY DETROIT TUES. APRIL 1, 10 A.M. Posted on by Diane Bukowski
Federal Courthouse, 231 W. Lafayette St., Detroit
File your objection to the “Plan for the Adjustment of Debts of the City of Detroit” and/or “Disclosure Statement With Respect to Plan for the Adjustment of Debts of the City of Detroit”.
The deadline for filing objections to the Disclosure Statement April 1, 2014.
The deadline for filing objections to the Plan of Adjustment is April 28, 2014.
Download instructions and forms here (updated on 3/25/2014).
People’s Objection to the Plan of Adjustment form
People’s Objection to the Disclosure Statement form