Aug. 3 (Bloomberg) -- Detroit needs a committee as soon as possible to represent retired public employees in the city’s record municipal bankruptcy, a judge said as he pushed lawyers to avoid slowing the pace of the case.
In comments and rulings yesterday at a hearing in federal court in Detroit, U.S. Bankruptcy Judge Steven Rhodes made clear he will impose deadlines that one lawyer said “may be extremely aggressive.” Rhodes ordered the retiree panel set up within 21 days by the U.S. Trustee, the arm of the U.S. Justice Department that monitors business and municipal bankruptcies.
Outside the courthouse, about 40 protesters, including former city workers, picketed, some with signs that read “Bail Out the People, Not the Banks.”
Detroit filed the biggest U.S. municipal bankruptcy on July 18, saying decades of decline had left the traditional home of U.S. automakers unable to pay its debt and provide an acceptable level of police, fire and other services. The city’s emergency manager has proposed cutting some retiree benefits as part of a plan to restructure $18 billion in debt.
Detroit will “enthusiastically accept” the judge’s schedule for a reorganization plan, David Heiman, an attorney for the city, said in court.
“Time is our enemy,” he said. “The facts are not going to change, no matter how long we wait.”
Creditors including city employee unions, bond insurers and one bank all unsuccessfully asked the judge for documents, witness interviews or procedural changes that might have delayed his schedule.
“These deadlines may be extremely aggressive,” Lynn Brimer, a lawyer for an association of retired police, told the judge when he solicited opinions on the proposed timetable.
Heiman told Rhodes it’s the city’s “hope and desire to file a plan by year-end,” even sooner than the March 1 deadline the judge had proposed.
Rhodes said yesterday that he would leave the composition of the committee up to the U.S. Trustee, staying out of a dispute between current and retired city workers. The committee should represent the interests of about 20,000 retirees, the judge said.
Former municipal workers have said Detroit should be barred from any role in setting up the committee. Organizations of retired police officers, firefighters and general workers also oppose allowing any current city employees or union officials to sit on the proposed panel. Lawyers for the unions have said they want a seat on any retiree committee.
Donald Hudson, who retired in January from the Detroit police force after 39 years, said he wouldn’t mind if the committee included current employees.
“We have common interests,” Hudson, who makes about $50,000 a year from his pension, said outside the courthouse. He said Detroit doesn’t have the right to cut pensions. “It’s not the city’s money. It never has been.”
Hudson and some of the other protesters said they live in the city and have witnessed the slow decay of its neighborhoods. They said the best way to save Detroit is by cutting debt owed to bondholders, not employees.
Before the bankruptcy, Orr proposed canceling about $2 billion in what the city claims is unsecured bond debt and $3.5 billion in future pension obligations. Those debts would be replaced with about $2 billion in new notes the city would issue.
David Sole, 65, said he retired in January after 22 years with the water department, where he worked as a chemist.
Eliminating pensions would do more economic harm to the city, he said as he stood outside court. He has lived on the city’s east side since 1991 and his block now has 10 abandoned homes on it. He can’t sell because there are no buyers in the Detroit market, he said.
Workers have already given up 20 percent of their pay to help the city budget, he said. Cuts in services have made neighborhoods like his worse, he said.
“Residents are waiting for garbage pickup that doesn’t come,” he said.
Under Chapter 9 of the U.S. Bankruptcy Code, which governs municipal bankruptcies, unsecured creditors including retirees don’t automatically have the right to form a committee. In a Chapter 11 bankruptcy, which is used by companies, a committee is usually formed to represent unsecured creditors.
Detroit’s emergency manager, Kevyn Orr, has said a retiree committee is needed because, unlike union members or bond investors, the former workers don’t have a strong organization backing them. He said the other groups don’t need a court-approved committee to help them.
Maria Giannirakis, an attorney for U.S. Trustee, said her office hasn’t taken a position yet on who should be on the committee.
Orr yesterday offered unions a new proposal to retain a city-paid health-care plan for employees, raising deductibles while preserving the 20 percent share employees now pay for premiums. The proposal streamlines 20 different health plans and would save the city almost $12 million a year, Orr said in a statement.
He previously proposed shifting most retirees to federal health programs and offering a city-paid plan with minimal coverage.
The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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