April 28 (Bloomberg) -- Detroit reached agreements with unions representing more than a third of the city’s employees on new five-year labor contracts, according to federal mediators overseeing bankruptcy negotiations.
The announcement came as the judge handling the $18 billion bankruptcy case urged Detroit to resolve disputes with suburbs that rely on it for water and sewer services. The city and surrounding communities are split over whether Detroit’s water and sewage department should be turned into a regional authority that makes annual payments to the city.
“It is everyone’s best interest” to resolve the disputes, U.S. Bankruptcy Judge Steven Rhodes said today in Detroit. “Nothing is impossible. The word doesn’t exist in this case.”
Detroit is building support for a debt-adjustment plan ahead of a creditor vote that may begin next month. In the past month, the city reached deals with retired public workers and its two pension systems on cuts in retirement benefits. The chief judge of the U.S. District Court in Detroit is leading a group of mediators trying to help the city resolve differences with other creditors.
“The mediators hope that this settlement will encourage all of the remaining parties to the bankruptcy to redouble their mediation efforts to reach meaningful agreements,” according to a statement released by the district court.
The new contracts cover more than 3,500 of the city’s 9,600 employees.
Recent changes to Detroit’s debt-adjustment plan may reduce the number of legal fights the city must wage in July, when Rhodes is scheduled to consider approving the proposal, city bankruptcy attorney Bruce Bennett said today in court. Kevyn Orr, Detroit’s emergency financial manager, has said he hopes the city can exit bankruptcy in October.
Also today, Rhodes ordered the Detroit Institute of Arts and Michigan’s attorney general to give creditors documents on the value of its collection, which is partly owned by the city.
State political leaders and a group of foundations have promised to give the city $816 million to bolster the two underfunded pensions, but only if a plan can win support from employees and shield the city-owned works housed at the art institute from being sold to pay creditors.
Creditors, including bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co., oppose the art deal, arguing that the city could get more money by selling the works or using them as collateral for a $2 billion loan. The creditors hired the investment bank Houlihan Lokey to solicit offers for the thousands of pieces in the art institute.
Michigan’s largest city filed for bankruptcy in July saying it couldn’t meet financial obligations and provide adequate services.
Tiffany Ricci, a spokeswoman for the American Federation of State, County and Municipal Employees, didn’t immediately reply to an e-mail requesting comment on the labor contracts.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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