HOW DETROIT WAS REBORN

U.S. District Chief Judge Gerald Rosen wondered what the hell he'd gotten himself into.

Rosen was in Florida in August 2013 for a quick golf vacation but was rising before dawn each day to read Detroit's massive plan to restructure its debt. The numbers were horrific: $18 billion in liabilities, 78,000 blighted buildings, four of every 10 dollars already devoted to debt, pensions and retiree health care.

Thousands of elderly retirees were facing deep pension cuts — their livelihoods. Detroit's world-class art museum was at risk of losing its treasured pieces in a fire sale. The city needed hundreds of millions of dollars just to begin to climb out of the hole.

READ THE COMPLETE SPECIAL REPORT: How Detroit was Reborn

Rosen, the appointed federal mediator in the city's historic bankruptcy case, picked up his pen and doodled an idea on the cardboard back of a legal pad. He wrote "art" and drew a box around it, representing protection for the city-owned Detroit Institute of Arts and its billions of dollars in masterpieces.

He wrote "state" and "pensions" and drew arrows in a diagram. He wrote several phrases — "how much?" "timeline," "what about fed gov," "foundations," "private sources."

Sixteen months later, Rosen's idea became the central element of a blueprint to reinvent one of America's iconic cities. The unprecedented deal that Rosen imagined ultimately brought together a unique coalition of foundations, state government, unions and others to save the museum — and throw a lifeline to thousands of Detroit pensioners.

This is the backstory of how Detroit cleared mountains of debt accumulated over 50 years and emerged with a shot at restoring basic services for 685,000 city residents who deserve better. It's a story that played out in dozens of little dramas, including the $100-Million Cab Ride, the Christmas Eve Massacre, the Mad Race to the Courthouse and the Haircut at the Haircut — when lawyers decided in a barbershop how to trim millions in Detroit debt.

And, ultimately, it's the story of how, one by one, like soldiers switching sides in the midst of battle, the major players and creditors at war with the city dropped their objections and joined a "grand bargain" to save Detroit.

For this account, the Free Press interviewed scores of sources at every level of the bankruptcy and reviewed thousands of documents, e-mails and depositions. Some sources spoke on the record, others on condition of anonymity. Some went on the record only after the decision on the bankruptcy came down. That finally happened on Friday, when U.S. Bankruptcy Judge Steven Rhodes approved the city's restructuring plan.





'The Olympics of restructuring': In early 2013, Detroit was running out of money. Gov. Rick Snyder concluded the city had made little progress on its promises to tighten its belt, restructure its finances and overhaul its debt. He authorized his adviser, longtime friend Rich Baird, to look for candidates to take over the city as emergency manager.

The governor's first two choices turned down the job. Baird and state Treasurer Andy Dillon then came up with another name: Kevyn Orr. The charismatic Washington, D.C., lawyer had impressed them when Orr's law firm, Jones Day, described for the state "what a deep restructuring might look like," Baird said.

Orr, then 54, a Democrat with two degrees from the University of Michigan, had helped lead Chrysler's bankruptcy.

Baird called Steve Brogan, managing partner of Jones Day. "We just made this man the managing partner of our Florida practice (in Miami). I don't think he would be interested," Brogan told Baird.

Baird made the call anyway. Orr, who was living in Chevy Chase, Md., was intrigued but wanted to talk to his wife, Donna Neale, a Johns Hopkins doctor. She urged him to do it. Although the job would mean a significant pay cut, Orr also knew it would be an act of public service.

"It's the Olympics of restructuring," he told reporters after he accepted the job.

"I told him God wanted him to do it," Baird said. "When you're the son of a minister and the son of a teacher, seriously, the man has an incredible moral compass. And this was an opportunity he never, ever would have expected. But it was one that he considered to be a real calling and an opportunity to do something."

In the governor's Detroit office at Cadillac Place, Orr met Snyder — and they realized their worlds were not far apart. They had attended the University of Michigan at the same time in the early 1980s — without knowing each other.

"We compared notes," Snyder said. "We had a lot of people in common and events in common. We actually discussed how we were probably in the same snowball fight between East Quad and West Quad."

Some 30 years later, they stood together at a podium on March 14, 2013, to announce Orr would become the emergency manager of Detroit, effectively rendering then-Mayor Dave Bing and the City Council powerless. Orr severed personal ties with Jones Day, the city's restructuring law firm.

He immediately began a furious process of examining the city's books, cataloging its assets and preparing for talks with creditors.

Protesters swarmed City Hall. Behind the scenes, prominent clergy warned of possible civil unrest. The city was facing "what could have been a tremendously volatile situation," said Bishop Edgar Vann, longtime pastor of Second Ebenezer Church.

