Judge Rules That Bankrupt Detroit Can Cut Public Sector Pensions

Judge urges compromise in Detroit bankruptcy case

December 5, 2013

 

AP - A judge urged Detroit and its creditors to keep negotiating Thursday in a 150-page opinion that mimics his decision earlier this week that the city is eligible for a makeover in bankruptcy court.

Judge Steven Rhodes didn't break new ground since announcing the decision Tuesday during a 90-minute address to a packed courtroom. But a written opinion was necessary, especially for unions and pension funds that are pursuing appeals.

Rhodes said Detroit is eligible for Chapter 9 protection because the city is broke and any negotiations with thousands of creditors before the July filing would have been impossible. As part of his ruling, he found pensions are like any other contract and can be broken in bankruptcy, despite protections in the Michigan Constitution.

Detroit emergency manager Kevyn Orr has said the city can't afford $18 billion in long-term debt, including a $3.5 billion shortfall in two pension funds. Pensions for 23,000 retirees could be cut. Private mediation between the city and creditors has been going on for weeks but now has a more urgent tone.

"The court reminds all interested parties that this eligibility determination is merely a preliminary matter in this bankruptcy case. ... The court strongly encourages the parties to begin to negotiate, or if they have already begun, to continue to negotiate, with a view toward a consensual plan," Rhodes said.

The judge hasn't responded yet to requests that the 6th U.S. Circuit Court of Appeals immediately take the case.