DETROIT – It took decades of mismanagement, malfeasance and meltdowns in its bread-and-butter manufacturing sector for Detroit to hit fiscal rock bottom. The path to exit bankruptcy could take less than a year and a half.
After some delays, the confirmation trial for the largest municipal bankruptcy in U.S. history is scheduled to start Tuesday.
Massive debt, thousands of creditors and complex union and pension issues had many experts thinking Detroit’s bankruptcy would take years to resolve, considering two California cities – Stockton and San Bernardino – filed a year before Detroit did and still haven’t settled on plans.
Detroit expects to cut $12 billion in unsecured debt to about $5 billion, which is “more manageable,” according to Bill Nowling, a spokesman for emergency manager Kevyn Orr.
“None of it will get wiped out until the plan is confirmed and the judge issues an effective date,” Nowling told The Associated Press. “And it happens really fast after that.”
Orr’s contract expires at the end of September. His restructuring team set an aggressive timetable and bankruptcy Judge Steven Rhodes also quickly named mediators to work out deals with creditors, added Nowling.
“I think – with the exception of a few remaining holdouts – all of our creditors recognized we could not let the city languish in endless bankruptcy proceedings,” Nowling said.
Bankruptcy expert Anthony Sabino called Detroit’s pace since the July 2013 bankruptcy filing “amazingly quick.” San Bernardino has yet to reach the confirmation phase, and Stockton’s bankruptcy trial started in May.
“You have to tip your hat to Kevyn Orr to do this in record time and to get these constituents together,” said Sabino, who teaches law at St. John’s University.
Detroit still has to navigate through claims by creditors – including 30,000 city retirees and workers – and the potential sale of masterpieces from the Detroit Institute of Arts.
Detroit’s debt includes $3.5 billion in unfunded pension liabilities. To reduce cuts to pensions and keep artwork off the auction block, the city will get a hand from the state, major corporations, foundations and others through donations of more than $800 million over 20 years.