"I love the city," Vann said, "and we were all concerned that tempers and emotions were extremely high. These are very, very sensitive issues, especially for African Americans who have seen voting rights abrogated."

Orr was given a security detail.

"In my business, you're sort of the undertaker who walks up to the front door," Orr told the Free Press for this story. "I'm rarely welcomed with open arms."

The value of a Van Gogh? Snyder and Dillon had been watching Detroit's financial downward spiral for some time. In 2011, they started strategizing fix-it scenarios with Ken Buckfire, a New York-based investment banker and Detroit native. When a bankruptcy filing became in evitable, they all knew the Detroit Institute of Arts' multibillion-dollar collection would be a prime target for creditors.

Orr's job was to craft a city restructuring plan the court would accept as fair and viable. The battle over the DIA was driven by Orr's belief that he would have to account to creditors for the value of the city-owned art.

Bruce Bennett, one of the city's lead attorneys, set up a conference call for April 19, 2013, with DIA officials. His tone was friendly, his words were ominous.

DIA Director Graham Beal was at Metro Airport on his way to Washington, D.C., to see his wife. DIA chief operating officer Annmarie Erickson was in a hallway in a hotel in St. Louis for a museum association conference. Gene Gargaro, the DIA board chair, and other DIA leaders also were on the call, as was museum lawyer Alan Schwartz of the Honigman firm.

The DIA team got a 90-minute primer on municipal bankruptcy. As Erickson listened, she paced for 40 minutes on the hotel's terrazzo floor, until a colleague brought her a chair. Bennett referred to the art collection as an "asset," unnerving DIA officials, and he troubled Beal by asking uncomfortable questions:

What's the value of the Van Gogh's "Self-Portrait"?

Beal, disclaiming any detailed knowledge of prices, answered: Roughly $60 million to $100 million.

Bennett played it calm. He was careful never to say the city would sell the art.

As Erickson remembered, "The feeling he tried to project was, 'I will work with you on this.' But I knew he had a very clear agenda and a path forward that he was not sharing."

A month later, the talk got tougher. Bennett and Buckfire met with Gargaro, Beal and Schwartz at the downtown Honigman offices. The city lawyers were civil, but persistent. They said the DIA, to save the art, needed to contribute huge sums to the eventual bankruptcy settlement. They floated $20 million a year over 20 years but never gave a specific target.

Selling art might be inevitable, they said.

Gargaro said those figures were impossible. Donors were tapped out after a $330-million fund-raising campaign, and the museum had committed to raising $250 million in critical endowment funds over the next decade.

Bennett looked down at the floor. He said there was nothing to stop Orr as emergency manager from canceling the DIA's operating agreement with the city, firing Beal and seizing the collection.

"That's when the gloves came off," Beal recalled.

Buckfire told Beal that he played golf with a senior vice president of Christie's and that the auction house was going to evaluate the collection by July — an insanely fast timetable Beal knew could never be met. But Beal was shaken enough by the conversation that he went straight home to collect his thoughts instead of returning to the museum or even reporting in by phone.

"They weren't happy with the city or with me — and I frankly wasn't happy with them," Bennett said later.

The museum believed it was fighting for its life — that selling even one painting would cause donors to flee, push county officials to cancel regional tax support and force the museum into a death spiral.

"They feel a little whipsawed," Orr spokesman Bill Nowling told the emergency manager in an e-mail June 3, 2013, a few weeks after the second meeting.

"Things change," Orr responded.

"They need to grow up."

"It was time to go": Orr didn't have time to waste because the city's creditors were already circling. At a meeting on June 14, 2013, Orr offered them just pennies on the dollar to settle billions of dollars of city debt and obligations. It was a last effort to reset city finances outside of bankruptcy court. Instead, furious creditors flooded the city with lawsuits.

A few weeks later, the city's two pension funds asked a judge to block a bankruptcy filing, claiming pension cuts would violate the state Constitution.

Fed up as legal challenges grew and time ticked away, Orr's team decided to file for bankruptcy in mid-July. On Thursday, July 18, 2013, they were waiting for the governor's approval, which Orr had requested two days earlier. Snyder's sign-off was required under federal bankruptcy law.

"Their view was: 'It's nice you're trying to do this kumbaya thing and get everybody to work together. But it ain't workin', they ain't listening, and you're starting to lose momentum and the initiative,' " Orr said.

About 2 p.m. that day, the Free Press reported on freep.com that the city would file for bankruptcy within days.

