Detroit goes to court to declare bankruptcy
on 23/10/2013 18:03:51
The case will be an inquest on what Michigan's governor Rick Snyder has called decades of ruinous financial decisions in the once-booming industrial hub, combined with an exodus of people - the population has dropped to 700,000 from 1.8 million - and other social and economic factors.
Detroit, US$18bn in debt, filed for bankruptcy protection in July in the largest public default in US history, but it is not automatic.
Judge Steven Rhodes has set aside several days to hear evidence and decide whether the city met many key steps, including good-faith negotiations with creditors, before taking drastic action three months ago.
Miles away from court, countless streets are bleak: By last spring, at least 16,700 structures were inspected and classified as dangerous. Thousands of streetlights are dark.
Private donors are replacing ambulances that limp around with more than 200,000 miles on the clock.
The fire department has just one mechanic for every 39 fire vehicles.
The number of Detroit parks has dropped to about 60 in recent years from more than 300, due to a lack of money.
"There's nothing left to do here. There is no revenue solution," city lawyer Bruce Bennett said in his opening remarks. He said no one can credibly argue that Detroit is solvent.
Witnesses "will present a mountain of evidence showing the insolvency of the city," Mr Bennett said. "This is one of those cases where the data speaks very clearly and persuasively on its own. It needs no gloss."
The trial poses a critical decision for the judge. If Detroit clears the eligibility hurdle, the case then would quickly turn to how to solve the debt and get city government off the ropes.
Jim Spiotto, a bankruptcy expert in Chicago, said it's "virtually impossible" to argue that Detroit is solvent.
"They're not paying their debts," he said. "Look at their blighted areas. Look at their services."
But unions and pension funds are challenging Detroit on the eligibility question. They claim it was not genuinely interested in negotiating with them.
Earle Erman, lawyer for Detroit's public safety unions, said the city has cut wages and changed health care benefits without across-the-table talks.
Sharon Levine, representing the American Federation of State, County and Municipal Employees, said the city spent months "mapping out its path" to bankruptcy not looking for compromises that could keep it solvent.
University of Michigan law professor John Pottow said unions and pension funds are aggressively challenging the city because they lose leverage if the judge finds the bankruptcy filing was proper.
Detroit would take the lead in coming up with a plan to bring the city out of bankruptcy, putting pensions at risk along with billions owed to other creditors.