Detroit's Bankruptcy Woes Are Over After Rocky Start

The largest municipal bankruptcy in history has come to a close in Detroit after a year of proceedings, ending in a flurry of compromise.

Yet there was plenty of conflict in the last year, far more than could have been predicted. In November 2013, Detroit became the largest city in the country to file for bankruptcy. When the proceedings started, the negotiation of the settlement—and that is really what the bankruptcy became—was a discussion between an emergency manager, from a law firm dedicated to the financial sector, and the financial sector.

The people tried to get a seat at the table, but the emergency manager had a monopoly on the information and for the first four months of the process his was the only story available. The people were long on outrage and short on evidence.

That all changed when the public became empowered to express its views based on data and analysis. Raw emotion and outrage was the most important factor, but engaging on the issues was essential as a way into the bankruptcy process. The initial opening was the outrageous settlement of the $800 million derivatives deal that the emergency manager had negotiated and submitted to the court for approval.

Lawyers representing the public’s interest were able to ally with some financial creditors to call out the weak negotiation by the emergency manager. The bankruptcy judge slapped him down by twice denying approval, ultimately saving the city—really pensioners—hundreds of millions of dollars. Demos was happy to weigh in on these matters.

That changed the tone of the proceedings. While the outcome was still unfair to public employees and the people of Detroit, they at least made their points known and won on some of them, like the pension settlement that was far less draconian than the emergency manager sought. And we will never know how much the voice of the people influenced the so-called “grand bargain,” an infusion of more than $800 million by the state, several foundations and other donors to avoid the choice between decimation of the pensioners and loss of the city’s wonderful civic asset, its art collection.

None of this changes the fact that the imposition of the emergency manager and the use of the bankruptcy proceeding was a terrible choice by the governor and legislature in the first place. It secured raw power over the process, but at what a cost! The $150 million in legal fees and other costs incurred by the emergency manager on behalf of the city is a real pity, but more was lost by the choice of the state to impose its will rather than work with elected officials.

All of that is now historic fact. The challenge is now revitalization of the city, and that will require engagement by the state, the new city administration and the people of Detroit in a spirit of cooperation that was absent a year ago. That the peoples’ voice was at least heard has increased the prospect of such an outcome.

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