The news report triggered a frantic race to the Ingham County Courthouse that very afternoon.

Labor lawyer Bill Wertheimer and UAW general counsel Mike Nicholson hoped to get a judge to convene an emergency hearing and issue an injunction preventing a bankruptcy filing. They needed to beat the city to the punch, because once the city filed, other legal action would be frozen.

The pair hopped in Wertheimer's 2005 Saturn Vue in Detroit. Wertheimer stepped on the gas, but horsepower was in short supply.

"It was a good car, but it overheated on a hot day when you ran it hard," Wertheimer said. "I had to back it off."

As Wertheimer babied the Vue along I-96, Nicholson wrote a legal brief on his laptop to support an injunction. They briefly considered not telling the state, which was defending Orr's interests, about their plan to request the hearing. But that would go against established legal etiquette.

"We didn't think we could do that ethically," Wertheimer said.

But that didn't mean the attorney general needed a long lead time, they concluded. They worried that the AG would immediately alert Orr's team.

Orr received the governor's authorization shortly after lunch that day. The governor had slept on it overnight.

"I just wanted to make sure I again reviewed the letter appropriately. Once I looked at those things, it was time to go," Snyder said in an interview.

"They'll put me down as the governor that authorized the bankruptcy, but I said the way I viewed it was, if I would've waited another day, another day, Detroit would've gone downhill just that much farther."

Even as the lawyers chugged along the interstate, the city began electronically filing its bankruptcy petition, amounting to thousands of pages. But the sheer volume crashed the digitally creaky system of federal record-keeping, commonly called PACER.

"So the first filing was unsuccessful," Orr said.

Wertheimer and Nicholson called the attorney general's office as a courtesy. They arrived at Ingham County Circuit Court and filed for the emergency injunction at 3:37 p.m. Judge Rosemarie Aquilina scheduled a hearing for 4 p.m.

She delayed the hearing for 15 minutes, waiting for the state's representative.

During that delay — and after decades of dysfunctional government, wasteful spending, irresponsible borrowing, white flight, suburbanization and deindustrialization — Detroit became the largest city in U.S. history to file for Chapter 9 bankruptcy.

After chopping the filing into several pieces, the bankruptcy petition dribbled into PACER in chunks. The official time of the filing was 4:06 p.m.

Unaware, Aquilina convened the hearing. Wertheimer, wearing jeans because he had no time to change, ambled into the courtroom and quickly apologized for his attire. But it was too late. An aide informed Aquilina minutes later that the city had filed — and in bankruptcy, any lawsuits against a debtor are indefinitely delayed under a concept called the "automatic stay."

Nicholson, Wertheimer and his balky Saturn Vue were out of luck.

And what followed over more than 16 months was an epic, precedent-setting battle among 170,000 creditors over the future of Detroit.

"These are not issues easily decided": As Orr readied the city's bankruptcy filing in July, Judge Rosen urged the U.S. 6th Circuit Court of Appeals chief judge to appoint Bankruptcy Judge Steven Rhodes to the case.

Rhodes, planning to retire as a full-time judge at the end of 2013 from the Eastern District of Michigan in Detroit, was suddenly faced with taking on a gargantuan case that could last a year or more. But the appointment offered him a chance at handling the largest municipal bankruptcy in U.S. history.

It also was a chance to help save Detroit. And with lawyers in financially strapped cities across the country closely watching the proceedings, he had a once-in-a-lifetime opportunity to shape bankruptcy law forever.

Rhodes, a guitar-playing Ann Arbor resident with no obvious political ties, is known among fellow jurists and lawyers for his encyclopedic knowledge of bankruptcy law and commitment to jurisprudence. Lawyers who practice in front of him describe him as alternately feared and respected for his high expectations — and his commitment to expedience.

"I am firmly convinced that he was aware that the city could not afford a long, drawn-out process," said Doug Bernstein, bankruptcy attorney for Plunkett Cooney who represented foundations that helped resolve the bankruptcy. "People think, 'My God, this has gone on for 16 months.' That's really quick. These are not issues easily decided."

Rosen told colleagues he believed Rhodes had the temperament and management skills to keep the monster case on track. Rhodes was willing to take the case, but only if Rosen served as chief mediator. He wanted Rosen to lead the behind-the-scenes negotiating to bring the warring parties together — the more agreements reached outside the courtroom, the quicker the case could be settled.

Rhodes knew his colleague well — his persuasiveness, work ethic, self-confidence, even his outsized penchant for quoting Rosen's personal hero, Winston Churchill. He knew Rosen would be relentless.

