What it might look like if Detroit's bankruptcy is thrown out

**Wesley Mouch** · July-07-14, 11:03 AM

Originally Posted by Hermod

The problem isn't "outsourcing" per se, the problem is "friends and family outsourcing".

We have contract garbage and trash pick up by a contractor and the city holds their feet to the fire for full performance of the contract as written.

What city, Hermod?

**Hermod** · July-07-14, 03:11 PM

Originally Posted by Wesley Mouch

What city, Hermod?

Lighthouse Point, FL 33064

The city runs a real "lean and mean" staffing with most of the DPW stuff contracted out. The main staffing is the police and fire/rescue departments.

**erikd** · July-11-14, 12:34 AM

Originally Posted by MikeyinBrooklyn

Erikd, it does matter if the bankruptcy is approved or not. You're right, there isn't any possible way for Detroit to pay the bills without it. But without it, there will be endless lawsuits to recover money [[and forced sales of city property), and the few remaining city services will have to be cut further to pay off old bills. A well managed bankruptcy will allow for an orderly partial repayment of debt, current services to be kept, and stability in both Detroit's financial and political systems.

I agree that it does matter, to the city, and the citizens of Detroit, if the bankruptcy is approved, but my comment was in regards to the creditors and pensioners who seem to think that they will get a better deal if the bankruptcy is thrown out. In that sense, it doesn't matter if the bankruptcy is approved or not, because they simply are not going to get all of the money that they have been promised, one way or the other.

**erikd** · July-11-14, 01:02 AM

Originally Posted by Honky Tonk

They're still after the Holy Grail, the artwork. Once that's gone, and all debts paid, vendors will probably be including collateral clauses before signing contracts. If we don't get paid within such and such a timeline, we get Belle Isle.

If the creditors think that they can even come close to being repaid by a DIA liquidation, they are in a fantasy world.

The value of the art may be $4.6 billion, on the high side, but even a total liquidation would bring less than $2 billion, and even that is extremely unlikely, due to the title restrictions on much of the donated artwork. In addition to the likely scenario that much of the art would not be able to be simply auctioned off, there is also the reality that there would be a slew of legal challenges and lawsuits that would delay any sale for years as the case worked its way through the courts.

The grand bargain offer of nearly a billion dollars to shield the DIA from liquidation is a far better outcome for creditors than the alternative scenario of turning the grand bargain down, and trying to force the city to sell assets, which can not be done in a municipal bankruptcy.

The creditors can turn down the bankruptcy offer, but they can't just take possession of public assets. Municipal bonds and pension debts are not backed by public assets as collateral. A municipal bankruptcy isn't like a person defaulting on a mortgage or car loan, where the creditor can just repossess the car or foreclose on the house if the payments are not made. There is no collateral in municipal bonds. If the city can not pay, the bondholders can't just seize city property instead.

**erikd** · July-11-14, 01:28 AM

Originally Posted by BankruptcyGuy

Part of the settlement will require the parties to dismiss their case before the Sixth Circuit. I think the hearing is July 30, which would mean an opinion probably by the end of the year.

If we get to the end of the year without a deal, and the Sixth Circuit rules against the City, the entire bankruptcy proceeding is thrown out.

What is your opinion of a scenario where the city can not afford to pay the full amount of pension obligations, so the shortfall must be covered by the state. The pension guarantee is in the state constitution, but the city is nothing more than a creature of the state, and wholly under the control and whims of the state.

Under this legal framework, if the city defaults on an obligation that is guaranteed BY THE STATE, is the state not on the hook for any shortfall caused by the city's inability to pay?

It is not a perfect parallel, but isn't the state guarantee of city pensions somewhat akin to a parent cosigning a loan for their child? The city agreed to pay the pensions, but the state was the one who GUARANTEED the pension debt.

**mwilbert** · July-11-14, 09:54 AM

Originally Posted by erikd

I agree that it does matter, to the city, and the citizens of Detroit, if the bankruptcy is approved, but my comment was in regards to the creditors and pensioners who seem to think that they will get a better deal if the bankruptcy is thrown out. In that sense, it doesn't matter if the bankruptcy is approved or not, because they simply are not going to get all of the money that they have been promised, one way or the other.

Without bankruptcy, I expect that there would be a free-for-all of people trying to seize assets. Some people might come out ahead. You are almost certainly correct in saying that overall the creditors would not be advantaged, but that might not matter to creditors in classes that are not getting much back anyway.

**Wesley Mouch** · July-11-14, 10:26 AM

Originally Posted by erikd

I agree that it does matter, to the city, and the citizens of Detroit, if the bankruptcy is approved, but my comment was in regards to the creditors and pensioners who seem to think that they will get a better deal if the bankruptcy is thrown out. In that sense, it doesn't matter if the bankruptcy is approved or not, because they simply are not going to get all of the money that they have been promised, one way or the other.

Clearly, the pensioners believe that the state guarantee means more than it probably does.