Reminder from Detroit, the NYT: Bankruptcy isn’t cheap.
posted at 6:01 pm on October 8, 2013 by Erika Johnsen
Somehow having managed to completely brush aside all of the many, many incentives for avoiding bankruptcy in the first place, some of Detroit’s officials and pensioners are once again up in arms over one of the myriad consequences of decades upon decades of willfully profligate spending: Going through the bankruptcy process is a mighty expensive one, and as the city hires lawyers, accountants, and administrators to steer them through the months and years of financial reorganization still to come, they’re quickly racking up bills that will likely amount to more than $100 million on their own before all is said and done. Via the New York Times:
This city is learning that it is expensive to go broke.
Even as it wrestles with the $18 billion of debt that has overwhelmed it, Detroit has already been billed more than $19.1 million by firms hired to sort through that debt, search for ways to restructure it, and now guide the city through court. That does not include more costs that the city is expected to bear for the support staff for its state-appointed emergency manager, and for another set of lawyers and consultants to represent city retirees. …
The uncharted scale of Detroit’s bankruptcy — it is the largest municipal bankruptcy filing in the nation’s history in terms of both the city’s population and its debt — suggests that it may also become the costliest, experts say. City officials offer no estimate for a final tab, but some bankruptcy experts say the collapse could ultimately cost Detroit taxpayers as much as $100 million. As of last week, 15 firms had contracts with the city that could total as much as $60.6 million, city records show. …
Bankruptcy reliably means the selling off of assets, and one of the more controversial suggestions for ways in which the city can raise some cash has been auctioning off Detroit’s art collection — but even that isn’t free.
Among other tolls the city now unhappily finds itself bearing: $200,000 (plus as much as $50,000 in expenses) to Christie’s, the auction house, to appraise works at the Detroit Institute of Arts as part of the proceedings, despite strenuous objections of Detroit leaders at the very thought that the art may be at risk.
Anyhow, I’m not sure what the city’s creditors were expecting in terms of the financial process behind a bankruptcy; this meltdown has been a long time coming, and huge municipal filings aren’t exactly your run-of-the-mill, simple fixer-upper accounting jobs. This stuff requires some serious expertise, and that comes at a price:
“This is the largest, most complicated Chapter 9 filing in the state’s and country’s history,” said Sara Wurfel, a spokeswoman for Mr. Snyder, who approved the city’s pursuit of bankruptcy protection. “It will solve a financial crisis 60 years in the making. While it’s imperative that we’re being extremely prudent on costs, it’s also imperative that this is done right and as quickly and efficiently as possible.”
Even with the greatest financial minds in the world and some oblique assistance from the Obama administration, nothing is going to erase the long days of material hardship through which Detroit is going to have to slog before they can get anywhere near reentering the realm of the financially stable, thanks to decades of extravagant Democratic leadership.