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Sun August 31, 2014
Around the Nation

Trial Will Decide Detroit's Fiscal Future

Originally published on Sun August 31, 2014 1:31 pm

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Transcript

LINDA WERTHEIMER, HOST:

Detroit is gearing up for a trial this week over its plan to emerge from the nation's largest ever municipal bankruptcy. But as Quinn Klinefelter of member station WDET reports, questions remain as about just what a post-bankrupt Detroit will look like and whether the city has done enough to pay back those who helped it until now.

QUINN KLINEFELTER, BYLINE: A Detroit taxi cruises through a stretch of bleak neighborhoods near 8 Mile Road. Cabdriver Will Whitfield says he's watched the area go down, just as he's noticed investment go up in the city's downtown. And with Detroit poised for a trial over its strategy to exit Chapter Nine bankruptcy, Whitfield is wondering what comes next.

WILL WHITFIELD: What's going to be the end result if the bankruptcy gets granted? Are we going to not just build up downtown but build up 10 blocks from downtown? The neighborhoods outside of downtown Detroit are suffering daily. We've got people killing each other every day.

KLINEFELTER: Detroit officials say they are already answering some of those questions - increasing police patrols, launching programs to repair tens of thousands of streetlights and removing an equally large number of blighted and often hazardous abandoned buildings. Even when Detroit filed for bankruptcy last year, emergency manager Kevyn Orr noted that the city could not become economically viable until it became something else - a place people wanted to live in.

KEVYN ORR: Does anybody think it's OK to have 40-year-old trees growing through the roofs of dilapidated house? Does anybody think our children should walk through the streets dark going from school at night in October? Does anybody think that they should call the police and them not be able to come on time because there're already out on calls? No. We are trying very hard to be fair.

KLINEFELTER: But Detroit has to shed more than $18 billion in debt - $18 billion. And Orr crafted what's called a plan of adjusted that, among the other things, reduces city retirees monthly pension payments by 4.5 percent. The vast majority of city workers voted to accept the plan rather than risk bankruptcy judge Stephen Rhodes imposing for harsher cuts. But not all retirees are onboard. A small knot of pensioners, like Benny Goldston, pledged to fight it.

BENNY GOLDSTON: No, it's not fair. And somehow I can't believe that it's legal. And I would have to believe that if Judge Rhodes is the honest and fair judge that he's purported to be that he's going to deny this plan of adjustment.

KLINEFELTER: But attorney and bankruptcy specialist Michael Sweet says the city has been effective in isolating those opposing Detroit's plan to emerge from Chapter Nine - both the holdout retirees and some large bond insurers who stand to lose billions of dollars they loaned the city and perhaps much more in the future if the case sets a national precedent.

MICHAEL SWEET: They've essentially been painting the creditors into a corner and ticking them off either one-by-one or in small groups. So as you reduce the number of objections and the noise made from objecting parties, the likelihood increases that you can get your plan confirmed.

KLINEFELTER: But Sweet acknowledges that creditors opposing the bankruptcy plan may have been dealt a stronger hand in recent days. An investor group offered Detroit a $4 billion loan to help it pay back creditors if the city uses the lucrative collection at the Detroit Institute of Arts as collateral for that loan. But the state of Michigan and some private foundations have already brokered a deal to place a collection into an untouchable trust in exchange for giving the city about $800 million.

SWEET: The question is going to be how much are they leaving on the table in terms of the actual value of the art collection? If you're undervaluing the artwork, then one might argue you're not bringing a sufficient amount of money into the bankruptcy case in exchange for taking the artwork outside of the reach of the creditors.

KLINEFELTER: Judge Rhodes has ordered the city and the major creditors opposing Detroit's bankruptcy plan to try and reach an 11th hour deal before the trial over what is essentially Detroit's fiscal future is scheduled to begin on Tuesday. For NPR News, I'm Quinn Klinefelter in Detroit. Transcript provided by NPR, Copyright NPR.