Detroit Bankruptcy Filing Prompted by Pension Lawsuits

Photographer: Jeff Kowalsky/Bloomberg

Rick Snyder, governor of Michigan, left, and Kevyn Orr, emergency manager for the city of Detroit, hold a news conference in Detroit on July 19, 2013. Close

Rick Snyder, governor of Michigan, left, and Kevyn Orr, emergency manager for the city... Read More

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Photographer: Jeff Kowalsky/Bloomberg

Rick Snyder, governor of Michigan, left, and Kevyn Orr, emergency manager for the city of Detroit, hold a news conference in Detroit on July 19, 2013.

Lawsuits and passing time were reasons to put Detroit into bankruptcy, Emergency Manager Kevyn Orr and Michigan Governor Rick Snyder said a day after the city sought protection in federal court.

Orr and the Republican governor who appointed him said in an interview in Detroit yesterday that it became clear that too few creditors would accept a plan Orr put forth June 14 to pay off $11.5 billion in unsecured debt with $2 billion in borrowed money -- an offer that would have provided as little as 10 cents on the dollar owed and cost pensioners some benefits.

Snyder said Orr told him last month he’d know in 30 days whether a deal outside bankruptcy was possible.

“By July 14, there should be a pretty good assessment of where we stand in terms of creditors coming to the table or not,” said Snyder, 54, recalling Orr’s advice. “Some creditors did come to the table. Many others ran into court, though.”

“Let’s leverage bankruptcy in a positive way,” Snyder said. “The court is created to bring all these issues to the table and address them in a positive way.”

Michigan’s largest city, an erstwhile industrial giant, joins Jefferson County, Alabama, and San Bernardino and Stockton in California in bankruptcy with its record $18 billion case.

Legal Challenge

Detroit’s filing came over lawsuits by city pension funds, who said cutting retiree benefits would be illegal. Circuit Court Judge Rosemarie E. Aquilina in Lansing ruled yesterday that the bankruptcy violated the state constitution and ordered Snyder to withdraw it. The state is seeking to appeal the order.

Orr, 55, and Snyder said Detroit’s crisis, 60 years in the making, would take time to resolve. Orr’s term as emergency manager isn’t limited, though he and Snyder assume that 18 months after his March appointment he will be dismissed by a two-thirds vote of the City Council, as state law allows.

Orr said the decision to enter bankruptcy came after a long build-up of resistance to his plans and what he called an olive-branch approach to creditors.

“What did we get for that? We’re getting sued, consistently,” Orr said.

“There were questions about my sanity and standing by and not making a recommendation to the governor that we do something about it, because people were getting frustrated with how long we were taking in an environment where we were receiving hostile actions,” the bankruptcy lawyer said.

Not Selling

Detroit residents should see improvements in services within 60 days as he shores up funding, Orr said. He said he has no plans to sell assets, such as the city-owned collection at the Detroit Institute of Arts.

“There’s nothing for sale, including Howdy Doody,” he said at a news briefing, referring to the puppet stored at the museum that was used in the 1950s children’s television show.

Snyder said there are no plans for a state or federal bailout for the city. Putting Detroit in bankruptcy was among his most difficult decisions, the governor said.

“This is probably one of the most challenging situations in the entire United States,” he said. “Let’s get to stability, let’s get to growth again in Detroit instead of watching the can get kicked down the road, which has gone on far too long.”

To contact the reporter on this story: Chris Christoff in Detroit at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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