Detroit Officially Bankrupt; Judge Rules For Pension Cuts
In what has become the largest US city bankruptcy in history, a federal judge declared the city of Detroit as eligible for Chapter 9 protection on Tuesday, calling it “a momentous day” for the poverty-stricken city.
“We have here a judicial finding that this once-proud and prosperous city cannot pay its debts,” said U.S. Judge Steven Rhodes. “It’s insolvent. It’s eligible for bankruptcy.” In addition to its inability to follow through on its $18.5 billion of debt, the city is unable to provide basic services to its 680,000, according to the judge.
Later that day, the judge also ruled that retirees’ pensions can now be legally cut under what is being called a “plan of adjustment.” Rhodes initially intended to rule on pension cuts later on in the case but changed his mind in order to expedite the bankruptcy process.
Michigan Council 25 of AFCSME, the city’s biggest union, filed an appeal shortly after Rhodes’ ruling. Other unions are also planning to appeal.
Although pensions are protected under Michigan law, Rhodes cited federal law, which overrides the state Constitution in case of bankruptcy. “Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy,” he said.
Detroit, once a capital of the auto industry as well as the motherland of Motown, has been in a steady decline for the past few decades. Almost half the city’s streetlights do not work and its ghost streets are plagued by thousands of abandoned buildings. Since 1950, its population has more than halved.
“[Detroit] has an opportunity for a fresh start,” said Rhodes regarding the city’s bankruptcy. “I hope that everybody associated with the city will recognize that opportunity.”