But Rosen hesitated to accept the role of mediator. As he later told friends and associates, his teenage son settled the matter when he asked his father, "What do you think Churchill would have done?"

A chance encounter: Rosen set out to put together a team of mediators, mostly federal judges with broad expertise. They would have to get in the middle of a range of conflicting interests — from city workers and retirees to unions, art lovers and Wall Street bankers.

He considered the difficulties ahead. Even with a crack team of mediators, only so much could be done without a new source of cash. Rosen knew the bankruptcy could drag on for years. As he later put it, "There would be nothing left of Detroit."

But a vision of what Rosen called the "Art Trust" was taking shape in his mind — and on the back of his legal pad.

Rosen first approached Gov. Snyder. They were old friends — Snyder had worked on Rosen's failed campaign for Congress in 1982.

The Republican governor was already drawing criticism from the left and right over his Detroit policy. Democrats mostly hated his appointment of an emergency manager, and conservative Republicans were adamantly opposed to any "bailout" for the city.

Rosen's initial idea required the state to contribute cash to help pensioners and save the DIA's trove of priceless masterpieces. Snyder never said "no," but his staff made it clear: Rosen could expect no money from Lansing.

Then came a chance encounter. Rosen's idea was about to get new life.

In September 2013 at the Gateway Deli, across the street from the federal courthouse on Fort Street in downtown Detroit, Rosen ran into Mariam Noland, the longtime president of the Community Foundation for Southeast Michigan.

The two knew each other slightly, since Noland's foundation funded some programs at Rosen's court. As they discussed Detroit's bankruptcy case, Noland told Rosen to let her know if she could help. Before long, Rosen asked her to help assemble the heads of several foundations to come to a meeting. No specific request for money was mentioned, but the implication was obvious.

Noland, soft-spoken but commanding great respect in philanthropic circles across the country, understood how unusual the request for money would be. Foundations generally stick to their declared areas of concern — education, or youth programs, or human services, or environment — and they don't just throw money at big problems.

But Noland was deeply committed to Detroit. She started a round of phone calls and e-mails, contacting the heads of about a dozen foundations that collectively control tens of billions in assets — including Bill White of the Flint-based Mott Foundation; Alberto Ibargüen in Miami at the Knight Foundation; Darren Walker, an energetic new leader of the New York-based Ford Foundation; and several more.

All agreed to come to Detroit, and a meeting was set for early November. Few of the foundation heads knew then the uncharted waters they were entering.

Rip Rapson, president and CEO of the Kresge Foundation, couldn't make it on the date set but agreed to have dinner with Rosen the week before. The two had known each other for a long time. They'd played as doubles partners on a Capitol Hill tennis team in Washington, D.C., decades earlier.

Rosen laid out his idea: National and local foundations, the state and the DIA would all come together to create a fund to ease cuts to underfunded pensions. That new fund would be used in lieu of selling DIA masterpieces. The DIA would be cut loose from city ownership, forever shielding its artwork. Rapson, stunned by Rosen's request, doubted the idea would go very far, he later told the Free Press.

Meanwhile, the DIA's Beal and Erickson, unaware of Rosen's developing idea, made their own trip to New York to meet with Walker and ask the Ford Foundation for help. They received a sympathetic ear. But no more.

"Foundations fund the future," Walker told them. "They don't pay for the mistakes of the past."

A grand bargain: In the late afternoon of Nov. 5, 2013, the skeptical Walker and heads or representatives of 12 other foundations entered Rosen's chambers at the federal courthouse in Detroit.

Rosen invoked Churchill: "A pessimist sees the danger in every opportunity. An optimist sees the opportunity in every danger."

He asked the foundation heads to talk about their areas of interest, probing for who might be willing to help and where. He shared his hope: Raise money to help offset pension cuts and save the DIA. He pitched his appeal to the philanthropic missions in the room — urban revitalization, cultural interests, humanitarian concerns.

Walker of the Ford Foundation was jolted by the scope of the request, but he urged everyone in the room to consider it seriously. There was no official "ask," as they say in the foundation world, no request for a specific amount. But everyone knew Rosen was talking big money, hundreds of millions. Anything else would not help Detroit much.

After the nearly four-hour session, several drove to Noland's Grosse Pointe Farms home for dinner. Noland and her husband, James Kelly, frequently host guests as a sort of civic salon at their architecturally notable house. Rosen came, as did Eugene Driker, a lifelong Detroit resident and attorney on Rosen's mediation team, plus White of the Mott Foundation, Walker and Ibargüen from the Knight Foundation.

