DETROIT (AP) — A restructuring team seeking to avoid the largest municipal bankruptcy in U.S. history met Wednesday with representatives for Detroit's public workers and retirees over a plan that would impose huge cuts on city pension and health programs.
After the two-hour meeting behind closed doors, some representatives for the workers complained they received no new information or financial figures related to the plan being floated by the city's state-appointed emergency manager, Kevyn Orr.
"Really nothing was discussed other than we need future dialogue," said Joe Barney, who represented emergency medical workers. "We've got to fix this place. It's broken across the board. We've been going through this for two years. What do you do? You show up for work and see what happens."
Gov. Rick Snyder appointed Orr to oversee Detroit's finances as the city tries to climb out of a crisis that includes a $380 million deficit and long-term debt nearing $17 billion, according to Orr's team. The city's retirement system is responsible for a significant chunk of the problem and is underfunded by $3.5 billion.
Some experts fear the city could be pushed into an unprecedented bankruptcy filing if there is much resistance to the plan from Detroit's two pension systems, union workers and the many creditors owed billions of dollars by the city.
Orr met earlier Wednesday with some creditors. He did not attend his team's meeting with the General Retirement System pension leaders and was not expected to attend another one later in the afternoon with members of the police and fire pension system, spokesman Bill Nowling said.
Nowling described the meetings as "sensitive negotiations."
"What we need to have are frank discussions about unfunded levels in both pensions," he said.
Orr's team has said Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them. Underfunded pension claims likely would get even less than that.
Cities in New York state have been tiptoeing along the same path Detroit has gone down, threatened with insolvency because declining revenues have slogged behind health care and pension costs. Stockton, Calif., declared bankruptcy earlier this year in part because of pension bond debt.
Detroit has failed to make contributions into both pension funds in past years and used the money to help pay municipal bills, said James McTevia, a Detroit area turnaround expert.
In a bankruptcy, there is a chance a judge will lump what's owed the pensions and money owed creditors as unsecured debt, he added. All the parties then would have to stand in line for whatever scraps remain once secured debt holders receive their cuts.
If a bankruptcy judge determines Detroit's bond debt to be unsecured, it could change the way investors buy bonds from municipalities needing to make improvements, McTevia said.
"It would send tremors through the whole bond industry — cities, states, roads, schools," he said.
But it's not a given Orr will file for bankruptcy, according to Moodys Investors Service managing director Jack Dorer, who called Orr's restructuring plan "unconventional and unusual."