Municipal bankruptcy is costly as well as ugly.
A Chapter 9 filing in federal court, the endgame Emergency Manager Kevyn Orr is struggling to avoid, could pile on more than $100 million in new legal bills for the city and state, a local expert tells the Free Press.
A restructuring could cost more than $100 million, said Douglas Bernstein, partner with Plunkett Cooney in Birmingham.
“It is certainly one of the reasons that you want to get a resolution more quickly, because the longer it goes, the more money gets burned by paying professionals ,” Bernstein said.
His comments to reporter Brent Snavely come in the context of a legal publication's report that Jones Day law firm advisers to Orr billed nearly $1.4 million for their first six weeks of services this past spring, as summarized Tuesday in Deadline Detroit. Orr is on a leave of absence from Jones Day during his 18-month Detroit assignment.
In key talks aimed at averting bankruptcy, the emergency manager meets Wednesday with leaders of Detroit two public employee pension boards.
The Detroit Police and Fire Retirement System could try to force Detroit to pay a $30-million judgment stemming from unpaid pension contributions, its incoming chairman tells Robert Snell of The Detroit News.
The city owes $29.8 million to the Police and Fire Retirement System after skipping pension payments last year. In July 2012, a Wayne County Circuit judge ordered Detroit to pay $51.9 million by the end of last month, but the bulk of the money remains unpaid amid the city’s financial crisis.Orzech said the board could vote soon to enforce the judgment
That could tip Detroit into bankruptcy, experts say.
In his Free Press article, Snavely provides context for the legal fees involved:
So far, Detroit has agreed to spend $14 million and has contracts with nine firms to provide a range of financial and legal services . The costs of entering Chapter 9 bankruptcy would be much more. The state has agreed to cover some of the city’s consulting fees. . . .
Though no city as large as Detroit has ever declared bankruptcy, some comparisons exist, such as Orange County, Calif., which accumulated $86 million in bills during its 18-month stay in bankruptcy that ended in 1996, according to reports. Jefferson County, Ala., which is still in bankruptcy, has spent nearly $20 million in legal fees since August 2011, according to reports.
Two high-profile corporate bankruptcies with Detroit connections also were costly, the Free Press notes:
Jones Day billed Chrysler more than $43 million in 2009 for its Chapter 11 bankruptcy, and Weil, Gotshal & Manges of New York billed General Motors nearly $72 million.
