America's largest municipal bankruptcy case was heard on March 1st in Detroit. Last Friday, the city had filed its "plan of adjustment". This is a document stating what the city can afford to pay. In this plan, the city of Detroit included its plans to invest more than 1.5 million dollars in the besieged city. One third of this investment will be spent on demolishing abandoned properties.
In attempt to reduce part of its 18 billion dollar debt, the city will only be giving unsecured bond holders 20 cents on each dollar. These bond holders are infuriated over this. In addition, pensions will also be cut. General pensioners will only receive 66% of their monthly pension. Those in the police and fire departments have been offered 90% of their pension.
An organization known as the Detroit Institute of Arts (DIA) and other foundations are contributing a total of 820 million dollars in donation to the pension fund. Their intentions are to bolster the amount that pensioners, rather than creditors, receive. Simultaneously, the DIA would become an independent non-profit organization. Their intentions are to protect the art collection owned by the city.
The occurrences in Detroit are being monitored in other areas of the country, particularly in California. In recent years, several mid-sized cities have declared bankruptcy there. They too face growing costs of pensions accompanied by diminishing tax revenues.
http://www.economist.com/news/united-states/21597929-bondholders-choke-citys-restructuring-proposals-cram-down
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