Detroit files multi-billion dollar bankruptcy plan

Protesters rally outside a Detroit, Michigan, court on 23 October 2014 Detroit's bankruptcy proceedings have been met with protests in the past, including by those opposed to cutting worker pensions

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Detroit's emergency manager has filed a plan to restructure the city's debts in the wake of the largest municipal bankruptcy in US history.

The plan, awaiting approval from a bankruptcy judge, includes cuts to pensions and creditors to drive down the $18bn (£10.8bn) debt.

Funds would also be devoted to demolishing abandoned city properties.

The city initially filed for bankruptcy protection in July 2013.

'Best path forward'

Analysis

When Detroit was granted protection from its creditors in December, it marked the biggest public bankruptcy in American history.

The road map for how to tackle it has been long awaited by city workers, pensioners and creditors. This plan proposes to reduce benefits for city employees.

These cuts are not as deep as some feared, but will still be contested in the courts by those who face losses.

On the other side are the city's creditors, including Wall Street banks. The plan proposes to give some of them only about 20% of the money they claim.

"We must move swiftly to emerge from bankruptcy so that the financial distress harming the city can end," state-appointed manager Kevyn Orr said in a statement.

"We maintain that the plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work," he added.

Specifics of the debt relief plan include:

  • Creditors, including bond insurers, will receive an estimated 20% of their claims
  • Police and firefighter retirees will receive at least 90% of their pensions, and cost of living allowances will be eliminated
  • The Detroit Institute of Arts will keep its city-owned art collection, with assistance from foundations and private donors
  • $1.5bn will be allocated over 10 years to city infrastructure and technology upgrades

The plan is reportedly likely to face obstacles moving forward, including court appeals should it be approved in bankruptcy court.

An estimated $12bn of the city's $18bn debt is said to be unsecured, with no taxes or other revenue streams to pay it down.

Ongoing negotiations with stakeholders are also reportedly expected to result in changes to the plan, Mr Orr told US media.

Detroit has seen a dramatic decline in economic activity and population, as the big carmakers - once the city's main source of employment - shifted production to cheaper locations in the US and overseas.

The city is now home to about 700,000 residents, down from the peak of 1.8 million in 1950.

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