Detroit needs to shed debt to afford improvements: witness
By Karen Pierog DETROIT (Reuters) - 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 U.S. 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 hearing to determine whether the city's debt adjustment plan is fair and feasible. Detroit last year filed the largest municipal bankruptcy in U.S. 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 short changes 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. While the confirmation hearing on the plan is scheduled to last through Oct. 17, its first four days were consumed by opening statements from plan supporters and opponents, leaving time for testimony from only two witnesses: Moore and Detroit Chief Financial Officer John Hill. Moore is due back on the stand on Monday for continued cross examination. Detroit had submitted a list of 26 witnesses, including Kevyn Orr, Detroit's state-appointed emergency manager, and the city's mayor, Mike Duggan. One of the city's lawyers has said Detroit may not finish laying out its case until the first week in October. Judge Steven Rhodes, who is overseeing the case, has allocated each side 85 hours to present their cases. On Friday, a sealed order was filed in the case, meaning its contents were not publicly disclosed. Previous sealed orders dealt with mediation matters and the judge's bus tour of Detroit. Hill wrapped up his testimony earlier on Friday with questions from the judge. Hill said that 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, he added. "I believe that pressure will help keep things on track." (Additional reporting by Lisa Lambert in Washington; editing by Matthew Lewis)
