Judge To Rule Friday On Detroit's Bankruptcy Exit

Transcript

RENEE MONTAGNE, HOST:

And today is decision day in Motor City. A federal judge is set to rule on Detroit's plan to exit the largest municipal bankruptcy in U.S. history. Quinn Klinefelter from member station WDET has our story.

QUINN KLINEFELTER, BYLINE: At a recent groundbreaking for a new hockey arena in Detroit, an a capella choir greets the crowd with one of the city's newfound anthems.

UNIDENTIFIED A CAPELLA CHOIR: (Singing) You only get one shot. Do not miss your chance to blow. This opportunity comes once in a lifetime.

KLINEFELTER: Governor Rick Snyder is here celebrating the new complex and the planned redevelopment of several nearby neighborhoods. He tells the crowd it's the kind of investment he envisions happening over and over again if Federal Judge Steven Rhodes approves the city's plan to exit bankruptcy.

GOVERNOR RICK SNYDER: But this isn't just about an arena. This is about the spirit of the city. This about a state of mind - about saying this is a great place to not only play, it's a place to work. It's a place to live.

KLINEFELTER: The new arena has been in the works for a long time. But it's a necessity now because the old Joe Louis Arena is being given to a bond insurer Detroit owes money to - that is, if Judge Rhodes approves it today as part of Detroit's plan to shed 7 billion and invest more than a billion into city services. Decades of dwindling tax revenues, increasing unemployment and large-scale mismanagement left Detroit so broke that about a year and a half ago, the governor put emergency manager Kevin Orr in charge of its finances and eventual bankruptcy. Orr reduced pension payments to city workers, restructured contracts and offered creditors real estate in pennies on the dollar in exchange for dropping opposition to the plan to exit bankruptcy. Orr says nothing was sacrosanct.

KEVIN ORR: We've put pretty much everything we have or could've had on the table.

KLINEFELTER: Well, not everything. An almost unprecedented collaboration between the state and private foundations provided hundreds of millions to shore up the pension system and keep valuable artworks off of the auction block. Detroit business leaders say that so-called Grand Bargain was key in showing that the city could be an attractive place to live and invest in.

UNIDENTIFIED WOMAN: Members of the Business Advisory Council.

KLINEFELTER: At an event celebrating a new light rail line in downtown Detroit, Quicken Loans founder Dan Gilbert glances at some of the billions of dollars' worth of Detroit he's acquired while the bankruptcy's been ongoing. Gilbert's bought more than 60 buildings in the city to redevelop. And Gilbert says that the judge today approves the bankruptcy exit strategy, he'll rid Detroit of old debt and the image of a city teetering on insolvency.

DAN GILBERT: When we go around the country and try to promote Detroit, it's nice to not have to have an answer to that question the first or second question because just like the crime thing earlier, the more we can put this stuff behind us and people start asking questions talking about growth and the new businesses and technology businesses coming in - it helps from that standpoint.

KLINEFELTER: Legal scholars say Judge Rhodes could allow Detroit to put bankruptcy behind it far more quickly than usual. The city filed for chapter 9 protection only in June of last year. By contrast, Stockton, California declared bankruptcy a year before that and has only recently had its exit strategy approved. University of North Carolina bankruptcy expert Melissa Jacoby says Rhodes has taken an unusually active role in ensuring Detroit's bankruptcy moves quickly through his court. Jacoby says the court-appointed mediators flipped creditors from opponents to partners. A move she says other cash-strapped cities might find hard to replicate.

MELISSA JACOBY: Because there was so much negotiation and so much behind the scenes deal cutting, that really reduced the number of big legal disputes that had to be decided by the bankruptcy court. So in terms of the traditional way we think about setting precedent, Detroit's case will not do that.

KLINEFELTER: Jacoby adds that not every creditor is on board with the exit strategy the judge is weighing.

JACOBY: Civil rights claimants who have claims against the city and police officers for various alleged acts, people who have had personal injury claims, person who has been run over by a bus, persons who have leases that the city does not want to honor. The plan is likely to be crammed down on those groups.

KLINEFELTER: The judge's decision could still be challenged in court, but most of the creditors agreed not to appeal when they settled with Detroit. There also is one caveat - once the plan to emerge from bankruptcy is approved and implemented, the emergency manager's appointment officially ends. It will then be up to Detroit's mayor and city council to avoid the financial mistakes that crippled this once thriving city. For NPR News, I'm Quinn Klinefelter in Detroit. Transcript provided by NPR, Copyright NPR.