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| Michigan Governor and Detroit’s Manager Call for Patience | Michigan Governor and Detroit’s Manager Call for Patience |
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| DETROIT — Michigan’s governor and Detroit’s emergency manager called for patience and cooperation from residents, employees and creditors on Friday, as the city enters what is expected to be a long process of recovery in bankruptcy court. | DETROIT — Michigan’s governor and Detroit’s emergency manager called for patience and cooperation from residents, employees and creditors on Friday, as the city enters what is expected to be a long process of recovery in bankruptcy court. |
| Rick Snyder, the state’s Republican governor, and Kevyn D. Orr, the emergency manager, said Detroit’s historic bankruptcy filing on Thursday gives the city “breathing room” to continue operating as it copes with its long-term debts and obligations. | Rick Snyder, the state’s Republican governor, and Kevyn D. Orr, the emergency manager, said Detroit’s historic bankruptcy filing on Thursday gives the city “breathing room” to continue operating as it copes with its long-term debts and obligations. |
| “This is the time to say enough is enough in terms of the downward decline of the city of Detroit,” Mr. Snyder said at a news conference on Friday morning in downtown Detroit. | “This is the time to say enough is enough in terms of the downward decline of the city of Detroit,” Mr. Snyder said at a news conference on Friday morning in downtown Detroit. |
| The bankruptcy filing was challenged Friday afternoon when Judge Rosemarie E. Aquilina in Ingham County, home to Michigan’s state capital, issued a declaratory judgement in lawsuits brought by the city’s pension funds. The judge ruled that the decision by Mr. Orr and Mr. Snyder to file for Chapter 9 bankruptcy violates the Michigan constitution, which protects accrued pension benefits. The state’s Attorney General immediately filed an appeal of the judge’s decision with the Michigan Court of Appeals. | |
| Detroit is the largest American city ever file for Chapter 9 bankruptcy, and Mr. Snyder and Mr. Orr said they wanted to reassure Detroit’s 700,000 residents that police, fire and other essential services would continue to function. | |
| “Today is business as usual in Detroit,” Mr. Snyder said. “People are still coming to work, they’re going to get paid, and regular services are still going on.” | “Today is business as usual in Detroit,” Mr. Snyder said. “People are still coming to work, they’re going to get paid, and regular services are still going on.” |
| Mr. Orr, who was appointed to by the governor, predicted that residents may even start to see improvements in city services, saying that the bankruptcy filing will allow Detroit to use its limited resources to put more police cars and ambulances in service. | Mr. Orr, who was appointed to by the governor, predicted that residents may even start to see improvements in city services, saying that the bankruptcy filing will allow Detroit to use its limited resources to put more police cars and ambulances in service. |
| “I anticipate the citizens of the city will start seeing some of these changes in the next 30 to 60 days,” Mr. Orr said. | “I anticipate the citizens of the city will start seeing some of these changes in the next 30 to 60 days,” Mr. Orr said. |
| But those representing tens of thousands of city employees and retirees said they still intended to fight the case, particularly for the thousands of retirees who depend on city pensions. | But those representing tens of thousands of city employees and retirees said they still intended to fight the case, particularly for the thousands of retirees who depend on city pensions. |
| “Apparently Governor Snyder and Kevyn Orr want Detroit’s public-service workers to rely on their children for food and shelter, or have to work until they die,” said Lee Saunders, president of the American Federation of State, County and Municipal Employees. | |
| A federal judge could be appointed as soon as Friday to begin hearing motions in what is the largest municipal bankruptcy case in American history. | A federal judge could be appointed as soon as Friday to begin hearing motions in what is the largest municipal bankruptcy case in American history. |
| The city, which is under Mr. Orr’s authority under a state statute, will be required to prove to the bankruptcy judge that Detroit insolvent and had no other option but a Chapter 9 filing. | |
| Mr. Orr has estimated Detroit’s long-term debt at more than $18 billion. The city has also run deficits in its operating budget for several years and cannot support itself with declining tax revenues. | Mr. Orr has estimated Detroit’s long-term debt at more than $18 billion. The city has also run deficits in its operating budget for several years and cannot support itself with declining tax revenues. |
| “We didn’t make this decision in haste,” Mr. Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.” | “We didn’t make this decision in haste,” Mr. Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.” |
| Mr. Orr expressed confidence that the city can emerge from bankruptcy before his term as emergency manager ends in 15 months. | Mr. Orr expressed confidence that the city can emerge from bankruptcy before his term as emergency manager ends in 15 months. |
| But there is no road map for Detroit’s recovery. Bondholders, retirees, unions and other creditors could push for the sale of city assets to recover money. | But there is no road map for Detroit’s recovery. Bondholders, retirees, unions and other creditors could push for the sale of city assets to recover money. |
| Beyond that, residents worry that city services will become worse while Detroit is in court, and that business expansion will stall out in the interim. | Beyond that, residents worry that city services will become worse while Detroit is in court, and that business expansion will stall out in the interim. |
| “For a struggling family, I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office worker in the city for 20 years. | “For a struggling family, I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office worker in the city for 20 years. |
| But others, including some Detroit business leaders who have seen a surge in private development downtown, said bankruptcy seemed the only viable choice – and one that might lead to a complete overhaul of city services. | But others, including some Detroit business leaders who have seen a surge in private development downtown, said bankruptcy seemed the only viable choice – and one that might lead to a complete overhaul of city services. |
