Detroit files a painful bankruptcy plan

Officials in Detroit have unveiled a plan that they hope will help bring their beleaguered city out of bankruptcy. But the proposal contains controversial pension cuts and is expected to run into some major obstacles.

Detroit Emergency Manager Kevyn Orr filed the plan with a U.S. Bankruptcy Court on Friday. It details ways the city could restructure and ultimately resolve its estimated $18 billion in debt.

Among its provisions are a 10-year program to invest $1.5 billion in capital improvements, blight removal and improvements in essential municipal services for the city's 700,000 residents -- while working to attract and retain business.

The bankruptcy plan calls for unsecured, nonretiree creditors to receive around a 20 percent recovery on their claims in the form of new securities to be issued by the city as well as a "potential increase to that recovery through sharing in substantially increased revenues realized by a revitalized City."

It also calls for city pensions to be reduced, although it notes that, if the plan passes, general retirees would receive about 70 percent of their pensions, while police and fire department retirees would get up to 90 percent.

"My advisers and I have now expended many months in negotiations, including within Bankruptcy Court-mandated mediations, with all classes of creditors to get to this point, and we are satisfied with the progress made thus far," Orr said in a press statement.

"However, there is still much work in front of all of us to continue the recovery from a decades-long downward spiral," he added. "We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end."

Detroit became the largest U.S. city to file for bankruptcy in July of last year.

Michigan Governor Rick Snyder praised the debt adjustment plan as "a thoughtful, comprehensive blueprint directing the city back to solid financial ground, a crucial step toward a fully revitalized Detroit." But he acknowledged there will be "difficult decisions and challenges for all sides as this process moves forward."

"The plan essentially eliminates health care benefits for retirees and drastically cuts earned pension benefits," he continued. "Retirees cannot survive these huge cuts to the pensions they earned."

U.S. Bankruptcy Judge Steven Rhodes had set a March 1 deadline for Detroit to file its bankruptcy plan.