%1

Detroit’s bankruptcy team is trying to put a price tag on the entire Detroit Institute of Arts (DIA) collection following demands from various creditors, the Detroit News reported yesterday. City bankruptcy lawyer Bruce Bennett disclosed the ongoing valuation during a bankruptcy hearing on Wednesday. He provided no details, but said that the valuation is not finished. A group of creditors, led by Financial Guaranty Insurance Company, is trying to prove that the DIA’s collection is worth more than $816 million, the amount pledged in the “grand bargain” to swap the art for aid to 32,000 city pensioners. Any new price tag is expected to play a role in the city’s July trial, during which Bankruptcy Judge Steven Rhodes will decide whether to approve the city’s debt-cutting plan. Christie’s Appraisals last year valued about 1,741 city-purchased pieces of art at between $454 million and $867 million.

Some Detroit retirees were sent erroneous ballots this month for voting on the city's plan to deal with $18 billion of debt, including public pensions and exiting bankruptcy, Reuters reported yesterday. About 2,000 of the ballots sent to members of the city's general retirement system contained errors, lawyers said. Carole Neville, an attorney representing a court-appointed committee for Detroit retirees, said new ballots needed to go out to these retirees as soon as possible. Bankruptcy Judge Steven Rhodes demanded to know by Friday who was responsible for the ballot mess. Thousands of Detroit creditors must vote and return their ballots by July 11.

The City of Detroit forcefully defended its bankruptcy restructuring plan in a court filing over the Memorial Day holiday, arguing that pensioners deserve better treatment than unsecured financial creditors and that a plan to spin off the city-owned Detroit Institute of Arts is legal, the Detroit Free Press reported today. With more than 600 official objections to Detroit’s plan of adjustment so far, the city’s 256-page response offers a snapshot of an epic summer trial over whether the plan is fair, legal and feasible. Separately, the DIA moved to protect itself in court, arguing in its own filing that its artwork is legally protected from the auction block and threatened a court battle if the city pursues a sale. It said that it will support the city’s plan to allow the transfer of ownership of the DIA to an independent nonprofit. Bankruptcy Judge Steven Rhodes will determine whether the restructuring plan should be implemented in a 17-day trial currently scheduled to start July 24.

A task force convened by the Obama administration yesterday issued the most detailed study yet of blight in Detroit and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings, demolish or restore tens of thousands more, and clear thousands of trash-packed lots, the New York Times reported today. It also said that the hulking remains of factories that dot Detroit, crumbling reminders of the city’s manufacturing prowess, must be salvaged or demolished, which could cost as much as $1 billion more. If carried out, the recommendations by the Detroit Blight Removal Task Force would drastically alter the face of the nation’s largest bankrupt city. They would also cost significantly more than the approximately $450 million that the city already plans to spend on blight, raising questions about the feasibility of the vast cleanup effort, which is part of its larger campaign to emerge from bankruptcy by fall and begin remaking itself.

JPMorgan Chase, the nation’s biggest bank, said that it will provide $100 million to help debt-ridden Detroit with housing repairs, blight removal, job training and economic development projects over the next five years, the New York Times reported Wednesday. The investment, a mix of loans and grants, will add to a growing pile of money from outside private institutions as the city nears the final, painful stages of the nation’s largest municipal bankruptcy proceeding. JPMorgan’s support will focus on city revitalization efforts and may help ease concerns by some legislators that Detroit could find itself in financial trouble again down the road. The bank will direct half of the money toward community projects that would otherwise lack access to capital. It will put $25 million toward assisting groups like the Detroit Land Bank Authority and the Detroit Blight Removal Task Force, which have begun aggressive demolition campaigns to rid the city of its estimated 78,000 vacant structures. The rest will be diced up: $12.5 million for work-force training, $7 million for small-business assistance and $5.5 million toward economic growth projects such as a new streetcar system.

Lawyers for Detroit’s financial creditors and for Oakland and Macomb counties tried yesterday to convince Bankruptcy Judge Steven Rhodes to delay Detroit’s case because city lawyers aren’t releasing critical documents quickly enough to meet ambitious timetables for this summer’s confirmation trial on the plan to exit the nation’s largest-ever municipal bankruptcy, the Detroit Free-Press reported yesterday. Lawyers for creditors including Syncora — a bond insurer that’s on the hook for nearly $250 million because it guaranteed a disastrous $1.4 billion debt deal meant to shore up underfunded pensions in 2005 — argued that delays in the city’s release of documents that creditors have requested make the schedule impossible to follow. Syncora and other creditors earlier this week asked Judge Rhodes to delay the confirmation hearing by nearly a month, pushing the beginning of the confirmation hearings to Aug. 26. The creditors’ lawyers say that the expert witnesses they plan to use during the extensive hearings won’t have enough time to expertly analyze and report on city financial assumptions without the delay.

