The trial over Detroit’s eligibility for bankruptcy started yesterday with starkly different interpretations of the events leading up to the city’s historic chapter 9 filing in July, the New York Times reported yesterday. On one side were lawyers for the debt-ridden city, who argued that unions and retirees stonewalled out-of-court negotiations that might have saved Detroit from going bankrupt. But according to the unions and retirees, the bankruptcy filing was nothing more than the final step in a concerted effort by Michigan’s governor to take control of the state’s largest city. The court session yesterday initiated a legal battle that will determine whether Detroit becomes the nation’s largest city to reorganize its debts in United States Bankruptcy Court. In an unexpected development, a lawyer for Michigan Governor Rick Snyder said yesterday that the governor had agreed to testify at the trial, most likely next week. His presence on the witness stand will underscore the size and scope of the case, and its potential impact on Detroit’s 700,000 residents.
In related news, Detroit faced a “payless payday” before it filed its $18 billion bankruptcy, a financial analyst told the judge conducting a trial to determine whether the city should be stripped of court protection from creditors, Bloomberg News reported yesterday. To avoid running out of money for basic services, the city moved cash around, canceled payments to its pension funds and defaulted on debt in the months before it filed for bankruptcy, Gaurav Malhotra, a partner at Ernst & Young LLP, testified yesterday in Detroit. These actions were designed “to ensure that the city did not have a payless payday,” Malhotra told U.S. Bankruptcy Judge Steven Rhodes. Without a change, the city would build up a $3.9 billion deficit over 10 years, mainly because of the cost of providing pension and health care benefits to retirees, he said.
http://www.bloomberg.com/news/print/2013-10-23/detroit-averted-payless-…