What's next for Detroit?

http://www.theguardian.com/world/2013/dec/03/whats-next-for-detroit-bankruptcy-explained

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Detroit has been given the go ahead to file for bankruptcy, but the historic decision is just the first step in what looks set to be a drawn-out – and hard-fought – process. Here's a look at the next steps:

What now? 

Kevyn Orr, Detroit’s emergency financial manager, will begin drawing up a plan to tackle the city’s debts, which he claims total $18bn. He has until March 1 to file the proposal to judge Steven Rhodes.

Negotiations will begin with the city’s creditors, including its pension funds and the Wall Street banks that have invested in the city.

Is Orr's the final word?

No. His opponents are likely to appeal immediately to the sixth US circuit court of appeals in Cincinnati, a move that could put the case on hold.

He has to convince the majority of at least one class of creditors to commit to his plan before he can present it to Rhodes. Rhodes must then approve the plan and can request changes.

If there isn't a plan yet, what are the objections??

The most politically charged part of Rhodes' decision is to allow Orr to propose cuts to pension and healthcare benefits. Lawyers representing city workers argue Michigan’s constitution protects pensions from such cuts. Rhodes said the bankruptcy filing overruled that protection.

What happens to the pensioners?

It now looks certain that benefits will be cut for around 30,000 city workers past and present. One proposal floated before the ruling would have offered them 16 cents on the dollar – slashing the average pension from $19,000 a year to just $3,040.

Rhodes, however, warned Orr that he would not necessarily approve a plan that proposed deep cuts. Orr said his plans would be “thoughtful, measured and humane.”

Is slashing benefits Detroit's only option?

No. Orr will be looking to cut a deal with the banks too, paying them back a fraction of what they are owed. Asset sales, particularly the fine collection of the Detroit Institute of Art, are also likely.

How long will it take?

Orr’s term ends next September and he has said he would like to see Detroit emerge from bankruptcy before then. But this filing is the largest in US history and certain to be subject to as yet unknown complications. By Orr’s calculations Detroit’s debts are six times the previous record set by Alabama’s Jefferson county, which fell into bankruptcy with debts of around $3bn.

What happens after the bankruptcy?

Like GM and Chrysler – who Orr helped steer through bankruptcy – the hope is that Detroit will emerge a leaner, fitter city. But in order to do that the city needs revenues as much – if not more – than it needs to pay off its debts. There are pockets of recovery in the city but Detroit will need to win over a lot more fans if it is to avoid another trip to the debtors’ court.

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