Detroit Warned About Bankruptcy Option
December 27, 2011 by UPI - United Press International, Inc.
DETROIT, Dec. 27 (UPI) — Bankruptcy experts said Detroit should choose a path other than seeking court protection, which would be costly in terms of time and money.
The city would lawyer up. The unions would lawyer up. Creditors would also seek legal advise, “you you’re taking tens of millions of dollars in legal fees,” said Ray Graves, a retired U.S. bankruptcy judge, The Detroit News reported Tuesday.
“I’ll guarantee you this: It’s not going to be a quick in-and-out of bankruptcy that we saw with GM and Chrysler. That’s not going to happen,” he said.
In Michigan, an financial emergency plan for counties and municipalities that passed into law in March allows the governor to appoint an emergency manager to take over a local government’s finances if solutions prove elusive.
If an emergency manager is appointed, he or she would have the authority to tear up contracts with unions and would be the only one who can file for bankruptcy on a city’s behalf.
The object, however, is to avoid bankruptcy if at all possible.
“This emergency manager law is really set up to accomplish what you can do in bankruptcy without having to file for bankruptcy,” said Brad Coulter, a municipal turnaround expert at O’Keefe & Associates Consulting.
“That’s how you would do it the proper way, versus fighting until the end until you have no choice but to do an EM or file (Chapter 9),” he said.
For now, the governor’s office, the state Treasury Department and Detroit Mayor Dave Bing’s office are refusing to speculate on whether or not Detroit, with $12 billion long-term liabilities, would actually be forced to file for court protection.
Currently, the mayor is seeking concessions with each of the city’s 48 unions, the News said.
“As Mayor Bing has repeatedly said, the remedy for the city’s financial crisis is his plan that seeks $102 million in savings for this fiscal year, including structural reforms in health care and pensions, layoffs and other cuts,” said Bing’s Chief of Staff Kirk Lewis.
“Speculating on worst-case scenarios … is not productive nor is it something we’re focused on,” he said.