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Detroit offers plan to escape bankruptcy

Pensions to be cut; creditors to get only 20 percent

The city of Detroit told a bankruptcy judge it plans to spend $1.5 billion on improvements.

Joshua Lott/Reuters

The city of Detroit told a bankruptcy judge it plans to spend $1.5 billion on improvements.

DETROIT — Seven months after Detroit entered bankruptcy, its leaders on Friday presented a federal judge with the first official road map to the city’s future — documents designed to show how it aims to settle its $18 billion debt to creditors and make itself livable again.

The city said it intended to spend $1.5 billion during 10 years on “capital improvements, blight removal, and equipment and technology upgrades,” according to Kevyn D. Orr, the state-appointed emergency manager. Up to a third of that will be dedicated to blight removal during the next five years.

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Under the plan, Detroit proposes to give unsecured creditors “about 20 percent recovery on their claims” in the form of new securities issued by the city. But pensioners, who had feared deep cuts, will fare far better.

Although pensions would be reduced, retired police officers and firefighters “would likely receive in excess of 90 percent of their earned pensions after elimination of cost of living allowances.” Other municipal retirees “would likely receive in excess of 70 percent.”

Governor Rick Snyder, a Republican, said, “Detroit’s comeback is underway” and urged all involved in the city’s case to use the new plan as a “call to action” for pushing along voluntary settlements in the bankruptcy.

“The state’s focus,” he said, “is on protecting and minimizing the impact on retirees — especially those on fixed, limited incomes — restoring and improving essential services for all 700,000 Detroit residents, and building a foundation for the city’s long-term financial stability and economic growth.”

The filing is a crucial step forward in Detroit’s efforts to complete its municipal bankruptcy case, the nation’s largest. But by no means will it answer all questions or resolve complex political, financial, and social issues, any of which could thwart Detroit’s hopes for emerging as swiftly from bankruptcy as state and city officials insist it will.

The main financial filing, called a plan of adjustment, is subject to the approval of the bankruptcy judge, Steven Rhodes, who must decide whether it is fair and equitable.

It is accompanied by a disclosure statement that outlines the areas in which Detroit intends to reinvest in the city — such as lowering police response time, restoring street lights, and renewing blighted neighborhoods.

How these plans fare in court probably will help guide other financially troubled cities, their employees, lenders, and residents.

The plan submitted Friday confirms the direction of early drafts, which showed that Detroit would reduce the pensions of retired city workers — a prospect that thousands of retirees have feared for months and that they say the state constitution prohibits — but that creditors would do less well.

Some creditors have complained that the plan improperly favors Main Street over Wall Street, something that could chill lending to other cities, especially those with troubled pension plans.

Detroit’s plan for emerging from bankruptcy depends on a series of outcomes that are still unknown. Will Michigan lawmakers agree to send state money to help Detroit?

Since the city filed for bankruptcy protection in July, Orr, who has overseen Detroit’s trip to bankruptcy court, has made clear that he hopes the city will emerge from court by fall when, under Michigan’s emergency manager law, he can be removed by city leaders.

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