With major settlements piling up, Detroit bankruptcy moves along at lightning speed
This has proven to be a watershed week in Detroit’s bankruptcy case, which is now moving along at lightning speed.
On Tuesday, representatives for Detroit’s two pension funds reached tentative settlements with the city.
The deals would spare Detroit’s retired police officers and firefighters any direct cuts to their pensions, while non-uniform retirees would take 4.5% cuts.
Uniformed retirees will also get about half of their annual cost of living adjustment; general system retirees will get nothing.
All retirees lost their city health care benefits March 1.
General System Retiree trustees approved the plan Wednesday, while the board of the Retired Detroit Police and Firefighters Association approved it earlier this week.
Laura Bartell, a bankruptcy law professor at Wayne State University, said having the pension funds' leadership on board with the city’s restructuring plan is a huge development.
“It makes it far more likely that with their recommendations, the two pension classes will vote in favor of the plan,” said Bartell. “Together with all the other creditors who’ve already indicated they’re going to vote in favor of the plan, that makes confirmation far more likely.”
The city has also gotten some other major creditors on board over the past week.
Negotiators reached a deal with unsecured bondholders, and Judge Steven Rhodes approved a settlement that will pay off two major banks.
Bartell said all this bodes well for a speedy process, and it’s now feasible the city could actually emerge from bankruptcy in the fall. Emergency manager Kevyn Orr has said he hopes that will happen by mid-October.
But creditors must still approve the restructuring plan, known formally as a plan of adjustment. A vote is set to wrap up in late June, and Judge Rhodes has set a trial to decide whether the plan is “fair and equitable” for July.
The settlements with both retirees and bondholders will pay them significantly more than Orr had initially proposed in prior versions of the plan, which had called for up to 26% cuts for general system retirees.
Still, some retirees say they’re reluctant to vote in favor of the settlement, even if it’s a better deal than many had expected.
Cheryl Williams retired from the city’s finance department two years ago, after putting in nearly 30 years there.
Williams still doesn’t think it’s fair for general system retirees to have to take any cuts – especially since most took significant, repeated pay reductions during their working years.
And since her husband is also a city retiree, Williams said the cuts will have a double impact on their household. They’ve had to deal with skyrocketing health care costs since losing their city health benefits.
“I still really need to think about it,” Williams said about voting for the plan of adjustment. Any additional cuts would “really put us in a precarious situation.”