07.08.14

The Exorbitant Cost of Municipal Bankruptcy.  One of the most troubling aspects of municipal bankruptcy is the high, associated cost of professional and legal fees. Every dollar consumed, after all, is a dollar less for a municipality’s future—not to mention a dollar less to be shared amongst its creditors. Detroit—with the largest municipal bankruptcy in the nation’s history, and still a week short of its first anniversary since filing last July, has been billed more than $75 million in fees and expenses from 19 professional services firms through late June―of which the Motor City has paid about $64 million to date to some 19 firms and companies, according to city records, including more than $38 million paid to law firms. The bulk of the remainder, 15 percent, has been put on hold under U.S. Bankruptcy Judge Steven Rhodes’ instructions to be withheld until after the invoices clear a review by a fee examiner―with last year’s quarterly fee examiner reviewsubmitted to the U.S. bankruptcy court last May, detailing just under $36 million in gross fees and expenses claimed through last Dec. 31st.

07.07.14

Unhonorable Discharge. The Motor City has listed hundreds of contracts with services providers and companies that it no longer intends to honor—in effect creating an entire new class of creditors in its massive municipal bankruptcy. Some of those creditors provide services that Detroit no longer supports, including public health, workforce development, and other human services—services now outsourced—leaving it to U.S. Bankruptcy Judge Steven Rhodes to affirm or deny Kevyn Orr’s request to terminate the contracts as part of the trial beginning next month on its plan of adjustment.

07.03.14

Betwixt Scylla & Charybdis. San Bernardino voted 5-2 to adopt its FY2015 fiscal year budget late Monday night―a budget, which closes the bankrupt city’s $22.8 million deficit, but defers $10.6 million in payments to creditors. The vote came Monday night, three hours before the new fiscal year began, and with complaints from some council members that City Manager Allen Parker and the city’s Finance Director were absent―leaving them to pass the cuts-filled spending plan with some critical questions unanswered.

07.02.14

Pension Debt & Municipal Bankruptcy. U.S. Bankruptcy Judge Steven Rhodes on Monday denied a motion by the Detroit General Retirement System Service Corporation and the Detroit Police and Fire Retirement System Service Corporation, which were seeking to bar the Motor City’s efforts to invalidate $1.4 billion of debt sold to boost funding for the city’s two retirement systems, noting that the pension debt was “a significant factor in later forcing the city into bankruptcy,” and that the corporations were the proper defendants in the case: “While the city does allege that the service corporations were created to the unlawful purpose of enabling the city to avoid debt limitations imposed by state law, nowhere in the pleadings does the city allege that the service corporations are not distinct and separate legal entities.”