Detroit files plan to emerge from bankruptcy
The city of Detroit filed a plan Friday to emerge from the biggest municipal bankruptcy in US history and reverse a decades-long decline by slashing debt, improving services and cleaning up miles of blight.
Saddled with more than $18 billion in debt and a tax base depleted by decades of population loss and urban blight, the birthplace of the US auto industry has been so strapped for cash it can't even keep the street lights on.
It filed for bankruptcy protection in July, the largest US city ever to do so.
The plan of adjustment, which was immediately attacked by creditors, must win approval from a federal judge and is expected to be subjected to months of court battles.
It was hailed, however, by Michigan Governor Rick Snyder as "a thoughtful, comprehensive blueprint directing the city back to solid financial ground, a crucial step toward a fully revitalized Detroit."
The 120-page plan details a $1.5 billion investment over 10 years to improve essential services for the city's 700,000 residents.
Up to third of those funds would be used to deal with the estimated 80,000 abandoned buildings which litter the city.
Emergency manager Kevyn Orr acknowledged "there is still much work in front of all of us" after months of negotiations with creditors.
"We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end," he said in a statement.
"We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work.”
- Boost for pensioners -
The proposed plan would give most unsecured creditors just 20 percent of what was owed to them in the form of new municipal bonds.
Pensioners, however, would be much better off.
Police and firefighters would likely get more than 90 percent of what is owed to them while other retirees would get 70 percent. Efforts would be made to ensure that retirees whose household income is "at or relatively near the federal poverty level will not fall below that level," Orr said.
The Detroit Institute of Arts -- which houses a world class collection -- would escape relatively unscathed thanks to a deal which would see the institute and its supporters donate $465 million to prop up the pension funds.
There had been concerns that the institute's collection -- which includes Diego Rivera's remarkable Detroit Industry frescos -- could be sold off to cover the city's debts.
The state of Michigan is also expected to make a $350 million contribution to the pension funds over the next 20 years to help keep it afloat.
The bankruptcy is expected to make it harder for municipalities in Michigan and other US states to borrow money by undermining confidence in what used to be among the most trusted bonds available.
The situation in Detroit is being closely monitored by government workers across the country who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.