DETROIT (Reuters) - Revenue projections in Detroit’s debt adjustment plan will be hard to achieve, but restructuring initiatives will bring in new money and help make Detroit’s plan feasible, Detroit’s chief financial officer said Thursday in the city’s historic bankruptcy hearing.
John Hill, who was appointed the city’s CFO last November, testified that the plan would eventually gain money for Detroit as the restructuring initiatives bring about changes, including higher collections of unpaid taxes. Hill was the first witness called by the city of Detroit as it seeks a federal bankruptcy judge’s endorsement of its financial restructuring plan.
“Revenue targets in the plan are going to be difficult to meet,” said Hill, in answer to a question from an attorney for hold-out city creditor Syncora Guarantee Inc.
If revenue comes in below projections after Detroit emerges from bankruptcy, that would lead to changes in the plan, which would require the approval of an oversight commission created for the city under Michigan law, according to Hill.
The CFO referred to the city’s plan to shed about $7 billion of its $18 billion of debt and other obligations as a road map for operating Detroit once it exits the biggest-ever U.S. municipal bankruptcy.
The plan came under fierce attack in U.S. Bankruptcy Court this week as Syncora and others blasted it for skirting state and federal laws and discriminating against certain creditors.
Syncora and fellow bond insurer Financial Guaranty Insurance Co guaranteed payments on $1.4 billion of Detroit pension debt and are facing recoveries of just 10 cents on the dollar - or perhaps nothing at all if the city succeeds in its effort to void the debt altogether. Both insurers have argued the plan short-changes them, while allowing fatter recoveries for others, including the city’s retired workers.
The federal court hearing to determine if the plan is fair and feasible began on Tuesday with an opening statement from Detroit’s attorney, Bruce Bennett, who defended it as the best hope for saving the city.
On Thursday, Douglas Smith, a Kirkland & Ellis lawyer representing Syncora, peppered Hill with questions for 90 minutes in an effort to bolster Syncora’s contention the city did not adequately analyze how creditors would fare should the bankruptcy case be dismissed.
Hill, the former executive director of Washington, D.C.’s control board of the late 1990s and early 2000s, said he was not aware of any study or discussions on raising Detroit’s tax rates. Detroit’s taxes already have reached limits set by the state of Michigan.
Hill also testified that Detroit’s financial situation when it filed for bankruptcy in July 2013 was more serious than what Washington, D.C., faced and overcame without the help of municipal bankruptcy, for which it is not allowed to file.
Smith’s questioning of the CFO, which is expected to continue on Friday, also touched on improvements in Detroit’s economy and the city’s potential for gaining more revenue in the future through new kinds of taxes and the privatization of assets.
Hill also discussed projects to replace Detroit’s “antiquated” information technology and improve the city’s financial reporting. He said he was willing to stay on with the city to see the projects through, noting some may take two years to complete.
The hearing is scheduled to continue through Oct. 17
Additional reporting by Lisa Lambert in Washington; Editing by Matthew Lewis, David Greising and Dan Grebler