Last week, Detroit City Council rejected a $350-million loan proposed by Detroit Emergency Manager Kevyn Orr. If approved by federal Judge Steven Rhodes, who’s overseeing the city’s bankruptcy case, the loan would provide the city with money to pay off debt, invest in the city and fund public services. The council rejected the proposal and won’t put forth an alternative deal. The loan is being floated to help pay off the city’s $18-billion debt. Yet, the current debt owed by Detroit was incurred from previous loans and the subsequent failure to pay them back. Taking on more loans to pay for previous loans is simply continuing a pattern that has gotten Detroit into its current financial situation.

Orr put out inquiries for loans to about 50 financial institutions, with four committing loans to the city. To secure these loans, Orr pledged income and casino tax revenue as well as $10 million in proceeds from the sale of city assets. The loan, from the London-based bank Barclays, is broken down into two portions: $230 million going towards the payment of previous loan debt and $120 million going towards the funding of city services and investment in the city.

There are many concerns about this loan. It has a floating interest rate, meaning that the rate could potentially rise based on market forces, further deepening the city’s debt. Orr has pledged revenue from the sale of city assets to secure the loan. He has not said, however, what would be sold to acquire the $10 million. The sale of city property — possibly Belle Isle or works of art from the Detroit Institute of Art — is a point of contention for many Detroit residents who are patrons of these establishments.

This loan is being secured and promoted during the city’s bankruptcy trial. Orr, who is also a bankruptcy lawyer, is the main force behind the loan and is also the main promoter of the city’s filing for bankruptcy. Orr is promoting both further loans as well as bankruptcy for the city as ways to save money and restructure Detroit’s finances. This appears to be a conflicting attempt to tackle the issue from two different angles: One of the main reasons for the current fiscal crisis is debt from previous loans. In 2005, Detroit took out a $1.44-billion loan — also based on fluctuating interest rates — to finance its two pension funds, which backfired and left the city even more in debt and still trying to pay off the pensions to this day. Filing for bankruptcy is a safe route for the city — no more debt can be incurred while the legal system helps the city responsibly liquidate its assets and pay off its debts. The city made the decision to file for bankruptcy, and it should attempt to utilize that route before putting into action other plans for rescuing the city from financial ruin.

Although Detroit’s city council rejected the loan, the proposal is now to be decided by Steven Rhodes. The decision is being deferred to the judge because the city council chose not to propose an alternative option. Under the emergency manager law, city councils are only offered 17 days to consider such a proposal by an emergency manager. While Orr’s office had ample time to compile and present the loan from Barclays, the city council is given an extremely short time span to come up with a counterproposal with “the same level of benefit to the city.” This is not nearly enough time to create a counterproposal, especially one to pay off millions of dollars of debt.

This loan is a continuation of the actions that got the city of Detroit into the dire fiscal straits in which it currently finds itself. Taking on more loans to pay for previously incurred debt will just continue the downward spiral, one that could potentially put up the prized possessions of Detroit — the DIA, Belle Isle — as collateral. Under the direction of Orr, the city is already attempting to deal with its financial crisis by filing for Chapter 9 bankruptcy. Detroit should continue down that path, and only upon failure should it attempt to find alternative ways of dealing with its debt.

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