SPI President & CEO Mary Scott Nabers
A ruling on Detroit’s bankruptcy plan is due Nov. 7 and thousands of individuals as well as numerous creditors, stakeholders and organizations will be watching with anticipation to see what happens. Either the judge, Steven Rhodes, will accept the city’s plan, or he will reject it. If the judge accepts Detroit’s plan, the city could be beyond the stigma of bankruptcy by Thanksgiving. That would make city leaders very happy.
The highly visible bankruptcy received national attention for many months and city officials have worked diligently to reach agreements and compromises. All parties have now agreed on a plan that was sent to the judge.
Some of the compromises and concessions were secured after long negotiating sessions. There is no doubt that city leaders are ready for this painful ordeal to be over.
The first major hurdle to overcome was all about revamping financial structures. At one time, this seemed like an impossible task. Agreements and compromises were essential to winning the support of city retirees who were receiving pensions. Creditors, contractors and professionals of all types had to eventually sign off on compromises. And, a financial package for operations has to be developed.
The Grand Bargain, which is what the package was dubbed, is an $816 million bailout by state, city and private donors. Contributors included many private-sector firms as well as the Kresge, Kellogg and Ford foundations. The Detroit Institute of Arts (whose $900 million collection includes Van Gogh’s Self Portrait and Bruegel’s The Wedding Dance) pledged $100 million to the cause. The final financial assistance package allowed for only limited pension cuts and the city was able to maintain ownership of its valuable art collection at the Detroit Institute of Arts. Pensioners ended up with only a 4.5 percent cut in benefits, and although any cut was going to be painful, earlier proposals had suggested a 27 percent cut.
The city has no plans to increase taxes. In fact, the city leaders are working diligently to bring back residents who elected to move during the bankruptcy work-out period. Officials are relying on an influx of new residents and new businesses to help it recover the tax base it lost.
Detroit is vibrant again and new businesses are opening each day. The survival of the Detroit Institute of Arts, the decision not to increase taxes and a $1.7 billion investment in city service improvements are all contributing to the success of attracting new residents.
City leaders are committed to making giant strides in other areas as well. Urban blight is being aggressively eradicated. About 40,000 abandoned houses have been demolished and construction of new homes is averaging about 200 per week. The crime rate is down and developers are launching new projects each week. In fact, the city has made property available for mixed-use development as well as new housing complexes.
Creditors and bond insurers settled for cash at a fraction of what they were owed and real estate and long-term lease agreements were modified. Financial Guaranty Insurance Co, with a debt of $1 billion owed by Detroit, settled with the city in exchange for the lead role in the redevelopment of the site of the former Joe Lewis Arena, a prime riverfront property. Syncora, another investor, will receive a little less than a third of a billion dollars, or 14 percent of what it was owed. As is usually the case when a public entity is forced into bankruptcy, creditors and private-sector contractors will likely suffer more than the city will overall.