Judge OK’s Detroit Bankruptcy, Puts Public Pensions Under the Axe

U.S. Bankruptcy Judge Steven Rhodes ruled Tuesday that the city of Detroit is eligible for bankruptcy after a long court battle between city appointed ’emergency manager’ Kevyn Orr and union and labor activists who say the decision paves the way for workers’ pensions to be cut.

Rhodes ruled that Detroit is insolvent, a legal criteria for bankruptcy, meaning it can cut public pensions for the bankruptcy filing.

Critics say the city bankruptcy filing, the first of its kind, is an attack on pensions and future livelihoods for workers in the city of Detroit and across Michigan.

As the Detroit Free Press reports:

The plan is expected to include controversial cuts to unsecured creditors and asset sales, including a potential spinoff of the water and sewer department and the possible sale of Detroit Institute of Arts property.

The ruling comes after an exhaustive nine-day bankruptcy eligibility trial that concluded Nov. 8. During that trial, Rhodes gave unions and retiree groups an opportunity make their argument that the city’s bankruptcy case should be rejected.

Major creditors objecting to the bankruptcy included AFSCME, the UAW, Detroit’s two pension funds, the city’s public safety unions, retiree associations and a committee created to officially represent retirees during the bankruptcy.

Unions and retirees argued that Detroit emergency manager Kevyn Orr conducted no substantive negotiations with creditors and argued the city fell short of its duty to conduct “good faith” negotiations before filing for bankruptcy. No financial creditors objected to the filing.

In an earlier ruling a state judge said Detroit’s bankruptcy filing was in violation of the state’s constitution–which bans any action that proposes to cut the pension benefits of public employees.

As one critic said on the Detroit Free Press live coverage blog: “This is only the start of a nationwide city bankruptcy. There are many other cities across this country looking at Detroit and now that they see they can legally get pension relief I would expect other cities like Chicago, Washington, Honolulu, New Jersey all to look at bankruptcy as an option.”

And Michigan Live reports:

The vulnerability of pensions for some 20,000 Detroit retirees and about 9,700 current employees has been at the heart of opposition to the bankruptcy. […]

“Pensioners sit on the brink of being flung into poverty,” said National Action Network leader Rev. Charles Williams.

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Source: Common Dreams