Thursday, July 18, 2013

As Detroit goes bankrupt, if you see anything the city owns that you like, try offering the "emergency manager" a few bucks


See anything you like? Make 'em an offer. (Feel free to low-ball.)

"The best analogy I have heard for what is happening in Detroit is that this is a five-decade Katrina. Now, you either get a voluntary agreement from people holding long-term debt, or you get bankruptcy."
-- Peter Hammer, Wayne State University law professor
and director of the Damon J. Keith Center for Civil Rights

by Ken

The news is pretty stark. The Washington Post (with help from the AP) reports: "Deroit goes bankrupt, largest municipal filing in U.S. history."
Detroit filed the largest municipal bankruptcy in the nation's history Thursday afternoon, capping a long decline that left the nation's automaking capital bleeding residents and revenue, while rendering city services a mess.

The nation's fourth-largest city in the 1950s with nearly 2 million residents, the city has seen its populaton plummet to 700,000 as residents fled increasing crime and deteriorating services, taking their tax dollars with them.

The five-decade slide has left the city owing creditors some $19 billion and under the control of a state-appointed emergency manager. The manager has been negotiating with creditors from bond holders to pensioners to forge a plan to restructure the debt. But an agreement proved elusive as pensioners objected to benefit cuts and bond holders and insurers pressed the city to sell off assets to repay money the city borrowed to fund improvements and plug deficits.
I assume by now everyone is familiar with the death spiral that Detroit has been drawn into. It's a dramatically intensified version of the economic squeeze facing many of the country's old industrial cities.
The city's massive debt is matched only by a devastating loss of revenue and residents -- a long-term condition that has escalated in recent years.

The city's population has plummeted by 26 percent since 2000, while the unemployment rate has jumped from 7.3 percent to 18.6 percent. Property tax collections are down 20 percent and income tax collections are down by more than a third in just the past five years -- despite some of the highest tax rates in the state. Even casino taxes, a bright spot in recent years, are projected to decrease because of increased competition from nearby Toledo.

All of that has led to an alarming erosion of municipal services. The city is home to nearly 80,000 abandoned and blighted structures. It recently announced plans to close 50 of its remaining 107 parks. Police response times are up to nearly an hour, and 40 percent of the city's street lights do not work. Meanwhile, Detroit has the highest violent crime rate among the nation's big cities.
To back up a bit, the WaPo lead -- "Detroit filed the largest municipal bankruptcy in the nation's history" -- seems to me not quite correct. "Detroit" didn't file for anything. The city has certainly suffered more than its share of mismanagement. Now it has suffered the misfortune of having its fate determined by an ideological sociopath who should be on America's Most Wanted list: far-right-wing Gov. Rick Snyder.
Detroit emergency manager Kevyn Orr, who in June released a plan to restructure the city's debt and obligations that would leave many creditors with much less than they are owed, had warned consistently that if negotiations hit an impasse, he would move quickly to seek bankruptcy protection.

Orr was unable to convince a host of creditors, the city's union and pension boards to take pennies on the dollar to help facilitate the city's massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

"Only one feasible path offers a way out," Gov. Snyder said in a letter to Orr and state Treasurer Andy Dillon, approving the bankruptcy.

Snyder determined earlier this year that Detroit was in a financial emergency and without a plan to improve things. He made it the largest U.S. city to fall under state oversight when a state loan board hired Orr in March. His letter was attached to Orr's bankruptcy filing.

"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder wrote. "The city's creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations."

A turnaround specialist, Orr represented automaker Chrysler LLC during its successful restructuring. He issued a warning early on in his 18-month tenure in Detroit that bankruptcy was a road Detroit and its creditors did not want to tread.

He laid out his plans in June meetings with debt holders, in which his team warned there was a 50-50 chance of a bankruptcy filing. Some creditors were asked to take about 10 cents on the dollar of what the city owed them. Underfunded pension claims would have received less than the 10 cents on the dollar under that plan.

Orr's team of financial experts put together said that proposal was Detroit's one shot to permanently fix its fiscal problems. The team said Detroit was defaulting on about $2.5 billion in unsecured debt to "conserve cash" for police, fire and other services.

"Despite Mr. Orr's best efforts, he has been unable to reach a restructuring plan with the city's creditors," the governor wrote. "I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection."
You may recall that the Chrysler turnaround was accomplished with a highly friendly and supportive federal government looking on. Mr. Orr's collaborator in turning Detroit around is the scumbag governor. (On the plus side, at least Detroit didn't have to face the hatchets of those Southern senators who would have liked nothing better than to seal the doom of the country's unionized auto industry to benefit their scab auto makers.)

Naturally, in reducing Detroit's priorities to barest essentials, Mr. Orr found no essential so bare as the city's pension obligations. Far-right-wingers hate working people so much that they would do away with them entirely, as long as there would be somebody left to do, you know, some scraps of work.
The filing begins a 30- to 90-day period that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer. The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.
Translation: Anything the city owns can be had for a price, and probably not all that high a price. So if there's anything you've got a hankering for, try making an offer. Just be sure not to direct it to anyone officially connected to the city of Detroit. Dump the cash in an envelope and send it to Kevyn Orr.

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