Depending on what news outlet you were reading around town regarding today, it was Detroit's D-Day; its day of reckoning; a defining moment; or, if you were with us, a day where creditors were going to be offered a tough pill to swallow.
The city's Emergency Financial Manager Kevyn Orr met with dozens of creditors today that are stakeholders on Detroit's remarkable amount of long-term debt — anywhere from $15 billion-$17 billion. The plan he presented in a 200-page report (located here) calls for drastic changes — among which include dumping the city's Water and Sewage Department, reducing retirees health care, and, plans to immediately stop paying some of its debt.
According to the Detroit Free Press' report, he intends to use the $1.25 billion that would be saved, if the extraordinary measures do in fact take place, to revamp basic public services that have grown to be immensely lackluster over time.
The meeting with creditors, the first of many, was an initial attempt by Orr to work out a deal to stave off what would be the biggest municipal bankruptcy in the nation's history.
The Freep continues:
“Detroit’s road to recovery begins today,” Orr said. “Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the last 45 years have brought Detroit to the brink of financial and operational ruin. We cannot repeat the mistakes of the past — the city, its region and the country deserve better.
“Our plan,” he added, “is bold because aggressive action is required to get Detroit back on its feet and improve the quality of life for the people who call Detroit home.”
Reuters reports by not paying down its unsecured debt, including a $34 million payment due today, would in turn be used to allow the city to continue providing basic services — fire, police, trash pickup, etc. Also, $2 billion worth of bonds would be provided to unsecured bondholders and pension funds that the city would pay off as its financial circumstances improve.
As expected, the Freep reports, retirees, bondholders and city workers are being offered pennies on the dollar for the enormous amount of unfunded liabilities. The city has no money to pay it back. It's as simple as that.
By handing over the water and sewage department to an independent authority, similar to Cobo Hall, the city would be able to generate millions of dollars in revenue.
The Detroit News also is reporting that through the plan Orr is considering lowering property and income taxes in an attempt to woo more residents into the city, even though it would put a dent in the city's revenue.
Orr said in his proposal to city creditors that he’s considering tax reform, even though it could reduce revenues in the short-term because he wrote it’s “critical” to the city’s future health.
Orr still puts the chances of bankruptcy at 50 percent. But, if a deal is made with creditors, he proposes implementing a financial oversight board similar to the one New York City had in the 1970s when it was on the brink of insolvency.
Something pertinent to note: This is a clear cut attempt to restructure the city and the size of its government which is built to handle a Detroit in the 1950s — one with functioning public services, a population more than twice its current size and geographically, at 138 square miles, made sense. Whether you like the idea or not of an emergency manager — and, clearly, it's something that will, and should, be debated for years to come — this is a plan that calls for a radical change. It's not even remotely clear if any of this would come to fruition, as more talks are scheduled to happen reportedly into August. But, Detroit needs a heaping dose of change.
As every report regarding the city's financial fiasco has described through an exhausted list of adjectives, it's gonna be a painful ordeal for a lot of people.
(Photo courtesy of The Associated Press)