| ABC News | - |
A
judge has given Detroit the green light to cut pensions as a way out of
the largest municipal bankruptcy in U.S. history, a decision that puts
the case in the laps of thousands of retirees who had hoped that the
Michigan Constitution would protect them from ...
Detroit Bankruptcy Decision Puts Pensions at Risk
A judge has given Detroit the green light to cut pensions as a way out
of the largest municipal bankruptcy in U.S. history, a decision that
puts the case in the laps of thousands of retirees who had hoped that
the Michigan Constitution would protect them from getting smaller checks
in their golden years.
Judge Steven Rhodes said the city is eligible to stay in bankruptcy
court and scrub $18 billion in debt, about half of that amount linked to
underfunded pensions and health care obligations. But he also warned
officials that they'll need to justify any deep reductions.
The case now turns to crunching numbers and trying to strike deals, although unions are pursuing an appeal.
Some retirees said they felt socked by the outcome Tuesday.
"We'll be thrown out of our homes and starving if they seriously slash
our pensions. Then they'll tell us to go to the soup lines," said David
Sole, 65, who retired from the public works department in January after
22 years and whose wife also is a city retiree.
"We don't know what they are going to take," Sole said. "The judge said he would not tolerate steep cuts. What's steep?"
The judge, who wondered aloud why the bankruptcy had not happened years
ago, said pensions can be altered just like any contract because the
state constitution does not offer bulletproof protection for public
employee benefits. But he signaled a desire for a measured approach and
warned city officials that he would not "lightly or casually" sign off
on just any cuts.
"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."
The ruling came more than four months after Detroit filed for Chapter 9 protection.
Rhodes agreed with unions and pension funds that the city's emergency
manager, Kevyn Orr, had not negotiated in good faith in the weeks ahead
of the July filing, a key condition under federal law. But he said the
number of creditors — more than 100,000 — and a wide array of competing
interests probably made that "impossible."
Detroit "could have and should have filed for bankruptcy long before it did. Perhaps years," the judge said.
The decision set the stage for officials to confront debt with a plan
that might pay creditors just pennies on the dollar and is sure to
include touchy negotiations over the pensions of about 23,000 retirees
and 9,000 workers. Orr says pension funds are short by $3.5 billion;
most who collect get less than $20,000 a year.
"We're trying to be very thoughtful, measured and humane," Orr told
reporters. "The reality is there is not enough money to address the
situation no matter what we do."
The city has argued that bankruptcy protection will allow it to help
beleaguered residents who for years have tolerated slow police
responses, darkened streetlights and erratic garbage pickup — a concern
mentioned by the judge during a nine-day trial that ended Nov. 8.
Before the July filing, nearly 40 cents of every dollar collected by
Detroit was used to pay debt, a figure that could rise to 65 cents
without relief through bankruptcy, according to the city.
City truck mechanic Mark Clark, 53, said he may look for another job
after absorbing pay cuts and higher health care costs. Now a smaller
pension looms.
"Most of us didn't have too much faith in the court. ... The working
class is becoming the have-nots," Clark said outside the courthouse.
"I'm broke up and beat up. I'm going to pray a whole lot."
Marcia Ingram, a retired clerical worker, said she may need to find work
but added: "How many folks are going to hire a 60-year-old woman?"
The judge spoke for more than an hour in a packed courtroom, reciting
Detroit's proud history as the diverse, hard-working Motor City devoted
to auto manufacturing. But he then tallied a list of warts: double-digit
unemployment, catastrophic debt deals, thousands of vacant homes and
wave after wave of population loss.
Behind closed doors, mediators have been meeting with Orr's team and
creditors for weeks to explore possible settlements. The judge has told
the city to come up with a plan by March 1 to exit bankruptcy. Orr has
said he would like to have one ready weeks earlier.
The city is so desperate for money that it may consider auctioning off
masterpieces from the Detroit Institute of Arts and selling a water
department that serves much of southeastern Michigan.
The American Federation of State, County and Municipal Employees, which represents half of city workers, vowed to appeal.
Orr's team got "absolutely everything" in Rhodes' decision, attorney
Sharon Levine told reporters, adding: "It's a huge loss for the city of
Detroit."
Orr, a bankruptcy expert, was appointed in March under a Michigan law
that allows a governor to send a manager to distressed cities, townships
or school districts. A manager has extraordinary powers to reshape
local finances without interference from elected officials. By July, Orr
and Gov. Rick Snyder decided bankruptcy was Detroit's best option.
Detroit, a manufacturing hub that offered well-paying, blue-collar jobs,
peaked at 1.8 million residents in 1950 but has lost more than a
million people since then.
Former hospital executive Mike Duggan takes over as mayor in January,
the third mayor since Kwame Kilpatrick quit in a scandal in 2008 and the
first white mayor in largely black Detroit since the 1970s.
Orr is in charge at least through next fall, although he's expected to
give Duggan more of a role at City Hall than the current mayor, Dave
Bing, who has little influence in daily operations.
———
Associated Press writer Corey Williams contributed to this story.
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