Detroit, the biggest U.S. city to seek bankruptcy protection, proposed deeper cuts for police and firefighter pensions, as well as for some bondholders, as it seeks approval of a plan to reduce its $18 billion in debt.
The city yesterday filed a description of its debt-adjustment plan that differs in some details from what it submitted in February in U.S. Bankruptcy Court in Detroit. The disclosure statement, if approved by U.S. Bankruptcy Judge Steven Rhodes, will be consulted by creditors in deciding whether to back the plan.
Detroit filed for bankruptcy in July, saying it couldn’t meet its financial obligations and still provide necessary services. The city has since been in negotiations over cuts with unions, retired workers and bond insurers.
General obligation bondholders, who had been set to receive 20 cents on the dollar under February’s plan, are now projected to get 15 cents. Pensions for police and firefighters would be cut about 6 percent if they vote for the plan, 14 percent if they don’t. In February, those proposed cuts were 4 percent and 10 percent respectively.
The office of Kevyn Orr, the city’s emergency financial manager, said in a statement yesterday that the new numbers were included to offer “greater clarification for retirees on how much pension benefit reductions would be.” The statement didn’t say why the numbers had changed.
The new disclosure statement also incorporates proposals the city previously announced, including a plan to spend $1.5 billion to improve services and a proposal for foundations and the state to put more than $800 million into pension funds in exchange for a promise that art owned by the city wouldn’t be sold.
Absent a deal with creditors, the city may have to battle unions, retired municipal workers, bondholders and bond insurers to win approval of the plan in court. The unions have asked an appellate court to dismiss the bankruptcy, while insurers have sued over proposed cuts to general-obligation bonds and retirees have said the pension cuts may push many of them into poverty.
Detroit, meanwhile, has sued to void $1.44 billion in pension-related debt. Also, Orr is attempting to lease the city’s water and sewer department to a new regional public authority, a plan suburban leaders have resisted.
A hearing on the disclosure statement is set for April 14. A trial on plan approval has been scheduled for July.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).