Detroit judge takes note of city’s expenses during bankruptcy

Published December 18, 2013

| The Wall Street Journal

The growing tab for municipal bankruptcy here is quickly becoming among the nation's priciest, drawing scrutiny from the judge in the case and some creditors who have to foot their own bills.

The city of 700,000 already has spent nearly $28 million on lawyers, accountants, art appraisers, financial advisers and experts on everything from police work and pension systems to public relations, according to documents reviewed by The Wall Street Journal. All are working in some capacity to fix the city's finances or on the bankruptcy case filed July 18.

Rising fees drew notice from the presiding judge recently when a lawyer for retirees in the bankruptcy case described the hiring of a $175,000-a-month consultant as typical for a corporate bankruptcy.

"I'm sure that is so, but we're talking about public money," said U.S. Bankruptcy Judge Steven Rhodes, who on Monday approved a contract for the city to pay the investment bank, Lazard Ltd., to advise a committee representing the city's 23,500 retired workers on financial and restructuring issues. A Lazard managing director said the fee is appropriate given the firm's expertise in restructuring work.

Detroit's restructuring bills since its July bankruptcy filing already exceed post-filing fees paid by Alabama's Jefferson County, which has spent $25.7 million in the two years since filing for bankruptcy, according to local officials. That one of the poorest big cities in the U.S. is becoming lucrative business for some professionals is rubbing some Detroiters the wrong way.

"Surely part of that money could have been spent better on trying to save the pensions of people in need," said Syri Harris, 41 years old, whose husband died on duty in 2008 after 17 years as a city firefighter.

Harris, a mother of six, said she is worried about potential pension cuts for her but is even more concerned on behalf of older retirees on fixed incomes. With its bankruptcy filing, Detroit stopped paying some other debt, including payments to its pension funds, freeing up cash to pay its lawyers and consultants. The city had a cash balance of $128.5 million for the quarter that ended Sept. 30.

City officials contend the charges aren't out of line. "The fees are reasonable compared with the magnitude of what we have to do and the level of opposition that we're getting at every turn," said Kevyn Orr, Detroit's emergency manager, in a recent interview. Several consultants, he said, have cut their fees by as much as 25 percent.

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