Patience urged after Detroit filing

DETROIT - Michigan’s governor and Detroit’s emergency manager called for patience and cooperation from residents, employees and creditors Friday as the city enters what is expected to be a long process of recovery in bankruptcy court.

Rick Snyder, the state’s Republican governor, and Kevyn Orr, the emergency manager, said Detroit’s historic bankruptcy filing Thursday gave the city “breathing room” to continue operating as it copes with its long-term debts and obligations.

“This is the time to say, ‘Enough is enough,’ in terms of the downward decline of the city of Detroit,” Snyder said at a news conference Friday in downtown Detroit.

Even as Snyder pleaded for patience, a judge in Ingham County, home to Michigan’s capital, Lansing, ruled that Snyder’s action had violated the Michigan Constitution because it could cut the pension benefits of retired public employees. The judge, Rosemarie Aquilina, said pensions were protected under state law and issued an order that the bankruptcy filing be withdrawn.

Her ruling was immediately challenged by Michigan’s attorney general, who appealed to the state’s Court of Appeals on the grounds that the Chapter 9 bankruptcy filing stayed all legal proceedings related to Detroit’s debt obligations.

Detroit is the largest U.S. city ever to file for Chapter 9 bankruptcy. Now that the city has filed, Snyder and Orr said they wanted to reassure Detroit’s 700,000 residents that police, fire and other essential services would continue to function.

“Today is business as usual in Detroit,” Snyder said. “People are still coming to work, they’re going to get paid, and regular services are still going on.”

Orr, who was appointed by the governor, predicted that residents might even start to see improvements in city services, saying that the bankruptcy filing would allow Detroit to use its limited resources to put more police cars and ambulances in service.

“I anticipate the citizens of the city will start seeing some of these changes in the next 30 to 60 days,” Orr said.

But those representing tens of thousands of city employees and retirees said they still intended to fight the case, particularly for the thousands of retirees who depend on city pensions.

“Apparently Gov. Snyder and Kevyn Orr want Detroit’s public-service workers to rely on their children for food and shelter or have to work until they die,” said Lee Saunders, president of the American Federation of State, County and Municipal Employees.

On Friday, Judge Steven W.Rhodes was picked to oversee the case. Rhodes is a hometown selection, having served for 28 years as a bankruptcy judge in the Eastern District of Michigan.

Also Friday, Detroit asked the U.S. Bankruptcy Court to set an initial hearing as soon as Tuesday on motions in its Chapter 9 case to confirm the city is entitled to protection from creditors.

The city, which is under Orr’s authority under a state statute, will be required to prove to Rhodes that Detroit is insolvent and had no other option but a Chapter 9 filing.

Orr has estimated Detroit’s long-term debt at more than $18 billion. The city also has run deficits in its operating budget for several years and cannot support itself with declining tax revenue.

“We didn’t make this decision in haste,” Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.”

Orr expressed confidence that the city can emerge from bankruptcy before his term as emergency manager ends in 15 months.

There is no road map for Detroit’s recovery, though. Bondholders, retirees, unions and other creditors could push for the sale of city assets to recover money.

Beyond that, residents worry that city services will become worse while Detroit is in court and that business expansion will stall in the interim.

“For a struggling family, I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office worker in the city for 20 years.

Others, including some Detroit business leaders who have seen a surge in private development downtown, said bankruptcy seemed the only viable choice - and one that might lead to a complete overhaul of city services.

“The worst thing we can do is ignore the problem,” said Sandy Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.”

For Snyder, placing the state’s largest city in bankruptcy will test his pro-business philosophy that has been credited with helping Michigan begin to recover from the recession and the government bailouts and bankruptcies of auto giants General Motors and Chrysler.

He called the Chapter 9 filing a “fundamental step” in bringing some order to the city’s rapidly deteriorating conditions.

“What would happen if we didn’t do this?” Snyder said. “Detroit would continue to go downhill.”

The debt in Detroit dwarfs that of Jefferson County, Ala., which had been the nation’s largest municipal bankruptcy, having filed in 2011 with about $4 billion in debt. The population of Detroit, the largest city in Michigan, is more than twice that of Stockton, Calif., which filed for bankruptcy in 2012 and had been the nation’s most populous city to do so.

Information for this article was contributed by Mary Williams Walsh of The New York Times; and by Andrew Dunn of Bloomberg News.