Under the Chapter 9 Plan of Adjustment filed on Friday of last week, Detroit Emergency Manager Kevyn Orr urged retirees to vote on a quick exit from bankruptcy by offering smaller-than-expected pension cuts. For non-uniformed city employees, Orr offered a 26 percent reduction in their pensions – so long as they agreed not to drag out litigation or pursue the sale of city-owned art. If they do pursue litigation, their pensions could be cut by upwards of 34 percent. Police officers and firefighters were offered a similar deal – a four percent cut in pensions if they accepted the plan without a fight and ten percent if they did not. Ironically, the anti-litigation offer came on the same day that the Sixth Circuit Court of Appeals accepted a direct appeal of Detroit’s eligibility for bankruptcy from the city’s pension funds and largest labor union.
To hasten the “timely exit” from bankruptcy, Judge Stephen Rhodes set a trial date on June 16 for Detroit to prove it can accomplish a plan to shed debt and exit from bankruptcy. Rhodes emphasized that nothing in the scheduling order “excuses any party from the continuing obligation to participate in good faith in any mediation as ordered by Chief Judge Rosen.” Further, he implored all parties “to negotiate with full intensity and vigor with a view toward resolving their disputes regarding the treatment of claims in the city’s plan of adjustment.”
The ball, now, has been placed squarely in the creditors’ court. Given the antipathy that they have shown thus far, it is unlikely that the city’s pensioners will agree to the terms of the plan of adjustment – especially in light of the grant of direct appeal. A fight would create a potential problem for Emergency Manager Orr, as his appointment ends in September, allowing only three months after trial to exit from the biggest municipal bankruptcy case in U.S. history.