Minni’s Morning Coffee: Consent or Bankruptcy?

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Consent or Bankruptcy? No Easy Way Out

Last week, when the city council voted on the controversial, proposed union wage and benefit cuts under the consent agreement, Council Member Kwame Kenyatta suggested the city would be better off filing for bankruptcy.

That got people talking: What are the real consequences of municipal bankruptcy?

One Detroit News columnist, Daniel Howes, speculated on what could happen if the city went under the mercy of a federal bankruptcy judge versus the financial board that’s now in place under the consent agreement.

 Howes writes:

When a judge orders Belle Isle sold to repay creditors or demands the Detroit Institute of Art liquidate a portion of its holdings or abrogates collective bargaining agreements with the city or approves massive legal fees for legions of lawyers or renders judgment on a parade of horribles — that would be preferable?”

After reading that I wanted to find out exactly what the powers of a bankruptcy judge are and whether Howes was right: Could we potentially be forced to sell Belle Isle?

I decided to ask an expert on municipal bankruptcy. Eric Scorsone, specialist in State and Local Government at Michigan State University, says, “no”:

“A bankruptcy judge cannot force the City of Detroit to sell Belle Isle or any city-owned property. That’s just not accurate,” he said.

 Scorsone distinguished a key difference between a bankruptcy judge and a financial manager or board:

“A bankruptcy judge is really almost more of an arbitrator or an administrator than anything else. An EM is kind of in the driver’s seat.”

 

Since a bankruptcy judge tends to be more hands off, that’s part of the problem. If the city went bankrupt a judge wouldn’t have the power to change any policies or government structures that landed the city in this financial stew in the first place:

 A bankruptcy judge is not gong to fix try to the city’s economy,” Scorsone told me.

 But even if we weather bankruptcy, an EM, or Consent Agreement board, it looks like there’s just not easy way out of this, Detroit.

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