The Herald Bulletin

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October 23, 2013

Trial starts; Is Detroit eligible for bankruptcy?

DETROIT — An attorney representing Detroit urged a judge Wednesday to allow the city to fix staggering financial problems through bankruptcy, arguing that without it about 65 cents of every tax dollar eventually would be gobbled up by debts and other obligations.

The extraordinary trial, expected to last days, brings the bankruptcy case to its most crucial stage since Detroit in July made the largest public filing in U.S. history. If a judge finds certain legal requirements were met, the city would get the green light to restructure $18 billion in debt and possibly slash pensions for thousands of people, the most controversial target so far.

Hundreds of protesters walked in a circle outside the courthouse with signs that said, "Bail out people not banks."

In his opening statement, attorney Bruce Bennett said he "could stand here for hours" to describe the "mountain of evidence" that shows Detroit is insolvent. Without relief, he added, 65 cents of every dollar in residents pay in taxes could be needed to address the problem, leaving little for everyday services for 700,000 residents.

"This is one of those cases where the data speaks very clearly and persuasively on its own. It needs no gloss," Bennett told Judge Steven Rhodes.

He was followed by a line of attorneys, representing unions, pension funds and retiree groups, who didn't seem to challenge the ruinous condition of Detroit's finances but zeroed in on a key test under bankruptcy law: Did the city negotiate with creditors in good faith before the Chapter 9 filing? No way, they said.

The judge stood to get a better view as Jennifer Green, an attorney for pension funds, used a screen to show months of emails and memos from state and city officials talking about bankruptcy preparation, not fruitful talks with creditors.

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