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Detroit’s bankruptcy trial and the city’s future

How can officials fairly secure a path to recovery while leaving the city able to grow and rebuild?

Detroit's blueprint for bankruptcy — and perhaps revival — is in its second week of review in federal court.

Detroit’s emergency manager, Kevin Orr, wants $7 billion in debt relief and the authority to spend $1.5 billion to improve city services over the next 10 years.

Bankruptcy Judge Steven Rhodes is in charge of deciding which proposals laid out by city officials could work.

So far, there has been plenty of pain to go around. Under the suggested framework, some retired city workers could face 4.5 percent cuts to their pensions.

"One of the benefits of working was our pension. We worked hard, and we earned those pensions, and we made plans accordingly," said retiree Yvonne Williams-Jones.

In the city’s plan is something called the Grand Bargain, which would let Detroit accept more than $800 million over the next two decades from the state, nonprofits and donors from the Detroit Institute of Art.

The money would be used to help reduce pension cuts and transfer the Institute of Art into a charitable trust.

Creditors, like the companies that insure city bonds, don’t like the Grand Bargain because the artwork is worth billions of dollars and could be sold.

There are tens of thousands of creditors in all, and some could receive very little money back. 

‘The pot is only so big to go around … You’re going to see different creditors trying to grab whatever they can get to satisfy debts owed to them.’

Doug Bernstein

bankruptcy expert

How to fix city services is also a big part of Detroit's bankruptcy proceeding and its recovery plan.

On Wednesday, Detroit announced a new water deal, joining surrounding counties to form the Great Lakes Water Authority.

"What you have today is a pretty remarkable accomplishment," said Detroit's Mayor Mike Duggan. "[We] have all come together and agreed on a solution."

The plan still needs to be approved, but rate increases would be capped at 4 percent annually over the next decade. It provides for $4.5 million to help people pay bills.

Detroit is swamped with $18 billion of debt. Its tax base has been eroded over the years as industry and people left. The population is now only 700,000, down from 2 million at its peak.

This week the city and the country are watching the court because the bankruptcy ruling will set precedents.

How will ailing cities deal with financial trouble? 

Can workers and pensions be protected as the courts decide winners and losers?

On this edition of "Inside Story" we explore those questions and more with our on-air guest panel of experts.

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