On Tuesday Detroit’s emergency manager Kevyn Orr returned to the witness stand to be grilled by creditor attorneys. This is likely to be some of the most important testimony of the eligibility trial.
In day four of Detroit’s bankruptcy eligibility hearing some big issues with both state and federal ramifications were addressed. It was the first time in American history that a sitting governor was called to testify in a Chapter 9 municipal bankruptcy case.
If you want to follow Detroit’s historic bankruptcy trial, Twitter is the way to do it. The court does not provide a video or audio feed, but there is a scrum of excellent local and national reporters tweeting throughout the day. Here are some of the best tweets:
There are a lot of moving parts in the Detroit story as it goes through the largest municipal bankruptcy in U.S. history. The strangest part of the story has been the interest rate swaps that were layered onto the city’s 2005 and 2006 pension obligation bonds.
Being the emergency manager for bankrupt Detroit is no picnic. Coordinating the largest municipal bankruptcy in American history while simultaneously trying to restructure city operations, even with a posse of high-priced consultants, is a huge job. The current emergency manager, Kevyn Orr, wants to complete the bankruptcy and his term in 18 months. This is a recipe for inappropriate appointments, rich living and major mistakes.
Late Friday, the City of Stockton, California released its “Plan of Adjustment” for how it intends to treat its creditors in bankruptcy. The plan has been in the works since the city filed for protection under chapter 9 of the United States Bankruptcy Code on June 28, 2012. Stockton’s City Council will vote on the plan this week, on October 3rd.
Detroit’s Emergency Manager Kevyn Orr and Michigan Governor Rick Snyder have told some bondholders that they will not be repaid at 100 cents on the dollar in Detroit’s bankruptcy plan. Lamentations ring out across the nation. This treatment of general obligation (GO) bonds – the gold standard for municipal securities – has rocked the market.
Stockton, California was a topic on Morgan Spurlock’s Inside Man program on CNN this week. The focus was on the increase in crime since the city slashed spending on police and fire in its bankruptcy proceeding. 70 percent of the city’s budget is spent on “safety” needs, and the city is broke.
There appears to be a frenzy of comments lately that public retirees receive excessive pensions in the current economy and that they need to be reduced. Many in the media have taken a brief look at Detroit and decided that costly pensions were the cause of the city’s bankruptcy. Nothing could be farther from the truth. Detroit pays a relatively modest median pension of $19,000 a year to general government retirees and $30,000 to police and fire retirees. Detroit’s pension system was funded at 82 percent in 2011 (and at 99 percent for its police and fire retirement system). That is higher than the national median of 74 percent. But public benefits make easy targets for critics. Let’s take a tour of pensions in bankruptcy through the years.