The City of Detroit’s CFO testified on Thursday regarding the feasibility of the Detroit Bankruptcy Plan. He also stated that he believes the plan operates as a road map to guide city officials in the future.
Similarly, when an individual debtor meets with a bankruptcy attorney prior to any case being filed, the goal is to set out a plan of action for how to control finances.
A bankruptcy lawyer will prepare schedules for income and expenses along with the debtor that should be a reference point to the debtor in the future.
When the debtor leaves the bankruptcy, the budget schedules should guide the debtor on spending habits so as not to fall back into debt again.
Bankruptcy attorneys can further offer advice on any debts that remain after the bankruptcy is closed, to help save even more income for the debtor.
DETROIT — The city of Detroit’s chief financial officer, John Hill, testified Thursday that he believes numbers in the city’s blueprint for exiting bankruptcy are reasonable, which will be key to the city’s ability to prove that the plan is feasible, a critical test that the bankruptcy judge must decide before he can allow Detroit to emerge from the largest Chapter 9 case in U.S. history.
Detroit’s bankruptcy legal team put the city’s CFO on the stand as the first witness in the historic confirmation hearings on the city’s bankruptcy exit strategy, attempting to make the case that Detroit’s financial projections for a post-bankruptcy Motor City are sound and offer the best chance for its recovery.
“We’ll do everything we can to adhere to it,” Hill said under questioning from lawyer Geoffrey Stewart. “We definitely believe the plan gives us a road map to how we should be operating.”
But Hill said there was a caveat: The $1.4 billion that the plan calls for reinvesting in improving quality of life and city services can’t be done if the funding doesn’t come through. He testified that much of the money for reinvestment — all but about $200 million — will come only if the city meets ambitious goals set out to cut costs and raise revenues for the city through actions like improved tax collections.
Detroit clearly will be walking a tightrope in meeting terms of the plan of adjustment, with court monitoring and state-imposed oversight through a financial review commission that could last 13 years or more. The commission would have ultimate say-so over spending and contracts city officials approve.
Hill worked for Washington’s largest civic improvement group, the Federal City Council, and served as executive director of a federally appointed control board that took over budgeting and operations for D.C.’s city government in 1995-2001 as it faced a $700 million deficit.
Hill said Congress gradually took more and more control away from city officials and granted powers to the control board because city leaders, including then-Mayor Marion Barry, did not make the tough decisions needed to keep the city solvent.
Hill testified that he was tapped for a project to help Detroit reform its abysmal grants management practices that had cost the city millions of dollars in federal money because Detroit wasn’t following requirements.
Hill said emergency manager Kevyn Orr asked him to become CFO, and while he technically now reports to Orr, he has a strong working relationship with Mayor Mike Duggan and would like to stick around longer than his two-year contract to see reforms he has initiated through to completion.
“It’s pretty much the normal relationship you would expect with the chief executive of a city,” he said.
USA Today: http://www.usatoday.com/story/news/nation/2014/09/04/detroit-bankruptcy-trial-hearing/15057759/
