Detroit Bankruptcy: More Than $9 Billion in Pensions, Benefits on Cutting Table
After much controversy about Detroit’s bankruptcy filing earlier this year and the effect that will have on the city’s debt and pensions, a federal judge officially approved the largest bankruptcy filing in US history on Tuesday. The ruling clears the way for large cuts to city worker pensions and benefits as well as big financial hits for the city’s bond holders.
Detroit, once the beacon of American industrialism and the manufacturing sector, finds itself more than $18 billion in debt to a “multitude of creditors.” The city has been run by emergency manager Kevyn Orr, who was appointed by the governor once it looked like Detroit was past the point of no return. Orr held a press conference following the hearing, announcing that the city is working with unions to figure out a road map toward financial solvency that should be in place by January.
Before the bankruptcy was approved, Orr had been trying to mitigate the city’s debt, working with creditors to cut $11 billion in outstanding bills to just $2 billion. The city has more than 100,000 total creditors and the judge confirmed that it would be impractical to negotiate with all of them. The bankruptcy ruling will allow Orr to also slash worker pensions and benefits, something many in Detroit’s left leaning government and unions strongly opposed.
The average Detroit city worker that retires had been eligible to receive an annual pension of around $19,000. The city currently has $5.7 billion in outstanding debt to cover retiree healthcare plans and another $3.5 billion they owe in pensions.
Unions have already filed bankruptcy appeals and many expect the pension battle to be settled in the US Supreme Court. The first step to such a case would be an appeal to the 6th Circuit Court of Appeals.
While a road map is being worked out, Detroit has truly become an impoverished city. With $18.5 billion in total debt, more than 40 percent of the city’s streetlights don’t even work. At least 78,000 buildings have been altogether abandoned as the population has fallen 25 percent over the last ten years and now has just over 700,000 residents. The peak population in Detroit was 1.8 million residents in 1950.
(Image courtesy of Michael Patterson)