INTRO: Federal bankruptcy Judge Steven Rhodes approved Detroit’s bankruptcy Friday afternoon. It will allow the city to shed $7 billion of debt. It is the American landmark case that will be studied by bankers, lawyers, economists and politicians for years to come. Michigan Now’s Chris McCarus was at the federal building in Detroit. He finds that downtown where the bankruptcy has unfolded is doing great. But the rest of Detroit needs to be rescued by the IMF.
Federal Bankruptcy Judge Steven Rhodes spoke from his courtroom at the federal building. Several dozen reporters and a few citizens watched on tv from another room. Judge Rhodes explained why the bankruptcy is fair to all sides and likely to succeed. He said the City of Detroit has, for decades, been bad at delivering services like trash, police and fire. He said the situation is “inhumane and intolerable and it must be fixed.”
The state of Michigan offered a $325 million loan. The city will use $275 million of it. Part of that loan will be used to pay corporate creditors just 10% of what the city owes them.
Judge Rhodes asked his superior, Judge Gerald Rosen, Chief Judge of the United States Eastern District, to help mediate the process. Rosen was the first of many officials to speak to reporters at a podium. Rosen said of Steven Rhodes:
“He presided over this case with fairness, integrity and honor. He brought honor to the proceedings and a firm guiding hand to this case. It simply could not have been handled the way it was handled without Steve Rhodes at the helm.”
Rhodes was at the helm in the courtroom. At city hall, it was Emergency Manager Kevyn Orr. He was appointed by Governor Rick Snyder in March of last year. Orr’s biggest accomplishment related to Michigan had been helping Chrysler through bankruptcy. The dozens of politicians and judges in the room considered Detroit’s bankruptcy even bigger.
“All I would like to say is I think what you saw today was the best of us. The best of Detroiters. The best of Michiganders. The best of Americans coming together through a difficult, managed judicial process to get a result for the benefit of the citizens of Detroit, the region and the state. It’s an example that all of us should be proud that the rule of law, comity, civility and unity prevailed sometimes not too easily… but eventually came through. What you saw today was a tour de force of logic at the highest level.”
Kevyn Orr was smiling and turned to his right where Mayor Mike Duggan was smiling. Both are known as strong willed. Orr was referring to how they defended their positions from each other all year. Orr, Duggan and Governor Snyder all went to University of Michigan Law school at the same time 30 years ago. They have had enough at stake and enough in common to make the bankruptcy happen.
Judge Rhodes said the root cause of Detroit’s problems has been a failure to deal with pension obligations. He said “this must never happen again in this state.” But Judge Rhodes also said this will become a model for bankruptcies in other parts of the country.
“The mayor and council will implement the plan and establishment of the financial review commission. It will deal with contracts larger than $750,000 and with collective bargaining.” Rhodes read from the bench for almost two hours.
Judge Rhodes argued that the mayor and city council “should not have votes on the financial review commission.” He suggests that they will jeopardize the commission’s efficiency and taint its credibility. He wanted the city to “oversee” the commission not advocate from with the commission. Mayor Duggan later said that he disagrees. That was no surprise from the feisty five footer. Regardless, Rhodes said “it is likely that the city will be able to provide the services to city residents and meet debt obligations.”
The root cause of this mess, he said, is the failure to deal with pension obligations.
“This must never happen again in this state,” said Judge Rhodes.
But he also said this will become a model for bankruptcies in other parts of the country.
Accounting balance sheets and legal briefs can satisfy white men in business suits. But they don’t add up to average Detroiters.
Out on Woodward Avenue at Clairmount, 23 year old Benjamin Maxwell was waiting for the bus, hopping on one foot then the next to stay warm, a hoodie over his head. He heard about the bankruptcy decision today.
“I heard it got approved.”
“What they’re claiming is it will make life better for regular people,” I said.
“It would. It would bring a lot more jobs,” said Maxwell. “A lot of people around here ain’t got no jobs and it’s hard to get jobs. It’s hard down here man.”
“So you believe it sort of?”
“Yea. $700 billion. It take away the deficit,” Maxwell said. “Is that what they say?”
“$7 billion,” I said.
“Tell them they need to open a lot more schools that are closed down too because a lot of kids out here dropped out of school because they can’t go to school. How do you expect the crime rate to go down if folks can’t get off the street to do nothing? Crime rate ain’t gonna go down. It gonna keep rising.”
The high officials assembled downtown have all talked about improving life out in the neighborhoods. Downtown includes Gilbertville, meaning Dan Gilbert’s 60 buildings. It includes Ilitchtown which is the stadiums and a lot of empty land that Mike Ilitch has been holding onto for the new hockey stadium.
Being downtown can make you think for a moment you’re in a regular bustling American city. But that’s only about 10% of this place. The other 90% can make you sad.