Pushed to the back of many newspapers at the end of the week of midterm election coverage was an extraordinary success story, the federal approval of Detroit’s bankruptcy plan. It is a plan that eliminates some $7 billion of city debt and provides more than $1.7 billion in new funding to expand emergency and fire department services and to continue the removal and cleanup of abandoned properties.
Pension promises that far exceeded the city’s capability to pay were a major part of the city’s bankruptcy, and thus a focal point. After negotiations, retired city municipal workers will see their pension checks reduced by 4.5 percent and retired police and fire personnel a somewhat smaller amount. Cost-of-living increases will no longer occur; excessive, ad hoc payments will be repaid; and retirees will have to pay more of their medical premiums.
In an unprecedented move, about a dozen regional and national grant-making foundations will be contributing more than $800 million, so that pension cuts do not have to be even greater and to prevent the sale of all or part of the city’s extraordinary collection of art. That art collection is embraced by city residents and is one of the city’s top visitor attractions.
Bond holders, particularly the firms that provided insurance for city bonds, are taking a beating. They will receive about 14 cents for every dollar.
But everyone agrees it could have been worse. Sixteen months ago when Detroit entered bankruptcy, it was expected that all creditors would have to accept far-worse settlements.
After an imaginative plea by the leader of mediators appointed to try to create a bankruptcy plan, foundation leaders moved quickly to agree to significant contributions, including $125 million from the Ford Foundation, which, while now based in Manhattan, was created by the founders of the auto company. Museum donors helped, too.
As part of the agreement, the city will give up ownership of the art collection to a new and traditional not-for-profit. That will prevent the art from being caught up in any further financial crises.
While there is cheering over the plan and how quickly in the complex and political world of municipal bankruptcies it came together, there is plenty of caution about the future. Detroit’s population is about half what it was at its peak in about 1960, and public services have been drastically cut. Empty houses and weed-filled lots give little hope for some parts of neighborhoods. The city must see job growth, and it must become more livable. That is why the new money in the bankruptcy plan, the $1.7 billion, is so important.
There are plenty of reasons why Detroit was in the financial predicament it was, lead by city leadership that found it easy to say “yes” to employees and pensioners without considering future costs, and who failed to diversify jobs beyond the auto industry, which was so good to the city for so many decades. For one, Detroit is within sight of Canada, this country’s largest trading partner, and should have been playing a much greater role in that trade.
At this moment, there is much to praise in the bankruptcy plan that provides a new starting point for Detroit. Those who shaped the plan’s creation, and those who gave up some of what they had been promised, deserve thanks. This country did not want to lose one of its major cities.
