In the opening to his hour-long statement to a packed courthouse on Tuesday, federal bankruptcy court Judge Steven Rhodes said:
It is indeed a momentous day. We have here a judicial finding that this once proud and prosperous city can’t pay its debts. It’s insolvent.
It’s eligible for bankruptcy. At the same time it has an opportunity for a fresh start.
He reeled off the list of problems the city is facing: another deficit this year approaching $400 million, similar to those the city has run up every year since 2008, pension liabilities and debt service that eat up nearly 40 cents of every dollar of revenue, half of property owners not paying their real estate taxes, police departments that solve less than 10 percent of crimes, 78,000 empty houses, streetlights gone dark, ambulances that don’t run, citizens fleeing to the suburbs, tax base eroding, bad decisions, political corruption — the list went on and on.
He blamed the burgeoning retiree healthcare and pension plan costs, the borrowing to cover those deficits over the past five years, poor record keeping, antiquated computers and software, and “13th-month” checks.
And then he dropped the bomb: Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy.
Translation: Guarantees in the Michigan state constitution that such benefits are sacrosanct just evaporated. That means that some 23,000 retirees and another 9,000 current city employees are going to have to tighten their belts, along with banks, bond investors, and other institutions who bought up Detroit’s bonds over the years.
How much of a cut? When Kevyn Orr, the financial manager appointed to oversee Detroit’s difficulties by Michigan Governor Rick Snyder, offered creditors the opportunity to swap $11 billion of their debt for a $2 billion “note” — a haircut of 82 percent — they walked away from it, setting in motion the bankruptcy filing in July and the ruling earlier this week. Now it appears they’ll be lucky to get 10 cents on the dollar.
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Photo: Detroit Tigers baseball park.