Judge Rules Detroit Eligible For Bankruptcy - WLNS TV 6 Lansing - Jackson | Your Local News Leader

Judge Rules Detroit Eligible For Bankruptcy

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DETROIT (AP) - A judge says Detroit is eligible to fix its finances in bankruptcy court.

The ruling Tuesday clears the way for the city to come up with a plan to shed $18 billion in debt. It comes four months after Detroit sought Chapter 9 protection in the largest public filing in U.S. history.

Detroit must propose a plan to Judge Steven Rhodes, although mediators have been meeting privately with the city and creditors with the hope of striking deals.

Unions and Detroit's public pension funds vigorously opposed bankruptcy during a nine-day trial. They claim emergency manager Kevyn Orr and his team didn't negotiate in good faith before the summer filing, a requirement for a government to be eligible to shed debts under Chapter 9.


Timeline of Financial Crisis:


- Detroit issues $1.44 billion of new debt in the form of pension obligation certificates to fund the city's two retirement systems. A 30-year repayment schedule is negotiated. Then-Mayor Kwame Kilpatrick agrees to swap a fixed interest rate for a variable one. A market rate increase would be to the city's benefit. Falling rates mean Detroit would pay more.

- City issues $250 million in bond debt in stabilize budget and begins seven-year run of posting at least $150 million in annual budget deficits. The cumulative deficit between 2005 and 2011 equaled $1.38 billion.



- Interest rates begin to fall during national recession.



- Due to falling interest rates, Detroit is required to pay an additional $1.14 billion in interest and hedging derivatives as part of the certificate of participation and swaps agreements. City pledges casino wagering tax revenue for future payments to avoid defaulting on the agreements and $400 million lump sum termination payment. Detroit loses about $11 million monthly in casino tax revenue.



- Short term cash flow shortages become more severe. Detroit receives $250 million in fiscal stabilization bonds, $55 million in delinquent property tax receipts from Wayne County and $20 million from the DTE Escrow account.

- The city has no deficit reduction plan and debt continues to soar. The city borrows $447 million from specific budget items to fund other budget items.

- Questionable balances appear in audit report of pension plans.



- A financial review team is recommended on Dec. 21 after state performs preliminary review of Detroit's finances.



- Gov. Rick Snyder appoints review team in January.

- Review team determines on March 26 that Detroit is in "severe financial distress."

- Consent agreement giving the state limited oversight of Detroit's finances put in place in April. This allows Mayor Dave Bing to avoid financial emergency declaration. The city is required to produce, among other things, a 3-year revenue and expenditure plan.

- A second preliminary review determines Detroit has a "severe financial problem" and in December recommends appointment of review team.



- Review tem determines in Feb. 10 report that Detroit is in a "financial emergency," another step necessary for the eventual appointment of an emergency manager. Snyder confirms the report and on March 1 informs Bing and Detroit City Council.

- Snyder appoints turnaround specialist Kevyn Orr as Detroit's emergency manager on March 25.

- Orr submits Financial and Operating Plan to state on May 12. He holds a public meeting in Detroit on the plan on June 10.

- Orr and his team meet with representatives of banks, unions and other Detroit creditors on June 14 at Detroit Metropolitan Airport; releases proposal to creditors.

- Orr makes Detroit the largest U.S. city to file for bankruptcy on July 18; cites debt of $18 billion or more.

- U.S. Bankruptcy Judge Steven Rhodes on July 24 grants Orr's request to put a permanent freeze on three lawsuits filed in Ingham County, including another judge's decision that Snyder trampled the Michigan Constitution and acted illegally in approving the Chapter 9 filing. That ruling and others had threatened to derail the bankruptcy.

- Dozens of creditors, including banks, bond holders and employee pension systems, meet Aug. 19 deadline to file objections to bankruptcy petition.

- Nine-day trial before Rhodes begins to determine if Detroit is eligible for bankruptcy begins Oct. 23.

- Orr testifies on Oct. 25 that he did not promise to seek bankruptcy protection for the city as a condition of getting Detroit's emergency manager job.

- Rhodes on Dec. 3 rules that Detroit is eligible to fix its finances in bankruptcy court.

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