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Detroit: A Story of Bankruptcy, Hope, and the Road to Settlement

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It has been nearly a year since Detroit filed for bankruptcy, and in the four months since being granted bankruptcy protection eligibility, the road to recovery still looks long amid the city's latest revision to its bankruptcy plan. The change comes in the midst of a battle between Emergency Manager Kevin Orr and a menagerie of factions seeking to delay the official court settlement to be decided by Federal Judge Steven Rhodes.

The current landscape looks highly divisive for Michigan's largest city. While Orr's original 120 page plan looks to invest $1.5 billion dollars throughout the city over the next decade, opposition point to the cost coming at the expense of public workers as well as the livelihoods of 24,000 Detroit retirees. Orr's biggest opponents are comprised of city creditors, bond holders, public sector workers, city employees, as well as unions and retirees. Their objections are extensive and thorough, but creditors have primarily reiterated that it is most vital for the city to explore other financing options to mitigate the burden incurred by these groups. The result so far has been settlement delays and intense scrutiny amid a litany of hard pressed dates.

Orr and the city must meet Orr's plans come at a time when Detroit faces an unprecedented financial crisis. The city's woes have been well documented, headlined by an $18 billion dollar in debt. Within that number is $12 billion dollars that is considered "unsecure" debt, which is comprised mostly of returns owed to city creditors like private insurers and bond purchasers; another $3.5 billion is currently owed to Detroiter pension plans. Under the latest revision of the plan, the city has agreed to pay $85 million to settle claims with UBS and Bank of America and obviate a $288 million obligation that resulted from a failed interest rate swap deal to cover pensions.

But still at the heart of Orr's plan is a horizontal rather than vertical view of the problems, with the requested $5 billion being aimed at the city's most fundamental weaknesses that have largely resulted from the bankruptcy itself. This includes a plan to revive basic city services, such as city lighting that currently only works for 40 percent of neighborhoods. The plan would also put more money into crime reduction and police force for a city that is at the top of the list for homicide rates and public high school dropout rates for major U.S. metropolitan areas.

Detroit is also notorious for its vacated houses and dilapidated buildings, largely by virtue of the city's 139 square mile area; enough to fit Manhattan, Boston, and San Francisco. Much of the problem has to do with foreclosed homes in the after math of the auto crisis. Legal experts have also pointed out that from 2005 to 2007, 67,000 houses were foreclosed with another 50,000 in 2008 and 2009; in that time period 73 percent of all Detroit mortgages were subprime loans. As a result, Orr's plan would also set aside money for thorough deconstruction and demolition of the city's vacancies. And while the areas that have taken the brunt of the crisis tend to be suburbs three miles out of the center of Detroit, Orr has also indicated an interest to put more money in tourism and business attraction efforts.

The proposal is certainly ambitious, garnering optimistic endorsements from Michigan Governor Rick Snyder and new Detroit Mayer Mike Duggan, but retirees, bondholders, creditors and public sector workers have all maintained that the plan takes too much out of their pockets. They point to the current plan asking for 10 percent cuts to retiree pensions that are already owed with city workers also losing over a third of their pensions. Others have claimed that Michigan's state constitution entitles people to full pension returns and that it simply isn't right for the city to leave retirees to fend for themselves after decades of service to the city. But the battle has gone beyond disapproving rhetoric and low approval ratings, with area unions have filing multiple lawsuits against the city for the cuts and creditors filing more and more court extensions going back to February 28th.

"Retirees cannot survive these drastic cuts," said Al Garrett, president of the Michigan division of the American Federation Municipal Employees. This sentiment was echoed by Jordan Marks, Executive Director of the National Public Pension Coalition who added that "a more than 30 percent cut combined with the virtual elimination of healthcare is devastating to people who have dedicated a career to Detroit."

The opposition has seemingly left Orr undeterred, who remains insistent that a settlement must be achieved as soon as possible. However, in the last month Orr has seemed willing to compromise cuts for a earlier court date. In recent disclosure statements Orr has said that if a timely settlement is reached between pension groups and the city, police and firefighters would only take a 6 percent cut opposed to 14 percent with public workers losing only 26 percent rather than 34 percent.

Opponents to the plan have not been reticent about possible alternative solutions for financing the plan. Creditors have pointed to one of Detroit's most famous institutions for money: the Detroit Institute of Art. Recent figures show that the City of Detroit actually owns 5 percent of the gallery, and a recent New York auction house appraised that collection at an astounding $870 million dollars. The institute hasn't offered aid to the city in the past, having put down $100 million for the city with additional funds coming from the governor's office and philanthropy foundations in a recent $815 million dollar package to cover the pension costs. Nevertheless, creditors and bond insurers like Syncora are still demanding the institute's paperwork to delve into all the ownership information of the gallery.

It seems that no matter the solutions posed, the road out of bankruptcy will be full of disagreement in Detroit. A lot of deadlines have to be met with perhaps too many idealistic settlements along with way, but there is always reason for optimistic in the Motor City with recent record years from the auto industry. There has never been doubt that Detroiters are the archetype of resilience and have always found a way to make ends meet, but a different issue that is being addressed presently is Kevin Orr's own resilience in solving the city's macro problems.