By Michael Muskal, Los Angeles Times (MCT)
A federal judge Friday approved Detroit’s restructuring plan, effectively ending the nation’s largest-ever municipal bankruptcy.
The plan was approved by U.S. Bankruptcy Judge Steven Rhodes, the Associated Press reported. The blueprint is designed to lead the Motor City out of decades of financial woes, trim more than one-third of the city’s long-term debt and create a financial control board to oversee city actions in the coming years.
The bankruptcy plan eliminates about $7 billion in debt from the city’s books while reinvesting $1.7 billion in neglected city services. City pension holders will see some cuts.
Detroit had sought Chapter 9 bankruptcy protection on July 18, 2013, in the nation’s largest such filing by a municipality.
In his decision, Rhodes balanced competing monetary claims while dealing with separate, often conflicting political positions of the groups that have been bargaining for months to reach the final compromise.
Detroit, once the symbol of U.S. economic and manufacturing might, has gone through decades of pain as key industries such as car production moved away and people fled to the suburbs. With its tax base eroding, the city curtailed services, forcing even more residents to leave. Wide swaths of the city were abandoned and left in ruins.
The bankruptcy plan eliminates about $7 billion of debt from the city’s books while reinvesting $1.7 billion in neglected city services. Detroit and its suburbs will be linked more closely because of a regional water authority designed to save money for taxpayers.
The Detroit Institute of Arts, formerly part of the city, will be financially independent and supported by some tax dollars. At one point, the threat was to sell off the museum and its artworks to raise money to fund the municipal debt.
In the final agreement, many pension holders could see almost a full recovery while some bondholders are expected to receive as much as 75 percent of the amount due. The city’s plan also calls for borrowing $275 million in exit financing.
Photo: ifmuth via Flickr