Detroit Witness Defends Tax Estimates Behind Debt PlanSteven Church
Detroit’s leading tax estimator, appearing as part of the city’s historic bankruptcy trial, defended the 10-year revenue model used to help justify imposing $7.4 billion in cuts on creditors including bondholders and pensioners.
Robert Cline, an economist hired to create 10-year and 40-year revenue forecasts for the city’s bankruptcy-exit plan, testified in federal court in Detroit today that he factored in long-term population declines and weak job growth in estimating future tax collections.
Bond insurer Syncora Guarantee Inc. questioned Cline’s work, saying it assumed the city couldn’t raise tax rates or find new ways to increase revenue that could be used to pay creditors. Syncora, which may be forced to make up losses by city bondholders it insured, opposes the debt-cutting plan.
“You don’t know whether the city even wants to increase revenues, correct?” Douglas Smith, an attorney for Syncora, asked. Cline said he wasn’t hired to analyze new tax sources.
Detroit, which filed a record $18 billion municipal bankruptcy last year, must convince U.S. Bankruptcy Judge Steven Rhodes at a trial that its debt-cutting plan is feasible and fair. While the trial is set to start Aug. 29, Cline was in court today because he will be unavailable to appear after tomorrow.
When the trial opens, Rhodes will hear from dozens of other witnesses. After Cline finished testifying, the judge told each side in the case how much time they have left to present their cases: the city has 79 hours, and creditors have 82.
The city filed for bankruptcy in July 2013, saying that decades of decline and the disappearance of manufacturing jobs had left it unable to meet financial obligations while providing basic services to its 700,000 residents.
Detroit’s 5 percent bonds due in 2034 fell more than 4 percent today to 97 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).