A chapter 9 bankruptcy of Detroit Public Schools (DPS) risked establishing a precedent, the city’s former emergency manager, Kevyn Orr, told Gov. Rick Snyder that could expose taxpayers to billions of dollars in creditor and pension liabilities — and the possibility that a federal court could order the state to raise taxes to pay them, The Detroit News reported today. The result would be a financial and political cataclysm, the governor told Senate and House Republicans in separate meetings. Without enough votes to pass the $617 million rescue package for DPS, the administration would be forced to retain bankruptcy counsel in anticipation of filing chapter 9 on or before June 17. School districts across the state would be tempted to follow DPS’ path in an effort to shed liabilities on their books, effectively dumping them on Michigan taxpayers and creating a civic firestorm that would be difficult to control. Even without creating the precedent that Orr envisioned, the Snyder administration repeatedly told lawmakers that the state and DPS could be “on the hook” for between $2 billion and $3.5 billion in liabilities, among other things.
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