Over a catered meal, the small group got to know each other better. They talked a lot about baseball, with the metaphors running freely, and of Churchill. Rosen, owner of much Churchill memorabilia, could offer a quote from the wartime prime minister for all occasions. And the small group returned again and again to Rosen's idea.

With full stomachs, Walker and Ibargüen shared a ride back downtown. Walker was heading for his room at the Westin Book Cadillac, Ibargüen to the Detroit Athletic Club. Nearing midnight, the hired car wended through darkened streets. They kept talking about Rosen's request. And they started talking money.

"Alberto," Walker said, "this is going to be a hundred-million-dollar taxi ride."

"Well, if you're putting in a hundred million, then I have to put in twenty," Ibargüen said. "And by the way, on an asset basis, you're getting away with murder because you should be putting in more."

Walker smiled. "I think my board will be excited by this."

Ibargüen called Noland and recounted the numbers tossed around.

But would foundation trustees go along with the big requests? What were the terms? What if the DIA or pensioners balked? Who would control the money? Would the cash be used only for the reasons stated, to support pensioners and free the DIA artwork from city ownership? And suppose Judge Rhodes rejected the idea?

As Rosen prepared to deliver his request in Flint to the board of the C.S. Mott Foundation, White leaned over Rosen's shoulder and whispered in his ear, "I hope you know you don't have a single vote in this room."

The Mott trustees eventually approved $10 million.

Rapson was hesitating about the huge sum of money, but a phone conversation with Walker helped change his mind. Walker, only three months into his job at the Ford Foundation, told Rapson it would be "philanthropic malfeasance" not to consider Rosen's request. That phrase — "philanthropic malfeasance" — struck Rapson forcefully. He repeated it to others.

Walker's decision to champion Detroit fit the Ford Foundation's growing commitment to reconnect with the city where it was born. But the scale Walker was talking about was gutsy for someone new to the job. Rapson said Walker — raised by a single mother and boosted as a child from the Head Start program — has "a profound commitment to postindustrial cities."

Rapson also became a champion of the plan. He started his own round of calls and e-mails.

The Free Press, in its coverage of the foundations' potential donation, described the idea on Dec. 4, 2013, as the "grand bargain." The phrase ultimately made its way into legal briefs and the lexicon of all involved in the case.

"You are an inspiration to me": That same day, foundation leaders convened at Kresge's modernist headquarters on Big Beaver Road in Troy for a 90-minute lunch. It was now apparent that most — if not all — would donate. The only question was how much.

"I'll start the bidding at $3 million," Mott's White offered.

Both Hudson Webber, a Detroit-based foundation, and the Community Foundation eventually approved $10 million each. The much larger Ford and Kresge foundations said they'd contribute $50 million to $100 million. W.K. Kellogg Foundation later pledged $40 million.

The next morning, A. Paul Schaap, a retired life-sciences entrepreneur and philanthropist who lived in Grosse Pointe Park, read the Free Press' story about the grand bargain. Schaap wanted to do something extraordinary — donate $5 million.

"None of us want to see individual people hurt and lose pensions," Schaap told the Free Press. "I think if they have to sell one piece of art, it will so demoralize people in this metro area that we can't even imagine it."

Rosen and Schaap met for lunch the next day.

About the same time, the Knight Foundation board of trustees met at its headquarters in Miami. The Knight trustees, including Noland, wanted to help Detroit, where the Knight family had once owned the Free Press. CEO Ibargüen suggested a contribution of $20 million but was astonished that trustees thought he was too conservative.

Beverly Knight Olson, the late James Knight's daughter and the late Jack Knight's niece, had tears in her eyes as she addressed the board.

"Jack Knight loved Detroit, and the Detroit Free Press was his newspaper," she said. "I don't think 20 is enough." The trustees voted unanimously to give $30 million.

Ibargüen left the room and quickly called Walker. "Listen, you piker! I've upped the ante. I'm in for 30, so you guys had better cough up some more money."

"You are an inspiration to me, my friend," Walker said.

In short order, the Ford Foundation board, briefed and prodded by Walker, upped its ante to $125 million.

All told, more than $250 million in foundation money materialized in a matter of days. Other foundation money followed. Many were giving unprecedented amounts, even dipping into their core endowments, something rare because foundations usually donate only the interest earned.

Walker said the worldwide importance of Detroit compelled foundations to act.

"If you don't have great cities, you won't have great nations," he said. "Detroit is a metaphor for America, for America's challenges and America's opportunities. It is a hothouse for new innovation, for ingenuity and risk taking. That doesn't happen in a lot of American cities. We need to be in Detroit because of that."

