Detroit City Council Votes 6-3 to Approve Barclays, BOfA, UBS $120 Million Giveaway to Banks That Destroyed City

Detroiters marching against emergency management and forced bankruptcy outside federal court on October 23, 2013., a photo by Pan-African News Wire File Photos on Flickr.

Detroit council approves $120M bankruptcy loan; deal still needs judge's OK

6:01 PM, March 14, 2014
By Joe Guillen
Detroit Free Press Staff Writer

The Detroit City Council today approved in a split vote a $120-million loan from Barclays to start funding improvements to services while the city is still in bankruptcy court.

U.S. Bankruptcy Court Judge Steven Rhodes, who is overseeing Detroit’s ongoing bankruptcy case, has ultimate approval of the $120-million deal, which is expected to pay for blight removal, hiring in public safety and other restructuring programs emergency manager Kevyn Orr has proposed.

The council approved of the loan by a 6-3 vote. Council President Brenda Jones and members Scott Benson and Mary Sheffield voted against the loan.

Jones and Sheffield questioned whether the money could be spent on high-priced lawyers, accountants and other consultants who have been hired to aid in the city’s restructuring. Benson also questioned exactly how the money would be spent, asking the city’s chief operating officer, Gary Brown, how individual residents’ quality of life would be improved this year with the loan.

The city is pledging its income tax revenue and the proceeds from the future sales of assets, except for Detroit Institute of Arts property. The city is likely to pay an adjustable interest rate as low as 3.5% on the loan.

The council unanimously rejected in October an earlier version of the loan. But that deal with Barclays, which Rhodes also shot down, included $230 million to pay off a controversial pension debt interest-rate transaction — known as swaps — brokered in 2005 by Mayor Kwame Kilpatrick’s administration.

The city doesn’t need the $230 million anymore because it reached a new deal with UBS and Bank of America Merrill Lynch to pay off the swaps for $85 million, after the city exits bankruptcy, without using any newly borrowed cash.

Thought Rhodes has rejected previously proposed swaps settlements, the judge signed off in January on a plan similar to the deal before the council. Although he approved an earlier version of the $120-million loan with conditions, Rhodes must still approve the renegotiated deal.

Contact Joe Guillen: 313-222-6678 or jguillen@freepress.com.