Detroit Bankruptcy Bailout Won't Come Cheap

Tuesday, 17 Dec 2013 04:36 AM

By Elliot Jager

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It could cost Detroit $100 million to dig itself out of an estimated $18 billion in debt. The money would go to experts who specialize in bankruptcy, including lawyers, accountants, bankers, appraisers, and public relations professionals, the Wall Street Journal reported.
 
Detroit declared bankruptcy in July. The city of 700,000, one of the poorest in the country, has stopped paying some debts including halting pension payments to retirees. 
 
The city had earlier spent $17.2 million on experts in an apparent effort to avoid bankruptcy.
 
Corporate-bankruptcy attorney Kevyn Orr, Detroit's emergency manager, said the expenditures are "reasonable compared with the magnitude of what we have to do and the level of opposition that we're getting at every turn."
 
Orr previously worked for the city's law firm which has billed Detroit $10.6 million for legal services related to the bankruptcy. Smaller costs include Conway MacKenzie Inc., a restructuring firm, $1 million, and Christie's $238,000 to evaluate city-owned artwork, the Journal reported.

Private sector bankruptcy costs are also high. General Motors Co. spent over $110 million to go broke and Lehman Brothers about $2.2 billion.

Robert Fishman's firm has been hired to oversee Detroit's bankruptcy expenditures tasked with determining if any are inappropriate or unreasonable. He is due to issue his initial findings in January, the Journal reported. Fishman charges about $600 an hour for his services.

George Orzech who is responsible for managing the police and firefighters pension fund acknowledged that costly lawyers' fees — $700,000 a month — were unsettling. "Sure it is a lot of money. But it is a small price to pay" to preserve the integrity of an estimated $3.5 billion in pension payments that retirees would be paid in years to come.

In a related development, General Motors, now a profitable company, said it had no intention of paying back the U.S. Treasury for bailing out the company, according to USA Today.

GM officials maintain that the money it received from taxpayers saved the government billions in the long term.
 
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