Foundations usually research for months before approving even relatively small grants. Now the pledges were pouring in, and by the end of January, the total exceeded $300 million.

It was time for Rosen to talk again with his friend Rick Snyder.

"It's not close:" On Christmas Eve 2013, the ghosts of Detroit's fiscally reckless past haunted the city.

The city owed about $290 million to Bank of America Merrill Lynch and UBS because of a risky investment engineered by disgraced former Mayor Kwame Kilpatrick. Instead of investing in basic services such as police, fire and blight removal, the city was diverting nearly 5% of its budget to pay the debt.

The city and banks negotiated a $230-million deal to make the debt go away. But Judge Rhodes shocked the courtroom by rejecting the deal. Privately, he told the city, the settlement should be closer to $150 million.

On Dec. 23-24, Rosen ordered the city, banks and several major financial creditors to return to the courthouse in downtown Detroit to negotiate a new settlement.

"There were two days we were in that room — the jury room of Judge Rosen's courtroom. We were under house arrest," Orr said later.

The city eventually agreed to pay $165 million to resolve the debt after the banks refused to go any lower. "That's the best number you're going to get," Rosen told the city.

Although the parties reached an agreement on Dec. 23, they still hadn't finalized the details on the morning of Christmas Eve. Orr — whose family lives in Chevy Chase, Md. — was antsy to leave town.

"I'm starting to sweat bullets because my son is a shepherd and my daughter is an angel in the Christmas pageant. I'm getting texts from my wife, 'Are you going to make it?' " Orr said in a recent interview.

"Forget debt, and the judge and the governor, my boss lady is wondering where am I? I'm going to be missing in action. The pageant starts at 6, and they're putting on their stuff. I'm like, 'I gotta get outta here.' I said, 'Look, we gotta cut a deal. I gotta get out of this room. There's one flight left or I don't need to go home. I might as well have Christmas alone here in Detroit.' "

They finally put the deal to bed — and Orr would make it home for Christmas.

Rosen put on his robe and walked into his courtroom to announce the settlement, calling it the "first … significant agreement in the bankruptcy."

The exhilaration didn't last. Three weeks later, Judge Rhodes stunned the legal community by rejecting the second settlement as "just too high a price to pay," saying that the original debt was "likely" illegal and intimating that the city might be able to get out of it.

"If it were close, the court would approve it, but by any rational analysis, it's not close," Rhodes said of the dollar figure. "The court looked for every way it could to approve the settlement. ... It's just too much money."

The death of the Rosen-endorsed settlement became known in local legal circles as the Christmas Eve Massacre. Rhodes' ruling was a surprising rejection of a deal Rosen had personally endorsed and that his mediators had fought hard to secure.

Afterward, away from the news media, Rhodes addressed creditors privately, asking them what they were willing to settle for.

"He goes around to each person and goes, 'What's your number, what's your number, what's your number?' " said one person familiar with the matter. "Then he says, 'Guys, don't ever do that to me again with Rosen.' "

The city quickly switched gears. Orr threatened to sue the two banks a few weeks later, and they caved. They agreed to an $85-million settlement, which Rhodes authorized.

By refusing to rubber-stamp the second settlement offer, Rhodes saved the city $145 million.

"You can't make this stuff up": From the outset of the case, the city's attempt to treat general obligation bondholders like your average creditor infuriated Wall Street, which believed the debt used to build public projects should have more protection than pensions.

Facing fierce opposition from three powerful bond insurers that were collectively owed $388 million, the city hit a wall in negotiations.

During a break in the talks, Judge Rosen casually mentioned that he needed a haircut. The lead mediator, Detroit bankruptcy attorney David Heiman, along with an adviser to National Public Finance decided to head to Francesco's Barber Shop in the Ford Building on Griswold.

"In that barbershop, apparently, the deal was struck while they were all getting haircuts," Orr later recalled. "You can't make this stuff up."

The barber shop became an extension of the courtroom, with Frankie the barber becoming part of the secret mediation talks.

The episode became known as the Haircut at the Haircut after some bondholders agreed to trim what was owed to them.

The sides agreed that the city would pay 74% of the bond debt — and the remaining 26% would be diverted to help low-income city retirees.

Piece by piece, things were falling into place.

"You guys don't want to sell art": With the foundations on board, the two missing puzzle pieces were a major pledge from state lawmakers and a substantial commitment by the DIA to kick in cash.

The city and governor's target for the DIA became $100 million, high enough to persuade reluctant lawmakers to also chip in. Publicly, the museum consistently ruled out $100 million, calling it "completely unfeasible." Privately, Gargaro believed $50 million was a more reasonable target.

