The emergency manager overseeing the financial restructuring of Detroit filed a petition in federal court Thursday afternoon throwing the devastated industrial city of 700,000 residents into Chapter 9 bankruptcy. Republican Governor Rick Snyder, who appointed Wall Street bankruptcy attorney Kevyn Orr as the city’s emergency manager last March, immediately approved the filing.
The largest municipal bankruptcy in US history paves the way for an unprecedented attack on the pensions and health care benefits of city workers, the further slashing of essential services, and the sell-off of public assets to pay the banks and bondholders who hold the city’s debt.
Announcing the filing, Emergency Manager Kevyn Orr stood side-by-side with the city’s Democratic mayor, David Bing, a multi-millionaire who has slashed the city workforce by 20 percent since taking office in 2009. Both cynically claimed that the bankruptcy would have little effect on daily life and would lead to improved services for city residents.
The Obama administration signaled its support for the bankruptcy filing, issuing a statement Thursday declaring: “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities.”
Orr has already approved a corporate-backed plan to shut off services to neighborhoods deemed too poor or under-populated for profitable private investment, while handing over public lighting, transportation, garbage collection and other services to for-profit companies. His “turnaround” team has appraised everything from the city’s water treatment plant and masterpieces at the Detroit Institute of Arts to Belle Isle Park and the animals at the Detroit Zoo for possible sale to private investors.
Above all, the bankruptcy filing clears the way to gut the pensions and health care benefits of the city’s 31,000 current and retired employees. By throwing the city into the bankruptcy courts, Orr intends to circumvent Michigan’s constitution, which declares public pensions to be a “contractual obligation” that “shall not be diminished or impaired.”
Orr rushed the bankruptcy filing to preempt lawsuits filed by pension trustees and public-sector unions seeking to block bankruptcy on the grounds that it would lead to unconstitutional pension cuts. Attorneys for Snyder reportedly asked the lawyers representing the pension funds for a five-minute delay before they sought a temporary restraining order to block the bankruptcy filing. During those five minutes, Orr’s attorneys filed the bankruptcy petition in Detroit.
At Thursday’s press conference, Orr gloated that the bankruptcy filing put an “automatic stay on all litigations,” adding, “We don’t have any time for more delaying tactics.”
Under a plan Orr previously outlined, pension trust funds would receive as little as 10 cents for every dollar owed to 21,000 retirees for a lifetime of labor. Orr wants to eliminate cost-of-living adjustments for retirees who receive as little as $500 to $1,000 a month, with no additional Social Security payments. He also intends to impose an immediate freeze on future pension payments and shift retirees to Medicare or privately controlled health care exchanges set to begin next year under the Obama administration’s Affordable Care Act. The city’s current 9,700 workers will also see a huge reduction in health benefits and the loss of employer-paid pensions.
[…] The only contractual obligations that will be honored by Orr are the billions of dollars in principal and interest demanded by the major Wall Street banks and bondholders. Orr has already made a settlement with UBS, Bank of America and Merrill Lynch Capital Services on $340 million in credit default swaps, giving them 75 cents on the dollar.
[…] “Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say,” the New York Times wrote Thursday, citing Karol K. Denniston, a lawyer involved in the bankruptcy of Stockton, California. “If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities. Detroit is going to be a huge test kitchen.”
[…] While Orr insists there is no money for pensions or essential services, hundreds of millions in public dollars will be used to subsidize the development of an upscale housing, commercial and entertainment district covering about 7.2 out of the city’s 139 square miles. This includes $286 million in public funds for a new sports arena for the owner of Little Caesar’s Pizza and the Detroit Red Wings hockey franchise, Mike Ilitch, whose net worth is estimated at $2.7 billion. To make room for the arena, hundreds of low-income workers and seniors are being evicted from their downtown apartments.
The bankruptcy will bring devastation to the working class, but it will mean a huge windfall for Ilitch, Quicken Loan billionaire Dan Gilbert, and the gangs of bankruptcy lawyers, hedge fund operators and private speculators who will descend on Detroit to cash in on the carve-up of the former Motor City. [++]