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Detroit revealed its historic plan to emerge from under $18 billion in debt Friday, laying the groundwork for what’s expected to be a long, bitter battle with creditors, retirees and bondholders over the biggest municipal bankruptcy ever.
The 120-page 'plan of adjustment' could change radically as negotiations with more than 100,000 creditors move forward. It must still be approved by U.S. Bankruptcy Judge Steven Rhodes. According to The Associated Press, an early draft of the plan called for city pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion during the next 40 years.
"The Plan of Adjustment that the City of Detroit filed with the U.S. Bankruptcy Court for the Eastern District of Michigan on February 21, 2014 represents a critical step toward the City’s rehabilitation and recovery from a decades-long downward spiral," the office of the city's emergency manager, Kevyn Orr, said in a statement.
A summary of the plan said it would devote $1.5 billion over 10 years to capital improvements, with up to a third of that aimed at blight removal. It also said it proposes paying general obligation creditors about 20 percent of what they are owed through the issuance of new bonds. If police and fire department retirees agree to the plan, they would receive about 90 percent of their pensions, after cutting cost of living allowances. General retirees would get about 70 percent.
The draft also detailed plans to help pensioners keep more of what they are owed by using state and private funds to protect against the sale of city-owned art at the Detroit Institute of Arts, The AP said.
Even before Detroit officially filed the papers, a court agreed to hear appeals from a slew of petitioners, including pension plans for police and firefighters, over whether Detroit was even eligible to file for bankruptcy. A federal judge granted it permission in December to forge ahead with Chapter 9, which provides protection from creditors while a financially strapped municipality restructures its debt.
-- The Associated Press contributed to this report.