Running on empty: How Detroit's bankruptcy judges see Illinois

CHICAGO (WLS) -- The federal judges who pulled Detroit from the bowels of the largest municipal bankruptcy in U.S. history learned some lessons that they believe could help Chicago and Illinois out of financial despair.

"Denial is a river in Egypt," said former U.S. Bankruptcy Judge Steven Rhodes, who presided over the Detroit bankruptcy case and paraphrases Mark Twain to describe the financial approach of many suffering states. According to ex-judge Rhodes, denying reality "is not a path to feasible agreements" in Illinois.

Rhodes and former U.S. District Judge Gerald Rosen, who led the mediation team that helped Detroit exit its record-setting municipal bankruptcy in 2014 after just 18 months, spoke exclusively with the I-Team.

As Illinois languishes without a budget entering the third straight year, and Chicago's pension plans more than $60 billion in the red, both entities could be served by a mediator according to the former Detroit jurists.

Neither ex-judge is suggesting bankruptcy be immediately undertaken by Chicago or Illinois-and there is no law allowing such a nuclear option here anyway-but the men suggest that elements of the bankruptcy process could help dislodge obviously dysfunctional governments.

They equate the mediator suggestion with what Chicago officials are now proposing with the reform oversight of its police department: non-judicial, outside help.

"The mayor (Emanuel) and the governor (Rauner) didn't hit this ball into the trees," said Rhodes, using a golf analogy to describe Illinois' decades old budget handicap. However, the state's festering finances are theirs to address and solve, they say.

Spokespersons for Gov. Bruce Rauner (R-Illinois,) Illinois House Speaker Michael Madigan (D-Chicago) and Chicago Mayor Rahm Emanuel declined direct comment on whether a mediator would be helpful in resolving local and state government financial woes.

"Illinois' terrible financial condition predates Governor Rauner, which is why he's spent the last two years advocating for a truly balanced budget and reforms to change the direction of the state," said Catherine Kelly, spokesperson for Gov. Rauner.

"This further illustrates why the General Assembly needs to use the next two days to focus on passing a truly balanced budget with changes that will grow the economy and offer Illinois more financial stability," Kelly told the I-Team.

Steve Brown, longtime spokesperson for Speaker Madigan confirmed that he told the Wall Street Journal, "a compromise with Rauner has been hard to broker because the two men's vision on how to fix the state are so far apart."

"We shouldn't even have to have this conversation" about mediators said Adam Collins, spokesperson for Mayor Emanuel.

"The governor should have approved the budget at any point in the last 2 1/2 years," Collins said.

Mediators are in the business of solving problems according to the former Detroit judges, including both of them who now do that professionally in retirement.

The ex-judges were in Chicago in early June speaking to a group of bankruptcy attorneys, a presentation that focused on the situation in Chicago and Illinois. "The early sounds of the death rattle are here" in Chicago is how one attendee recalled their presentation.

The president of the Chicago Civic Federation Laurence Msall disagreed that the situation is nearly that bad. In an interview, Msall said that mediators should not be brought in to help resolve our budget fiasco. Msall maintained there are already 178 mediators on duty in Springfield: the members of the Illinois General Assembly. However, he said if there is no state budget by July 1st it will be "a self-inflicted gunshot to the State of Illinois."

The Detroit judges said there's more to Illinois' problems than just a budget. They said that cooperation was the key to solving Detroit's budget problems and that the city is currently seeing a resurgence of businesses, population, government and image.

Despite frequent public attempts by Chicago critics to make the city out as a pending Detroit, it is not that according to former judges Rhodes and Rosen. They do caution that Chicago's impressive veneer of new construction, new corporate headquarters, and a thriving retail and restaurant scene may be deceiving. Beneath the surface in Chicago, they said, may exist a far more dire set of financial circumstances than is apparent.

The Civic Federation's Msall contends Chicago's vibrancy is no smokescreen.

"It's troubling and disappointing that everyone from the president of the United States to various financial experts in other cities are saying that Chicago is on the ropes or Chicago isn't going to make it," he said. "We know Chicago has great assets. We know lots of people who are continuing to invest here, there are cranes all over the city, that they were never in Detroit when they filed for bankruptcy."

Msall said that the city's outside appearance "doesn't mean Chicago couldn't get to the point that Detroit did but it's a long way off and there are plenty of exit ramps for Chicago to avoid going down the path of Detroit."

"Any successful resolution of these issues requires courage, and it requires candor" said former Detroit Judge Rhodes. "Maintaining the status quo is obviously not going to solve the problem. The political leaders have to resolve to get past whatever issues divide them and resolve to work together, otherwise it won't happen" he told the I-Team.

"Time is the enemy because time by itself does not solve any problems --it indeed only makes the existing problems worse and then worse again and worse again" Rhodes said.