Orr and Gargaro met face-to-face for the first time on Jan. 16 this year.

"I don't want to be known as the knuckle-dragger who came to town to sell all the art, and you guys don't want to sell art," Orr told him.

Gargaro said the museum was prepared to make a big contribution, but they did not discuss specifics.

The breakthrough came a week later at the U.S. Conference of Mayors in Washington, D.C., where Snyder was receiving recognition for his support of the arts. He had invited Gargaro to join him at the awards breakfast.

When it ended, the two slipped into a private room and spoke alone for 45 minutes.

Gargaro offered $50 million but recognized immediately Snyder expected more.

The governor had done his homework, reviewing DIA financial statements down to the footnotes, and believed the DIA could come up with the money. The governor then asked directly for $100 million.

"This solves the problem," Snyder told Gargaro.

Five days later, the DIA board of directors voted unanimously in an emergency meeting to commit $100 million for the grand bargain.





An unusual bipartisan coalition: After Rosen convinced the governor that the state Legislature needed to contribute, a fierce political ground game ensued.

By February this year, Orr had incorporated the grand bargain and its pledges of $816 million into his restructuring plan. But persuading Republicans and outstate Democrats to devote money to Detroit took intense lobbying from Orr, Rosen, Snyder, the Detroit City Council, newly elected Mayor Mike Duggan, retiree groups and unions.

Republicans and others were finally sold on the idea that the grand bargain would protect state government from being sued over city pension cuts or having to increase spending on welfare and health care programs to save impoverished retirees.

"I don't think that point can be underscored enough," Nowling, Orr's spokesman, said in a recent interview. "That's how we were able to sell it to Lansing."

An unusual bipartisan coalition of Reps. Thomas Stallworth, D-Detroit, and John Walsh, R-Livonia, helped lead the charge. The Legislature's top Republicans, Speaker of the House Jase Bolger and Sen. Majority Leader Randy Richardville, and its top Democratic leaders, House Minority Leader Tim Greimel and Sen. Minority Leader Gretchen Whitmer, were supportive.

But Bolger wanted to extract blood from the unions. He declared publicly he would not support the grand bargain without a contribution from labor. And two weeks later, on May 21, the UAW agreed to raise funds.

The next day, the state House overwhelming approved an 11-bill package authorizing a $195-million up-front contribution. The state Senate followed suit on June 3, and the governor signed the bills into law.

It was a remarkable victory for Snyder, who staked his political legacy on the outcome of the bankruptcy, bending a sharply reticent Legislature into agreement.

"This shows the spirit of people trying to solve the problem statewide, because everyone rallied," he said in an interview. "This is something we should really be proud of."

"To give up such ... rights is difficult and heartbreaking": The deal was so powerful because it monetized city-owned art to the tune of $816 million while keeping it on the museum walls. It also allowed foundations and the state to contribute huge sums to the city's recovery in ways that were politically acceptable.

Still, the grand bargain faced stiff opposition from some of the city's biggest creditors, who argued in court that the plan unfairly shut them out and that art should be sold to pay them back.

To make the deal work, the city's pensioners needed to accept cuts and agree not to sue the state over pension reductions, an unthinkable concession at the beginning of the case.

In early October 2013, with little progress, Orr privately threatened pension cuts of more than 50% for general retirees, according to documents obtained by the Free Press. But even after Rosen revealed the foundation commitments in January, the retiree committee was reluctant to endorse a deal.

In February 2014, Orr applied pressure again, publicly proposing cuts of up to 34% for civilian pensioners and 10% for police and fire pensioners.

In fierce negotiating sessions, the pension cuts fell even more: 4.5% to the monthly pension checks of civilian pensioners, with the elimination of annual increases.

Two members of the retiree committee, Shirley Lightsey and Don Taylor, also presidents of two influential retiree associations, helped persuade enough fellow pensioners to accept cuts and support the grand bargain.

"This is no small concession for proud citizens to forgo this right and set their constitutional protections aside," Lightsey told the Legislature. "To give up such appellate rights is difficult and heartbreaking, but the pension treatment that could result ... is exponentially worse and unacceptable."

Over the spring and summer, all the city's unions and retiree groups agreed to support the grand bargain.

The groups recommended a yes vote to their members during a 60-day balloting process — and pensioners voted yes, overwhelmingly. They accepted cuts — another once unthinkable outcome.

But Lightsey said it was the right choice:

"You can't eat principles and uncertainty doesn't pay the bills."





Something under your sleeve: The city's restructuring plan, along with the grand bargain, still faced powerful opponents.

