Detroit judge rejects request from creditors to value city art

DETROIT Wed Jan 22, 2014 7:24pm EST

DETROIT Jan 22 (Reuters) - The judge overseeing Detroit's bankruptcy denied a request from creditors to have an official say in valuing the city's art collection and said he will announce his decision next Tuesday on a request from Detroit retirees to block cuts to their healthcare.

Rhodes said he did not have the legal authority to approve the creation of the creditors' committee that would have examined the works of the Detroit Institute of Arts.

But even if he could have legally done so, Rhodes said he would not have approved the creation of the committee because discussion of the art should wait until after Detroit submits its plan of adjustment to the court by March 1.

Rhodes implored the city and its creditors to do their best to negotiate settlements before that deadline.

"Now is not the time for defiant swagger or for dismissive pound-the-table-take-it-or-leave-it proposals," Rhodes said.

He said it was critical for the city and its creditors to reach agreements that will not further cripple the city and allow it to recover financially.

"The court will not permit the confirmation of the city's plan to be another bad deal like all the other ones the city entered into of which we are now all too familiar," Rhodes said. "The plan must be feasible."

HEALTHCARE BURDEN

Detroit, which filed the largest municipal bankruptcy in U.S. history, is struggling under more than $18 billion in debt, including, it says, $5.7 billion in liabilities for healthcare and other retiree benefits.

To deal with its healthcare burden, the city has proposed that retirees over 65 would be moved to Medicare and those under the age of 65 would be given a monthly stipend to purchase insurance through the exchanges of the Affordable Care Act.

The changes to Detroit retiree healthcare are scheduled to take place on March 1.

Attorney Sam Alberts, representing the Official Committee of Detroit Retirees, said in court Wednesday morning that the city's plan was "such a reduction in healthcare that it violates the constitution."

But Rhodes, who is overseeing the case, questioned why the retirees' health care claims against the city should get special treatment.

"I've got adversaries from financial creditors claiming the same special or elevated treatment," Rhodes said during the hearing Wednesday morning. "I've got the swap counterparties claiming hundreds of millions of dollars. I've got a debtor who arguably can't pay any of it. What do I do except deal with all of these claims of special treatment in the context of a plan?"

In response, Alberts said that "for these people who don't get healthcare, it's literally life or death."

The healthcare cuts have been subject to mediation discussions, but Alberts said the negotiations over healthcare had "basically fallen off the table since December."

"There has been no effort to reach an accord in the interim," Alberts said.

Mediation sessions were ongoing Tuesday and Wednesday, but those discussions, which are confidential, have been focused on the city's pension liabilities, Detroit attorney Heather Lennox said in court.

In his closing charge to the city and its creditors Wednesday afternoon, however, Rhodes said that in order for a plan to be feasible, the city might need to make "a fundamental and profound change" to health benefits and pensions.