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 A new light would draw a yawn in most cities, but it represents
real progress in Detroit. The city is slowly restoring some
services, improving others and paying vendors for the first time in
months, even while attempting to turn itself around in a
record-setting bankruptcy case that has reached a critical point.
After a nine-day trial, Judge Steven Rhodes must decide whether
Detroit really qualifies for the court's help to fix its awful
long-term finances — including $18 billion debt. Although they
haven't offered specifics, officials predict a "free-fall crisis" if
the city is found ineligible and warn that the improved services,
such as those streetlights, could suffer.
The judge's decision is expected any day.
"If the bankruptcy is disallowed, frankly, expect all hell to break
loose," said Anthony Sabino, a lawyer who teaches business law at
St. John's University in New York. "Detroit will be at the mercy of
its creditors in individual lawsuits spread amongst federal and
state courts. That chaos alone could doom the city."
He compares it to animals in the wild — "wolves rending the carcass
piece by piece."
Emergency manager Kevyn Orr, the state appointee who now controls
Detroit's checkbook, acknowledges things will get worse if
bankruptcy is rejected, but he's not saying exactly how bad.
"The city would go back to where it was. We can't go back," he told
a business group Tuesday.
Unions, retirees and pension funds with much to lose have led the
opposition. They argued at trial that Detroit flunked critical steps
necessary to remake itself under Chapter 9, especially a lack of
genuine negotiations in the weeks before the July filing.
They uncovered memos and emails about bankruptcy planning and
previously unpublicized doubts by the state treasurer. It is
evidence, they insist, that the fix was in and Detroit really didn't
want to negotiate with creditors. Orr said four weeks were plenty.
"The governor took more time to interview the consultants to help
the city with restructuring than they took to negotiate the
restructuring itself. That's absurd," attorney Sharon Levine,
representing AFSCME, told the judge.
Still, there seems no dispute that Detroit is broke. The bankruptcy
filing placed a gate in front of bond holders and others who were
owed money at the time. It gives the city flexibility in the short
term, freeing cash for other bills.
"Everyone is getting paid: employees, vendors, health care etc.,"
said Bill Nowling, Orr's spokesman. "Right now, we are paying 98
percent of our vendors within 30 days, and that hasn't happened in
decades."
Anthony Davis, owner of AC Towing, said payments started popping up
about two weeks ago. "They sent like a thousand, then $800 and then another thousand," he
said.
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Detroit entered bankruptcy with about 9,400 employees, a winnowing
process that took years and cut the workforce by 30 percent.
Consultants testified that the checkbook was down to just $7 million
last spring, pocket change in a $1 billion budget.
New Police Chief James Craig said average response time to calls for
assistance has improved to 11 minutes, compared to 50 minutes or
longer earlier this year. New streetlights slowly are replacing tens
of thousands of broken ones in a city with more square miles of land
than Boston, Manhattan and San Francisco combined.
"It's a big difference," said Walker, 51, who feels the new lights
make his neighborhood more secure. "People get away with things in
the dark."
Ed McNeil, special assistant to the president of the American
Federation of State, County & Municipal Employees Council 25,
downplays the urgency expressed by Orr's team.
"Eighteen billion dollars — that's down the road. You're not talking
about money due today," McNeil said.
The history of recent public bankruptcies shows most filing for it
have cleared the eligibility stage, including Jefferson County,
Ala., Stockton, Calif., and San Bernardino, Calif. A handful of
others were dismissed but not for reasons that are in play in
Detroit.
Rhodes hasn't signaled which way he's leaning on Detroit's
eligibility. But he referred to possible benefits in a recent order
suspending a lawsuit that challenged Orr's status as emergency
manager.
"The public ... has an interest in the opportunity that this
bankruptcy case may provide for the city of Detroit, not only to
adjust its debt and to restore the basic services that its residents
need for their health and safety but also to regenerate its economic
livelihood," the judge said.
[Associated
Press; ED WHITE]
AP reporters Jeff Karoub
and Corey Williams contributed to this report.
Follow Ed White at
http://twitter.com/edwhiteap.
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