| “The worst thing we can do is ignore the problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.” | “The worst thing we can do is ignore the problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.” |
| For Mr. Snyder, placing the state’s largest city in bankruptcy will test his pro-business philosophy that has been credited with helping Michigan recover somewhat from the recession and the government bailouts and bankruptcies of auto giants General Motors and Chrysler. | For Mr. Snyder, placing the state’s largest city in bankruptcy will test his pro-business philosophy that has been credited with helping Michigan recover somewhat from the recession and the government bailouts and bankruptcies of auto giants General Motors and Chrysler. |
| He called the Chapter 9 filing a “fundamental step” in bringing some order to the city’s rapidly deteriorating conditions. | He called the Chapter 9 filing a “fundamental step” in bringing some order to the city’s rapidly deteriorating conditions. |
| “What would happen if we didn’t do this?” Mr. Snyder asked. “Detroit would continue to go downhill.” | |
| The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public-sector unions, and by leaders of other financially challenged cities around the country. Just over 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s. | |
| Leaders in Washington and in Lansing, the state capital, issued statements of concern late Thursday. A White House spokeswoman said President Obama and his senior team were closely monitoring the situation. | Leaders in Washington and in Lansing, the state capital, issued statements of concern late Thursday. A White House spokeswoman said President Obama and his senior team were closely monitoring the situation. |
| “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities,” Amy Brundage, the spokeswoman, said in a statement. | “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities,” Amy Brundage, the spokeswoman, said in a statement. |
| The debt in Detroit dwarfs that of Jefferson County, Ala., which previously had been the nation’s largest municipal bankruptcy, having filed in 2011 with about $4 billion in debt. The population of Detroit, the largest city in Michigan, is more than twice that of Stockton, Calif., which filed for bankruptcy in 2012 and had been the nation’s most populous city to do so. | |
| Other major cities, including New York and Cleveland in the 1970s and Philadelphia two decades later, have teetered near the edge of financial ruin, but ultimately found solutions other than federal court. Detroit’s struggle, experts say, is particularly dire because it is not limited to a single event or one failed financial deal, like the troubled sewer system largely responsible for Jefferson County’s downfall. | Other major cities, including New York and Cleveland in the 1970s and Philadelphia two decades later, have teetered near the edge of financial ruin, but ultimately found solutions other than federal court. Detroit’s struggle, experts say, is particularly dire because it is not limited to a single event or one failed financial deal, like the troubled sewer system largely responsible for Jefferson County’s downfall. |
| Instead, numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction. | Instead, numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction. |
| All of that makes bankruptcy — a process that could take months, if not years, and is itself expected to be costly — particularly complex. | All of that makes bankruptcy — a process that could take months, if not years, and is itself expected to be costly — particularly complex. |
| “It’s not enough to say, let’s reduce debt,” said James E. Spiotto, an expert in municipal bankruptcy at the law firm of Chapman and Cutler in Chicago. “At the end of the day, you need a real recovery plan. Otherwise you’re just going to repeat the whole thing over again.” | “It’s not enough to say, let’s reduce debt,” said James E. Spiotto, an expert in municipal bankruptcy at the law firm of Chapman and Cutler in Chicago. “At the end of the day, you need a real recovery plan. Otherwise you’re just going to repeat the whole thing over again.” |
| The municipal bond market will be paying particular attention to Detroit because of what it may mean for investing in general-obligation bonds. In recent weeks, as Detroit officials have proposed paying off small fractions of what the city owes, they have indicated they intend to treat investors holding general-obligation bonds as having no higher priority for payment than, for instance, city workers — a notion that conflicts with the conventions of the market, where general-obligation bonds have been seen as among the safest investments and all but certain to be paid in full. | The municipal bond market will be paying particular attention to Detroit because of what it may mean for investing in general-obligation bonds. In recent weeks, as Detroit officials have proposed paying off small fractions of what the city owes, they have indicated they intend to treat investors holding general-obligation bonds as having no higher priority for payment than, for instance, city workers — a notion that conflicts with the conventions of the market, where general-obligation bonds have been seen as among the safest investments and all but certain to be paid in full. |
| Leaders of public-sector unions and municipal retirees around the nation will be focused on whether Detroit is permitted to slash pension benefits, despite a provision in the State Constitution that union leaders say bars such cuts. | |
| Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say. A rush of municipal bankruptcies appears unlikely, though, and leaders of other cities will want to see how this case turns out, particularly when it comes to pension and retiree health care costs, said Karol K. Denniston, a bankruptcy lawyer with Schiff Hardin who is advising a taxpayer group that came together in Stockton after its bankruptcy. | Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say. A rush of municipal bankruptcies appears unlikely, though, and leaders of other cities will want to see how this case turns out, particularly when it comes to pension and retiree health care costs, said Karol K. Denniston, a bankruptcy lawyer with Schiff Hardin who is advising a taxpayer group that came together in Stockton after its bankruptcy. |
| “If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” Ms. Denniston said. “Detroit is going to be a huge test kitchen.” | “If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” Ms. Denniston said. “Detroit is going to be a huge test kitchen.” |
Mary Williams Walsh contributed reporting from New York. | Mary Williams Walsh contributed reporting from New York. |