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Detroit Judge Allows County Challenges to Debt-Cut Plan

Detroit’s debt-cutting plan can be challenged by nearby suburban counties when a trial over the feasibility of the proposal starts later this month, a judge ruled, increasing the opposition the city must overcome to end its $18 billion bankruptcy.

Macomb, Wayne and Oakland counties oppose various aspects of the city’s plan, mainly because the proposal would take money out of the Detroit water system to help bolster an underfunded pension fund for city workers. The counties say the transfer may increase utility bills for their residents, who rely on the city for water service.

“It is not only bad policy to attempt to increase rates to pay past-due obligations, but it also may be impossible to generate additional revenue through rate increases that impose excessive burdens on residents and businesses,” Wayne County said in a court filing in U.S. Bankruptcy Court in Detroit.

The city filed for bankruptcy last year, saying that decades of decline and the disappearance of manufacturing jobs left it unable to meet financial obligations while still providing basic services to its 700,000 people.

Led by emergency financial manager Kevyn Orr, Detroit has proposed cutting some retirement benefits and reducing payments to some bondholders, in addition to tapping the water and sewage department for cash.

When the trial starts, U.S. Bankruptcy Judge Steven Rhodes will consider whether the plan is fair to creditors and feasible. Dozens of witnesses are scheduled to testify.

The judge said today in a court hearing in Detroit that the counties can be included among those eligible to challenge the plan.

The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

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