The Michigan House on Thursday approved sweeping legislation that would send $194.8 million to Detroit in a bid to minimize pension cuts for retirees and help end the largest municipal bankruptcy case in U.S. history, Michigan Live reported yesterday. The 11-bill package, now headed to the Senate for consideration, would consummate a “grand bargain” brokered by bankruptcy mediators and require long-term financial oversight for the city, which has racked up massive debt. Philanthropic foundations and the Detroit Institute of Arts have pledged $366 million for the grand bargain in order to protect prized art from a potential fire sale, and two union groups this week agreed to make or facilitate "material contributions" for retiree health care. In addition to the money, the House package approved yesterday would attach several "strings" to the state's financial contribution, provisions designed to win over skeptical lawmakers and protect taxpayer investment in Detroit. A financial oversight commission modeled after a similar board in New York City would have broad authority to review and approve city contracts, collective bargaining agreements and budgets. The commission could go dormant if the city meets certain financial goals over a three-year period and could be dissolved if it is dormant for 10 straight years.

A special Michigan House committee yesterday approved a nearly $195 million state contribution for a key element of Detroit's plan to adjust its $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history, Reuters reported. Legislation appropriating the money from Michigan's rainy day fund was part of an 11-bill package the committee approved and sent to the full House for consideration. The mostly unanimous votes on the bills by the five-member bipartisan Committee on Detroit's Recovery and Michigan's Future marked the first by state lawmakers after Governor Rick Snyder (R) included money for Detroit in the proposed budget he unveiled in February. The legislation, which also creates an oversight commission for Detroit, must still pass the Republican-controlled House and Senate.

Detroit's plan to deal with $18 billion of debt so it can exit municipal bankruptcy faces a crucial test on Wednesday, when a panel of Michigan state lawmakers votes on legislation, opposed by some conservatives, to provide state funding for the city, Reuters reported yesterday. A special Michigan House committee on Detroit's Recovery and Michigan's Future began hearings last week on a package of bills authorizing a $195 million lump sum contribution by the state, and creation of an oversight commission for the city. The state's contribution is a key component of a “grand bargain” that includes $466 million pledged by philanthropic foundations and the Detroit Institute of Arts to help ease pension cuts for city retirees and avoid a sale of artwork to pay creditors.
http://www.reuters.com/article/2014/05/20/usa-detroit-bankruptcy-idUSL1…

In related news, JPMorgan Chase & Co. will invest $100 million during the next five years in Detroit, the latest effort by an outside private institution to assist the Motor City as it struggles through the nation's largest municipal bankruptcy, the Wall Street Journal reported yesterday. About half of the $100 million — a mix of loans and grants — will be used by one of the nation's largest banks to lend money for projects in targeted neighborhoods, including construction of new housing and rehabilitation of vacant and dilapidated homes mostly outside the city's central core. (Subscription required.)
http://online.wsj.com/news/articles/SB100014240527023044227045795739517…

Even as pension bombs tick, cities and states still borrow far beyond their means, according to a commentary by Richard Ravitch in Friday’s Wall Street Journal. Earlier this year, former Federal Reserve Chairman Paul Volcker and Ravitch released the "Final Report of the State Budget Crisis Task Force" after nearly three years of study and analysis. The report sought to understand whether the states' current fiscal problems were cyclical — caused by the financial collapse of 2008 and likely to abate with economic recovery — or whether they were structural, the result of long-term revenue and spending imbalances. The report's main finding is that in most states and cities the problems are structural and the crisis is deepening. First, contributions to employee pension funds are often well below the levels needed to ensure the payment of the benefits that are contractually or constitutionally guaranteed, let alone those that past trustees and legislatures added on a discretionary basis. The largest single expenditure in most state budgets is for Medicaid. Unfortunately, health-care costs have been rising faster than either inflation or state and local tax revenues, and most economists believe they will rise even faster in the next few years. But the most critical piece of the states' fiscal dilemma is that they are borrowing to cover their operating deficits. They do this directly — by issuing debt securities — but also indirectly. Some states, like New York, make contributions to their pension systems in promissory notes rather than cash. States and cities also sell assets and treat the proceeds as operating revenues, in effect selling off the family silver to stay afloat, according to Ravitch.