In response, however, attorneys for the city said a June 14 meeting and subsequent sessions with creditors were well-intended but fruitless. A bankruptcy filing was being prepared, they acknowledged, but “never set in stone.”
Spiotto said Judge Steven Rhodes will have much discretion to determine whether the city has met its “good-faith” burden.
“I don’t think courts require perfection,” he said. “Good faith is not measured solely by, ‘Did they offer what we want?’ It’s about providing opportunity.”
The trial in front of Rhodes is expected to last several days, with testimony from Orr, Police Chief James Craig, financial consultants and, possibly, the governor. It will be an autopsy on what Snyder has called decades of ruinous financial decisions in Detroit combined with an exodus of people — the population has dropped to 700,000 from 1.8 million — and other social and economic factors.
“The city’s restructuring must provide a foundation for the city to begin to provide basic, essential services to its residents in a reliable fashion,” Orr said in July when he took Detroit into bankruptcy. “Without this, the city’s death spiral … will continue.”
Orr’s team estimates that 65 percent of Detroit’s annual revenue would be eaten up in debt payments by 2017 without an overhaul in bankruptcy court. Miles away from court, countless streets are bleak: By last spring, at least 16,700 structures were inspected and classified as dangerous.
The fire department has just one mechanic for every 39 vehicles. It costs $62 to process each city worker’s paycheck because of an inefficient payroll system, much higher than other local governments. The number of Detroit parks has dropped to about 60 in recent years from more than 300, due to a lack of money.
University of Michigan law professor John Pottow said unions and pensions funds are aggressively challenging the city because they lose leverage if the judge finds the Chapter 9 filing was proper. Detroit would take the lead in coming up with a plan to bring the city out of bankruptcy, putting pensions at risk along with billions owed to other creditors.
“It makes denial and rationalization harder for people who want this to go away,” Pottow said.