DETROIT – In the Theodore Levin U.S. Courthouse Friday afternoon, Judge Steven Rhodes determined Detroit’s proposed plan of adjustment is feasible, marking a new chapter for the city as it exits bankruptcy. The decision comes more than a year after the city of Detroit became the largest municipality to declare Chapter 9 bankruptcy in U.S. history.
The decision states that the city filed for bankruptcy in good faith, that the plan of adjustment is feasible and passes “fair and equitable” and that it is in the best interest of creditors.
In his decision, Rhodes wrote to the city of Detroit at large, thanking its residents for their engagement and activity throughout the proceedings.
“A large number of you told me that you were angry that your City was taken away from you and put into bankruptcy,” he wrote. “I heard you. I urge you now not to forget your anger. Your enduring and collective memory of what happened here, and your memory of your anger about it, will be exactly what will prevent this from ever happening again. It must never happen again.”
In a press conference following Judge Rhodes’ decision, Governor Rick Snyder, Mayor Mike Duggan, Emergency Manager Kevyn Orr, City Council President Brenda Jones, lead mediator Judge Rosen and Court Administrator David Weaver thanked the court and each other for cooperation.
“I think what you saw today was the best of us,” Orr said. “The best of Detroiters, the best of Michiganders, the best of Americans.”
Rosen said the amount of cooperation between the three branches of government will be the legacy of this bankruptcy and that the goal was not for this case to precedent setting.
“I think the legacy of this bankruptcy will be teamwork,” he said. “All the folks you see up here at one point or another throughout the bankruptcy worked together.”
Duggan said Detroiters are already able to feel some of the positive changes to city services with the plan of adjustment, adding that “every Detroiter owes Judge Rhodes a debt of gratitude.” The city has been implementing some of these changes over the past five or six months, and will also add an additional police officers and 200 firefighters. Last week, Detroit had its fastest EMS response time in 12 years.
In the closing arguments of Detroit’s bankruptcy trial Oct. 27, the city’s legal representation asked Rhodes to confirm Detroit’s broadly consensual plan that would discharge $7 billion in claims and reinvest $1.7 billion in the city.
The court also decided the cuts to pensions are reasonable, despite some employees who argued their pensions were protected under the Michigan Constitution, and city assets like works in the Detroit Institute of Art could be sold to pay for pensions. Rhodes said he wouldn’t be surprised if some pensioners appealed the decision but he predicts the likelihood of success on an appeal is about 25 percent. He added that court must acknowledge that these cuts will lead to hardship, in some cases severe, but that sacrifice is necessary in order for the city to be fixed.
Everyone involved in the plan will be “making sacrifices to contribute to this process and the city’s future,” Rhodes said.
The DIA settlement was also declared favorable for the city and creditors. The court agreed with the DIA’s argument — the art is held under a public trust and that certain pieces of donated artwork had specific restrictions on their transfer.
“The DIA stands at the center of the city as an invaluable beacon of culture,” Rhodes said, “To sell the DIA art would forfeit the city’s future.”
Rhodes also approved all aspects of the grand bargain — the agreement which removed ownership of the DIA from the city of Detroit — and other agreements like the state contribution agreement, the LTGO settlement and fees.
Though creditors have argued that raising taxes or selling DIA art could lead to creditors being paid back more, the court decided that in compliance with Chapter 9, creditors have received all that is reasonable given the current situation.
““It is a vast understatement to say that the pension settlement is reasonable. It borders on
the miraculous,” Rhodes wrote in the decision. “No one could have foreseen this result for the pension creditors when the City filed this case. The plan’s proposal is only possible because of the pension settlement and the Grand Bargain.”
Rhodes said raising taxes would lead to further population decline, and increases in property taxes would generate little additional revenue. In the latest Census Bureau report, the city dropped to having only 700,000 residents. Rhodes also agreed that the city has made an effort to monetize other city assets, such as the Detroit-Windsor Tunnel.
Bruce Bennett, the attorney from law firm Jones Day who is representing the city, spent a good portion of his time at the closing arguments discussing the feasibility of the plan, highlighting the two major qualifications: that the city meets its financial obligations and be able to recover and provide adequate city services.
The next steps for Detroit will be to improve its municipal services, which have been unable to protect the health and wellbeing of Detroiters, Rhodes said.
“Detroit’s inability to provide municipal services runs deep, and it has for years,” he said. “It is inhumane and intolerable and it must be fixed. This plan can fix these problems.”
The court also agreed with Martha Kopacz, a court-appointed expert, who testified that Detroit’s plan of adjustment is feasible. Rhodes confirmed three components of feasibility: the long term workability of the plan, the available capital resources to carry out the plan, and the commitment of Detroit Mayor Mike Duggan and the Detroit City Council to implement the plan.
Attorney David Heiman thanked Rhodes on behalf of everyone in the courtroom, for sense of fairness, intelligence, poking and prodding and sense of humor. He also said that Detroit would not be here today if it were not for him.
Daily Staff Reporter Paige Pfleger contributed reporting to this article.