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2:23 pm
Thu October 24, 2013

Detroit Bankruptcy Trial Pits City Against Its Creditors

Originally published on Thu October 24, 2013 4:25 pm

Transcript

AUDIE CORNISH, HOST:

In Detroit today, officials continued making their case before a federal judge that the city is so broke it must declare bankruptcy. Detroit is the largest U.S. municipality ever to seek Chapter 9 protection. And the trial will determine if it's eligible.

As Quinn Klinefelter, of member station WDET, reports that hundreds of Detroit's creditors are trying to block the bankruptcy, arguing that the city did not try hard enough to find the money to avoid it.

QUINN KLINEFELTER, BYLINE: All the stakeholders in Detroit's bankruptcy trial agree on this: Decades of declining population, dwindling tax revenue and gross government mismanagement left the city bleeding billions. The central question in this trial now is: Did the city do enough to fix its finances before seeking Chapter 9 protection?

For union members whose pension payments could be slashed if the bankruptcy is approved, the answer is a resounding no.

UNIDENTIFIED MAN: Before you go into bankruptcy you're supposed to bargain in good faith with the credit. Well, guess what?

KLINEFELTER: Hundreds of union members from across the country are gathering in front of the federal courthouse here. Brandon Jessop says Detroit's bankruptcy could set a precedent affecting unions nationwide.

BRANDON JESSOP: We know that this is the largest municipal bankruptcy in the history of the United States. And we know that this is an unconstitutional act. If banks can do this to the largest - to a city the size of Detroit, what can they do to Chicago? What can they do to San Francisco? What can they do to New York?

KLINEFELTER: Inside the court room lawyer Sharon Levine is arguing on behalf of the union representing most of Detroit's city workers. She says Detroit could have saved hundreds of millions if it had approved a tentative labor contract. But state officials refused to let the city council consider the contract.

SHARON LEVINE: And we're still very concerned that there were no proper negotiations going into this process. And that if we had more time and better negotiation, perhaps there could have been a different result.

KLINEFELTER: If the union can show the state did not bargain in good faith, the judge could rule the city is not eligible for Chapter 9.

Michigan Governor Rick Snyder, who approved the bankruptcy filing, will testify about the timing of the decision. When the state first took over Detroit's finances in March, Snyder said he was more concerned about cooperation than bankruptcy.

GOVERNOR RICK SNYDER: Because we want to partner with the city, so we also hope to have the mayor very active in this process. I encourage the city council to participate and be a positive partner. This is about working together, all hands on deck to make Detroit a great place again.

KLINEFELTER: But an official who served as an emergency manager under Snyder says it appears bankruptcy was always the goal. Former Detroit Auditor General Joe Harris oversaw the finances in Benton Harbor for about a year-and-a-half. He's not convinced that cooperation was the goal.

JOE HARRIS: You bring in a bankruptcy expert. Did you expect him to turn the city's operations around? No. Why would you bring in a bankruptcy expert?

KLINEFELTER: Unless you're planning to go bankrupt.

(LAUGHTER)

HARRIS: Because you're planning to go bankrupt.

KLINEFELTER: But University of Michigan bankruptcy expert John Pottow says Chapter 9 appears to be Detroit's only salvation, with the city facing an estimated $18 billion in long-term debt.

JOHN POTTOW: And the city on a good year can only raise a billion and change in tax revenue. So that's a gross debt service ratio of 18-to-one. And that would assume that you didn't pay anything, like you fired the entire police force and fire department which, of course, the city can't do.

KLINEFELTER: The court fight will continue next week with Governor Snyder scheduled to take the stand on Monday.

The fallout is even affecting the courthouse security. U.S. marshals have banned retired Detroit police officers from helping provide security, because their pensions are also at stake, depending on whether the bankruptcy is approved.

For NPR News, I'm Quinn Klinefelter in Detroit.

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