DETROIT — Detroit’s bankruptcy will culminate in a high-stakes court battle starting Tuesday that will determine the fate of the city’s plan, which would pay pensioners more than financial creditors, preserve the Detroit Institute of Arts and slash more than $7 billion in debt while reinvesting in services.
The city is facing extraordinary pressure to prove that its plan to resolve the bankruptcy and reinvest $1.4 billion over 10 years in services is fair.
The power to approve Detroit’s plan of adjustment or force the city to start over rests with U.S. Bankruptcy Judge Steven Rhodes, who will examine hundreds of exhibits and hear testimony from potentially more than 80 witnesses during a trial that could stretch through Oct. 17.
As Rhodes put it, the proceeding — called a “plan confirmation hearing” — will determine “the future of the city of Detroit.”
The city’s feud with its holdout financial creditors will take center stage – with the powerful bond insurers attempting to prove the plan of adjustment is a disaster that must be rejected.
Winning the judge’s approval won’t be easy.
The cornerstone of Detroit’s restructuring plan is called the grand bargain, which would allow the city to accept the equivalent of $816 million over 20 years from the state of Michigan, nonprofit foundations and DIA donors to reduce pension cuts and transfer the museum to a charitable trust.
But the city’s most vociferous opponents — bond insurers Syncora and Financial Guaranty Insurance Co. — argue that the grand bargain is illegal and amounts to unfair discrimination in favor of pensioners.
When taking into account the grand bargain cash, Detroit pensioners would get about six times more than the insurers, according to the city’s financial calculations.
The valuation of the city-owned DIA’s property is in dispute and will be a significant issue.
