DETROIT: Detroit could not afford to undertake a series of necessary improvements without a court-approved plan to shed a chunk of its debt, a city consultant testified on Friday at a US Bankruptcy Court hearing.
Charles Moore, a senior managing director at restructuring firm Conway MacKenzie Inc, said the six areas of Detroit's government that have been targeted for $1.7 billion of reinvestment initiatives running through June 30, 2023, were essential for the city to provide adequate levels of services to residents and businesses.
"Without the plan, it's uncertain to me how the reinvestment initiatives can be funded," Moore testified during the fourth day of a key hearing to determine whether the city's debt adjustment plan is fair and feasible.
Detroit last year filed the largest municipal bankruptcy in US history. It would shed about $7 billion of its $18 billion of debt and obligations under the plan and the city has reached settlements with most of its major creditors, including pension funds and unions.
Hold-out creditors remain, including Syncora Guarantee Inc and Financial Guaranty Insurance Co, which backed payments on $1.4 billion of pension debt and are facing recoveries of just 10 cents on the dollar or nothing if the city succeeds in voiding the debt all together.
Both bond insurers have argued the plan shortchanges them while allowing fatter recoveries for others, including the city's retired workers.
The city would spend the $1.7 billion to eradicate blighted buildings, improve public safety services, update information technology and address other neglected areas.
Moore said the initiatives are expected to boost city revenue by $483 million and cut costs by $358 million through mid-2023. That would leave about $877 million to be covered by debt reductions and other funding sources in the city's plan.
Moore followed Detroit Chief Financial Officer John Hill on the stand. Hill wrapped up his testimony on Friday with questions from Judge Steven Rhodes, who is overseeing the case.
Hill, who previously testified that he is willing to continue as CFO for the post-bankruptcy city, said while the plan will not be easy to implement, Detroit has to maintain a "crisis mentality" to ensure it continues to move forward. An oversight commission that would be created for Detroit once it leaves bankruptcy should include business professionals who will not hesitate to act, Hill added.
"I believe that pressure will help keep things on track," he said. On Thursday, the city used most of last week's $1.8 billion refunding bond issue to repurchase $1.47 billion of water and sewer revenue bonds. That means the objections to the plan by owners of the now-repurchased bonds are withdrawn, according to a court filing.
The hearing could take several weeks, with many witnesses including the state-appointed emergency manager and Detroit's mayor called to testify.
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