Q and A: Detroit exits bankruptcy

Matt Helms | Detroit Free Press

QUESTION: How did the whole end-game process work?

ANSWER: All that was left to do after U.S. Bankruptcy Judge Steven Rhodes approved Detroit's exit from bankruptcy in November was for the city to wrap up deals it made with creditors and all the paperwork associated with it. Gov. Rick Snyder said Wednesday he agreed with emergency manager Kevyn Orr's assessment that the city's financial emergency was over, that Orr's tenure had come to an end, and that the effective date of the city's emergence from bankruptcy was Dec. 10, about 17 months after Orr and Snyder led the city into Chapter 9.

Q: Will Detroit be able to borrow again?

A: Orr says yes. Now the former emergency manager, he notes that Detroit had strong interest from the financial markets for sales of bonds for the Detroit Water and Sewerage Department and for exit financing for the city's bankruptcy, both at low interest rates, refuting warnings from financial analysts and the bond markets that the city would be unable to borrow affordably. But Orr said the city's plan of adjustment — its blueprint for exiting bankruptcy — leaves plenty of room for Detroit to operate without having to borrow.

Q: Now that the emergency has been terminated by the state and Detroit is out of bankruptcy, what safeguards exist to keep things from sliding back?

A: The primary watchdog will be the Financial Review Commission, a nine-member board made up primarily of appointees of the governor. The board will have strong oversight of the city, with broad powers to reject contracts, spending, borrowing and labor contracts. If the city is able to stay within the confines of the plan of adjustment and operate in the black for three years in a row, the commission could go dormant. But if Detroit ends up in further financial trouble later, the board would be reactivated.

Q: What kind of debt does the city still have?

A: Among Detroit's debts are the bonds the city issued to finance public projects in the city over the years, many of which were protected by dedicated revenue streams and therefore not substantially cut in bankruptcy, as well as unsecured general debts. It also has to pay money into two trusts that will manage retiree health care benefits, reduced in the bankruptcy to monthly stipends instead of city-paid insurance.

Q: With the city's population still shrinking, where will the city get money to operate?

A: The city still has its main sources of revenue: casino gaming taxes, property taxes, income taxes and state revenue sharing. Orr said the plan of adjustment calls for improving collection of income taxes, and Mayor Mike Duggan plans to work with the Legislature on a law to go after so-called reverse commuters — residents of Detroit who work at jobs in the suburbs where employers aren't required to withhold City of Detroit income taxes.

The plan of adjustment also calls for greater efficiency in government operations. It's one of the key requirements Detroit has to meet in order to get the $1.7 billion for reinvesting in city services and removing blight.

Orr said that improved collection of property taxes in Detroit — based on more realistic property tax assessments that the city is undertaking over the next five years — also will mean higher revenue from that critical tax, even if the city's population continues to dip.