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Detroit became the largest city to go bust in U.S. history.(Photo: Carlos Osorio, AP)
DETROIT — The city of Detroit's historic Chapter 9 bankruptcy will end Wednesday, setting in motion a sweeping plan to slash $7 billion in debt and reinvest $1.4 billion over 10 years to improve city services.
Detroit emergency manager Kevyn Orr told reporters that the final paperwork required to allowed the city to emerge from bankruptcy will be completed by the end of the day.
Judge Steven Rhodes approved the city's restructuring plan in November, giving the city the authority to implement the grand bargain to help reduce pension cuts, preserve the Detroit Institute of Arts and start improving basic services.
The end of the bankruptcy also marks the end of Orr's tenure. His resignation will take effect when the city emerges from bankruptcy by midnight.
"I feel very fortunate to have had the opportunity and very fortunate for the outcome on behalf of the city," Orr said. "The reality is the city is moving forward and that gives me a great deal of pride and satisfaction. But it truly is bittersweet. I've grown a great deal of fondness for the city."
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Gov. Rick Snyder appointed Orr in March 2013 to take over the city's operations. Orr, a Washington, D.C., bankruptcy attorney with Jones Day, authorized the bankruptcy on July 18, 2013, and led restructuring talks with creditors.
"It's truly historic," Snyder said Wednesday. "This has been an extremely difficult and hard process for many people but people worked together. We've got an outstanding outcome, far better than people's expectation. And now most importantly we have the city poised for a new chapter — a new chapter about the growth of the city of Detroit after decades of decline."
Mayor Mike Duggan welcomed Orr's exit. The mayor and City Council will regain control of the city following Orr's exit, but they will report to a state oversight board called the Financial Review Commission. Duggan and Council President Brenda Jones are members of the commission.
The commission will have the power to reject Detroit's spending and borrowing over the next decade.
Detroit Emergency Financial Manager Kevyn Orr speaks to the Detroit Economic Club on Oct. 3, 2013, at Motor City Casino Hotel in Detroit.(Photo: Ryan Garza, Detroit Free Press)
"We're better off today than we were 18 months ago," City Council member Gabe Leland said.
The consummation of the bankruptcy plan will allow the Detroit Institute of Art to spin off as an independent institution. The city-owned museum's assets will be transferred to the nonprofit that operates the museum.
Detroit bankruptcy mediators, led by U.S. District Chief Judge Gerald Rosen, raised $366 million in 20-year pledges from a group of national and local foundations to help fund the grand bargain. The DIA pledged $100 million from its own roster of donors, which includes the Detroit Three automakers. And the state of Michigan committed $195 million upfront to help resolve the bankruptcy.
Retirees voted to accept the grand bargain and corresponding pension cuts, which vary in size depending on the individual. Police and fire retirees get the smallest cuts, with just a reduction in their annual pension increases. Civilian retirees get cuts of at least 4.5% per month. Pension cuts are expected to take effect in March.
The city is also slashing retiree health care insurance by about 90%. The plan of adjustment creates two new Voluntary Employee Beneficiary Association (VEBA) groups to manage health care benefits for retirees who still qualify for payments from the city to offset their costs.
The plan of adjustment projects the city will free up about $1.7 billion over 10 years to invest in police, fire, blight removal, information technology and other services, but that figure is pegged to expectations of an improved government bureaucracy. It includes $483 million in anticipated new revenues from higher bus fares and parking fees, for example, as well as $358 million in cost savings.
The rest comes from the improved cash flow from the city's reduced debt load. With less debt, the city can spend more on services.
"There's no check for $1.7 billion," Duggan said. "So basically it's money that we're going to have to earn as we produce."
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Duggan acknowledged that the plan of adjustment could shift as the city encounters fiscal realities.
"It's a road map," he said. "It will get adjusted as we progress. It's a framework that says if we execute really well we'll be able to provide the kind of services that people in a city our size expect."
Orr's departure comes about 21 months after his appointment in March 2013. When he accepted the job, he severed ties to his law firm, Jones Day, which the city ultimately hired to handle the bankruptcy case.
Asked whether he would consider returning to Jones Day, Orr demurred. He said he would "take a little time and decompress" after the bankruptcy and plans to consider his next steps in early 2015.
Judge Steven Rhodes will have a hearing Monday on some administrative steps to complete the bankruptcy process.
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