Expert says Detroit bankruptcy plan feasible

AP News
Posted: Oct 22, 2014 2:26 PM

DETROIT (AP) — Detroit's plan to get out of bankruptcy is feasible, a court-appointed expert testified Wednesday as the last witness in a historic trial to determine whether the largest city in U.S. history to file for Chapter 9 can get back on its feet.

Martha Kopacz, a Boston-based expert who has participated in hundreds of restructurings, expressed confidence that Mayor Mike Duggan and other officials can execute a long-term plan hatched by Detroit's emergency manager.

Detroit is shedding billions in debt, taking on new debt and cutting pensions by 4.5 percent, among many steps, in a city that has lost 27 percent of population since 2000. At the same time, the strategy calls for spending more than $1 billion to improve services over the next decade.

"There is a genuine desire to right the ship," Kopacz said in response to a question about the attitude of middle managers at city hall. "Again, that group needs more detailed plans ... but there is a significant level of enthusiasm among the mayor, his direct reports."

"Feasible" is a key word in bankruptcy because Detroit must convince Judge Steven Rhodes that the plan is fair to creditors and feasible for the years ahead. After weeks of trial, he'll hear closing arguments Monday and make a decision by Nov. 7.

Detroit could be out of bankruptcy less than two years after it filed, a swift ride that is a "two-edged sword," Kopacz said.

"The good side of that is in a little bit over a year, the city will have gone through a massive restructuring process and significantly delevered its balance sheet," she said. "There has not been until recently as much energy put into restructuring the operations of the city."

Duggan didn't get full control of city government until late September when emergency manager Kevyn Orr's sweeping, 18-month authority ended.

Kopacz said one of the greatest risks on the expense side is labor. Although benefits have been fixed at "reasonable levels," she said, Detroit actually needs more employees and may be stuck with a lot of overtime.

The most significant opponents of Detroit's bankruptcy plan have all moved to the sideline since summer. Retirees voted in favor of pension cuts, and two big bond insurers together with more than $1 billion at stake struck deals with the city for cash, real estate and long-term leases on certain assets.

The state of Michigan, foundations and philanthropists have pledged $816 million to prevent the sale of city-owned art and avert even deeper pension cuts.

Many of Kopacz' conclusions were disclosed in an earlier report. She said there still are challenges, especially an overhaul in information technology, but noted that contracts could be approved soon to upgrade computers, a process that likely will take a few years.

"They're farther ahead today than I thought they would be when I wrote this in July," Kopacz said.


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