Detroit Uses Stick and Carrot To Sell Bankruptcy Plan

February 26, 2014 – In The News

Michael Sweet was quoted in the Reuters article “Detroit Uses Stick and Carrot To Sell Bankruptcy Plan.” While the full text can be found in the February 26, 2014, issue of Reuters, a synopsis is noted below.

In an effort to keep Detroit on a fast track through its historic bankruptcy, emergency manager Kevyn Orr has put together a plan to persuade key creditors to accept cuts he has laid out in federal court filings, or else face even deeper losses if they do not cooperate.

Orr’s plan presents city workers and retirees with a blunt choice. Cuts to pension checks that would total about four percent for police and fire retirees and 26 percent for other retirees if there is a “timely settlement,” or face cuts that could balloon to 10 percent and 34 percent, respectively, or even more.

"To the pensions they are dangling a carrot and a stick, where they are offering less of a reduction if they can get a negotiated settlement," said Michael Sweet.

While some individual city creditors may want to settle, pension funds and unions that are negotiating with the city on their behalf may oppose a settlement for fear that the bankruptcy could set unwanted precedents, weakening their negotiating in other bankruptcy cases.

"The cops in Detroit want to see Detroit come back and be better because they will do better, their community will do better and they will feel safer on the job," Sweet said. "But the union may want to take a harder stand because they are not only worried about Detroit but other pension issues in other jurisdictions."