Judge Steven Rhodes has begun hearing evidence to rule on whether the U.S. city of Detroit can put in place a plan to struggle out of bankruptcy.

The city has, for decades, been unable to fund even the most basic services for its residents. This was because it was borrowing to pay the debts it already had. Detroit was once famous as the automobile building capital of the world. But as the city began losing its grip on the car market its financial woes increased.

At its height, in the 1950’s, Detroit was home to 1.8 million residents. Today the population is pushing 700,000. The loss of its community further worsened an already bad situation, until in 2013 the city finally filed for bankruptcy.

Detroit’s debt exceeds $18 billion. The plan being put before Judge Rhodes will shave this down to $5 billion.

But it has bitter opponents.

Detroit Mayor Mike Dugan. Photo: www.deadlinedetroit.com

Detroit Mayor Mike Dugan. Photo: www.deadlinedetroit.com

On one side are the state appointed emergency manager Kevyn Orr and Mayor Mike Duggan. They are arguing that $5 billion is about as much as creditors can expect to recoup.

On the other side are creditors like New York-based Syncora Guarantee. Syncora, is owed about $400 million. They believe the city has been unfairly paying off creditors through what has come to be called ‘the Grand Bargain – an agreement mediated through the court this summer.

This deal promised more than $800 million over the next 20 years to support retiree pensions. However, the pensions would be cut by 4.5% and not increase with inflation. Only retired police officers and firefighters would enjoy cost-of-living increases, but even these would be lower than the actual rise.

Some creditors, such as Syncora, are outraged. Other creditors, such as the city pensioners, have already voted in favour of the Grand Bargain. To reject the proposal Syncora must show they are being discriminated against and receiving an unfairly small slice of the pie.

This is expected to be a protracted and bloody legal battle. The only ones who stand to gain anything (as they always do) will be the lawyers.

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