Detroit Emergency Manager Kevyn Orr is expected to soon deliver a debt-reduction plan for the bankrupt city. Much of the plan depends on the 0 million in annual gambling tax revenue the city has been using for crime-fighting and blight elimination. “Every day that we don’t have access to casino revenue, we cannot make the necessary reinvestment in this city to provide for the health, safety and welfare of the city citizens,” Orr said last summer in a court deposition in the city’s municipal bankruptcy case, the largest ever in the U.S.
The city is seeking a way to cancel more than $1.4 billion in pension debt associated with swaps that gave Bank of America and UBS the right to seek control of Detroit’s casino taxes, which the city pledged as collateral. The swaps were designed to protect against rising interest rates by requiring the two banks to pay the city if rates rose above a certain level. But rates fell, and Detroit was required to make monthly payments on the swaps, which has cost taxpayers more than $200 million since 2009.
The city filed for bankruptcy last July, listing $18 billion in liabilities. Officials said the city could not provide basic services and also pay creditors.
For now, Detroit will not sue Bank of America and UBS, even after the city canceled last week a forbearance agreement it reached with the banks last July, just before Detroit filed for bankruptcy. The city agreed not to sue to cancel the swaps and the banks agreed not to declare the city in default of the contracts, which would have allowed them to try to seize casino tax revenue.
Last summer, the city reached a swaps settlement with UBS but since then U.S. Bankruptcy Judge Steven Rhodes twice rejected proposed deals, putting casino revenue at risk. One proposal was to buy out the swaps for $165 million but Rhodes said that was too generous to the bank. As a result, the city still is negotiating a way to reach a new settlement to maintain its access to casino cash, said Orr’s spokesman Bill Nowlin.
The city collects more in wagering tax revenue from its three casinos and attached hotels3than from the taxable property value of Ford Motor Company. But with new casinos opening within driving distance of Detroit, such as in Toledo, Ohio, 60 miles away, area casinos could contribute less to the city. In fact, according to the Michigan Gaming Control Board, last year, taxable revenue from casinos fell 4.7 percent to $1.35 billion, the biggest year-to-year drop ever.
