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article imageJudge approves historic Detroit bankruptcy case

By Larry Clifton     Dec 3, 2013 in Business
Detroit - In the greatest blow to local government unions in American history, a federal judge ruled Tuesday that the city of Detroit can use bankruptcy to cut city employee pensions in order to lift their crushing financial weight from city finances.
The historic federal court decision allows the city of Detroit to address its $18 billion debt with a plan that might allow it to pay creditors pennies on dollars owed. Still, the decision is sure to set off contentious negotiations between the city and labor unions over the pensions of about 23,000 retirees and 9,000 workers. Officials say Detroit’s pension funds are about $3.5 billion in arrears.
Judge Steven Rhodes pondered why the bankruptcy had not occurred years in advance of Motor City’s massive financial collapse. The judge ruled that “pensions can be altered just like any contract because the Michigan Constitution does not offer bulletproof protection for employee benefits,” according to an AP report published Tuesday evening.
Detroit “could have and should have filed for bankruptcy long before it did. Perhaps years,” the judge said. “This once proud and prosperous city can’t pay its debts. It’s insolvent,” Rhodes said in formally granting Detroit the largest public bankruptcy in U.S. history. “At the same time, it also has an opportunity for a fresh start.”
Before the city filed for bankruptcy in July nearly 40 cents of every dollar collected by Detroit went to pay its debts, spending on debt was expected to jump to 65 cents on the dollar without the protection of bankruptcy, according to the city.
Bankruptcy, in short, means the companies and contractors supporting city works will be short paid and union pensions will be cut to make up for years of overspending by city officials.
For years Detroit residents have been forced to tolerated slow police responses, darkened streetlights and erratic garbage pickup - issues that were given voice by the judge during a nine-day trial that ended Nov. 8.
“We need to recognize that this decision is a call to action,” said Gov. Rick Snyder, who supported the bankruptcy filing. “We are confronting fiscal realities that have been ignored for too long.”
Detroit has long been in decline with residents moving out of the city in mass leaving empty buildings to sit in increasing disrepair.
Meanwhile a union lawyer claimed City officials got “absolutely everything” in Rhodes’ decision.
The federal ruling came over four months after Detroit filed for Chapter 9 protection. Detroit represents the largest public bankruptcy case in American history.
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