Detroit files updated bankruptcy adjustment plan
- Article by: COREY WILLIAMS
- Associated Press
- March 31, 2014 - 8:45 PM
DETROIT — Detroit's updated bankruptcy plan was filed in federal court on Monday, revealing new details on how the city plans to restructure its debt and provide public services during the largest municipal bankruptcy in U.S. history.
The amended plan of adjustment — considered Detroit's bankruptcy blueprint — and accompanying disclosure statement offer new details on the terms of a settlement with two banks to pay off a bad pension debt deal. The documents also make minor clarifications in how much pension benefits for city retirees would be cut.
"We believe that the plan we have proposed, and continue to refine, is feasible and allows the city to reduce its staggering $18 billion in debt and live within its means," state-appointed emergency manager Kevyn Orr said in a statement. "The plan puts the focus back on providing essential public services to the city's nearly 700,000 residents."
Orr, the attorney who guided Chrysler through its bankruptcy, was appointed by the governor to take over the city's finances last year.
Under the new settlement, Detroit agreed to pay $85 million to settle claims on a pension debt deal with UBS and Bank of America. The two creditors also have said they will support Orr's plan.
The agreement is the city's latest attempt to settle millions of dollars in debt tied to the interest rate swap deal. Detroit had pledged casino tax revenue in 2009 as collateral to avoid defaulting on pension debt payments, which allowed the city to get fixed interest rates on pension bonds with the banks.
The federal judge overseeing the bankruptcy, Judge Steven Rhodes, must still approve the latest settlement. He denied earlier proposals for $220 million and $165 million settlements.
The new documents also clarify proposed cuts to city retirees' pension benefit.
Under the plan, police and fire department retirees would see monthly checks cut by 6 percent if they vote in favor of the plan, while a "no" vote would result in a 14-percent cut. The city's other retired workers, covered by the General Retirement Services pension system, would see a 26-percent benefits reduction if they approve Orr's plan or a 34-percent cut if they don't. All the plans would eliminate cost of living allowances.
The less-severe cuts would rely on $815 million in fundraising designed to keep city-owned art from being sold to satisfy creditors. But that money would only be available if the retirees agree to the settlement deal, according to Orr's spokesman, Bill Nowling.
The city's General Services Retirement System had 11,790 members receiving benefits, according to 2012 financial reports, while the police and fire system had 9,323 getting benefits.
However, Bruce Babiarz, a spokesman for police and fire retirees, told The Associated Press last week that the city's plan was too severe and "dead on arrival" with pensioners.
Orr said the city is making progress with its retirees and other creditors, and he hopes to reach agreements on a number of issues.
According to a statement from the city, more changes to the plan and disclosure statement are expected before an April 14 hearing.
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