In a desperate attempt to avoid bankruptcy, Detroit’s Emergency Financial Manager, Kevyn Orr, announced the financially ailing city’s plan to immediately stop paying down its nearly $18.5 billion in long-term debt.
“Detroit’s road to recovery begins today,” Orr told a room full of nearly 150 of the city’s creditors. “Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the last 45 years have brought Detroit to the brink of financial and operational ruin.”
Orr, a bankruptcy attorney hired by Michigan to assist with the Motor City’s finical woes, said creditors could expect to be paid less than 10 cents on the dollar. “Our plan is bold because aggressive action is required to get Detroit back on its feet and improve the quality of life for the people who call Detroit home,” said Orr.
Reuters reports that Orr’s drastic plan has already been put into effect, with the city skipping out on a $34 million payment due yesterday, a move Orr said will allow the city to conserve cash needed to provide services to residents.
Another strategy sure to rile a few feathers is Orr’s recommendation to cut current and retired city worker’s pensions. Orr stated that he does not believe Michigan’s constitution protects vested retirement benefits from a city that cannot afford them, a move likely to bring about lawsuits from city retirees.
The proposed plan also includes major cuts on healthcare, city worker pensions, investing $1.25 billion to restoring city services and city government, upgrading the city’s public lighting and information technology and handing over the city’s water and sewage department to an independent company.
Despite the proposed cuts, however, Orr still believes there’s a 50-50 chance Detroit will go bankrupt, which would make it the first major city to do so in American history.