The city's $18 billion in debt and liabilities was a Detroit problem, but the city's creaking water system was a regional issue.

Orr and Buckfire, the city's investment banker, wanted to transfer assets of the Detroit Water and Sewerage Department to an independent authority that would make annual payments to the city totaling $1.5 billion over 40 years. Macomb, Oakland and Wayne counties balked, saying it was too much and that Detroit didn't deserve any money from the deal.

"Kevyn Orr is not presenting a business case," Oakland County water consultant James Meenahan said in a Feb. 19, 2014, e-mail to county deputy executives Bob Daddow and Jerry Poisson. "He is looking toward Oakland and Macomb Counties as a type of Ford Foundation and some entity that would take an albatross off his neck. And there is no foreplay, no Panera cookies!"

Rhodes ordered the sides into mediation. Rich Baird and Mayor Mike Duggan struck a deal for the counties to provide $2 billion over 40 years for water system improvements in exchange for transferring governance to a regional board.

The creation of the Great Lakes Water Authority resolved one of the stickiest financial and political issues in the case. It was a breakthrough for a region that had bickered about water for decades.

And more pieces were falling into place: Detroit reached a deal in September to pay Syncora, one of its largest creditors, a fraction of what it was owed and provide rights to city property and an extension on the firm's lease to operate the Detroit-Windsor Tunnel.

Financial Guaranty Insurance Co., owed more than $1 billion as the last big holdout creditor, struck a settlement for 13 cents on the dollar plus rights to develop the Joe Louis Arena waterfront into a massive hotel development.

"You always keep something under your sleeve," Orr said. "I said, 'Well, you know, we ain't got a lot, but we got something.' "

He laughed, recounting how he leveraged the surprise asset.

"Let me see what I got. Oh, look at this over here! How does that look to you?"

'A much grander bargain': Rhodes entered the seventh-floor courtroom in the federal building on Friday at 1 p.m. on the nose, hitting his mark as promptly as he had every other day in court. He kept no one in suspense. In less than a minute, he spoke these words:

"The court concludes that the city's 8th amended plan of adjustment meets the legal requirements for confirmation. Accordingly, the court confirms that plan."

Cheers and applause broke out down the hallway in Rosen's stately chambers, where he and a large reception of dignitaries, including Gov. Snyder, Sen. Majority Leader Richardville and others watched the ruling on closed circuit TV.

The confirmation was a slam dunk. Rhodes said the grand bargain "borders on the miraculous." He said the city's plan was fair and viable. He waxed enthusiastically about the DIA's importance as a crucial building block of a thriving Detroit. He praised the pensioners for voting for the plan, while acknowledging the cuts they accepted would cause real hardship.

Rhodes' approval enshrined the grand bargain into law. And Rosen's crude sketch from 15 months ago is now headed for its own place of honor. The DIA is going to hang the piece of cardboard in the museum's offices.

"It's an original Rosen," the DIA's Gargaro said recently.

Rhodes, reading from the bench for nearly two hours, turned poetic in the end. He urged residents to never forget their anger over the decline and decay of Detroit.

"Your enduring and collective memory of what happened here, and your memory of your anger about it, will be exactly what will prevent this from ever happening again," he said.

"We have used the phrase the grand bargain to describe the group of agreements that will fix the city's pension problem. That description is entirely fitting. In our nation, we join together in the promise and in the ideal of a much grander bargain. It is the bargain by which we interact with each other and with our government, all for the common good. That grander bargain, enshrined in our Constitution, is democracy. It is now time to restore democracy to the people of the City of Detroit."

Fifteen minutes later, the disciplined judge had the lawyers return to the courtroom to schedule a hearing for Monday. Then he smiled and asked a personal favor: Could he step down from the bench and personally thank the people who, like him, have been on a historic 16-month journey?

Still in black robes, he slowly made his way down the aisle, shaking hands and expressing genuine admiration for his compatriots in the legal system. It was a humble victory lap. Then Rhodes disappeared into his chambers. The future of Detroit had begun.

READ THE COMPLETE SPECIAL REPORT: How Detroit was Reborn

Contact Nathan Bomey: 313-223-4743 or nbomey@freepress.com. Follow him on Twitter @NathanBomey.

Contact John Gallagher at 313-222-5173 or gallagher@freepress.com. Follow him on Twitter @jgallagherfreep.

Contact Mark Stryker: 313-222-6459 or mstryker@freepress.com. Follow him on Twitter @Mark_Stryker.

Free Press Staff Writers Tom Walsh, Brent Snavely, Matt Helms and Alisa Priddle contributed to this report.