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Effect of Detroit's bankruptcy on University uncertain

By Will Greenberg, Daily Staff Reporter
Published July 23, 2013

After filing for bankruptcy last week, Detroit’s future is unclear as it faces court proceedings and difficult decisions in the coming weeks.

Thursday, Republican Gov. Rick Snyder’s office released a press release announcing the city’s Emergency Financial Manager, Kevyn Orr, a University alum, was authorized to file for federal bankruptcy for Detroit. Orr implemented Order No. 13, which ordered the city file for Chapter 9 under the U.S. Bankruptcy Code.

“The simple fact is Detroit is in a financial crisis,” Snyder said in the press release. “The city is insolvent and has been borrowing money to pay its bills for nearly a decade. Bankruptcy is the only feasible option to fix the city’s finances and do what is right for the 700,000 people of Detroit.”

Currently — according to the release — Detroit is facing $18 billion in debt. A report from Orr in June, the Proposal for Creditors, illustrated Detroit’s dwindling economic status over the past few decades, showing that between 2000 and 2012 Detroit’s population decreased by 26 percent with unemployment increasing by 12 percent within that time.

Both Snyder’s press release and the report stated that the hope was to incentivize investment and growth for the city down the line. Orr’s plan would spend $1.25 billion over the next 10 years to revamp and restructure the city’s main services, police, fire, trash and street lamps.

Wednesday, one day before bankruptcy was filed, the General Retirement System of the City of Detroit and the Police and Fire Retirement System of the City of Detroit filed a lawsuit with the Ingham County Circuit Court in Lansing against Snyder and Orr.

The plaintiffs claim that filing bankruptcy and disrupting the city employees’ pension funds would violate Article XI, Section 24 of the Michigan Constitution. The article states that pension funds “shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”

A press release from the Detroit Police and Fire Department Retirement System stated that it was willing to cooperate with Orr but was also legally required to protect pension funds. It asked the court to prevent “taking any action which would contravene the protections of Article IX, Section 24.”

Orr’s order reads that any element that is deemed illegal or unenforceable can be “severable” without completely removing the order.

The case was heard by Judge Steven Rhodes in the U.S. Bankruptcy court for the Eastern District of Michigan. The Detroit News reported that Rhodes froze the lawsuits against the city but did not rule yet on whether Detroit is eligible for Chapter 9 and did not rule on the constitutional legality of Snyder filing the city for bankruptcy.

State Rep. Jeff Irwin (D-Ann Arbor), who has spoken out against the minimal requirements needed to implement the Emergency Manager position, said he was frustrated with the way Detroit’s finances have been handled in the past. He said other communities around the state have received funding while the government seems less inclined to bail out Detroit.

However, Irwin said the magnitude of the city’s financial woes is likely too great for an easy fix. City management has far less to blame for the deficit than does the city’s diminished population.

“They’re trying to pay for the pension obligations of the policemen and the firemen that patrolled that city when they had two million people in it,” he said. “Imagine if the population of the United States shrunk from 330 million to 110 million; do you think we’d be able to make Social Security payments? Probably not.”

With the bankruptcy only recently filed, it may be too early to determine the full impact on both Detroit and the University’s involvement within the city.

University President Mary Sue Coleman said at an event in Detroit on Tuesday that she was not concerned Detroit’s bankruptcy would have any impact on the University.

“I am really not,” she said. “I have tremendous confidence in Kevin Orr … it is going to be painful to get back, I understand it. But if it gives the city a chance to start over, then we all just have got to make that happen.”

Craig Regester, associate director of the Semester in Detroit program, said he doubts the economic problems will deter students from becoming or remaining involved in Detroit.

Regester said University students would continue to have a role in influencing the city but that he and the students take a “humble approach” to their contribution, crediting the Detroit residents for maintaining the city through years of hardship.

“Yeah, they (the students) have something to contribute, absolutely, but they also probably have as much, if not more, to learn and to understand about the world through being and working (in Detroit) along with so many people who have been doing this for decades in the city,” he said.

Regester said he also felt that many people don’t have a full understanding of the city’s strengths and weaknesses, which contributes to the problem.

“Even with the official declaration of bankruptcy, and this is no small financial shift, the various organizations that have emerged all throughout the city could almost be seen as an unofficial, second quasi-government that will keep on functioning, as it has for so long now, independently of the city.”

Daily Staff Reporter Adam Rubenfire contributed reporting.


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