Unlike Stockton and Jefferson County, however, Detroit’s bankruptcy court decisions will be up to one unelected official. Kevyn Orr serves as the city’s emergency manager, under a 2011 law some commentators have labeled “financial martial law.” Once Gov. Rick Snyder (R) signed the law and appointed Orr, Detroit’s city contracts and public properties were subject to Orr’s sole discretion. Orr began selling off large chunks of public property, even attempting to sell off the city’s art collection until the state Attorney General blocked him.
Under Orr, Detroit slashed public services. As of June the city had just one-third of its ambulances in service, and just 40 percent of its streetlights working. When the cuts and property sales weren’t enough to balance the books, Orr revealed a proposal that municipal finance experts said was designed to facilitate the bankruptcy filing. Now that the filing has happened, Orr will have an even freer hand to renege on pension promises to city retirees.
It remains to be seen how the financial companies to whom Detroit owes billions will fair. But while much of borrowing the city engaged in under corrupt, jailed former Mayor Kwame Kilpatrick was ill-advised, the city also got swindled by Wall Street. Detroit paid nearly half a billion dollars in fees to firms for engineering financial products that were bound to hurt the city, because the world’s biggest banks were manipulating a key interest rate underlying those products. Similar bank manipulation in Alabama eventually forced JP Morgan Chase to cancel billions of dollars of debts the city of Birmingham never should have owed.
Because bankruptcy proceedings are effectively a zero-sum game, the financial firms and pension funds owed vast sums by Detroit are at odds. One Bloomberg analyst is wary of the math behind Orr’s estimates of pension obligations. There are 30,000 citizens in the pension system, and their lawyer has argued that those current and retired workers should be favored over financial companies. “Planning for retirement and working for employers was not an investment into the market,” Michael VanOverbeke told the New York Times in June, whereas municipal bonds carry “a certain amount of risk.”
Attorneys for the city’s pension fund say they would have won a restraining order blocking the bankruptcy filing temporarily – and preserving pensioner rights – but Gov. Snyder’s legal team tricked them. The Detroit Free Press reports pension fund lawyers agreed to the government’s request for a 5-minute delay to a hearing for the order, and that in that five minutes Snyder’s attorneys filed the bankruptcy papers in another court. “It was my intention to grant your request,” the judge told the pension lawyers.