NEXT STEPS
• Bankruptcy opponents want to file appeals immediately to the 6th U.S. Circuit Court of Appeals in Cincinnati, a move that could put the case on hold. They believe Judge Steven Rhodes is wrong in saying pensions can be cut, among other issues.
• The judge has told the city to come up with a plan to exit bankruptcy by March 1. The plan could include anything from selling assets, such as art, to cutting pensions and more.
• The city’s emergency manager, Kevyn Orr, says the ruling in favor of bankruptcy will allow the city to keep paying bills incurred since July 18, keep police on the streets, firefighters on duty and streetlights lit.
TWO VIEWS
“Today’s decision will allow Detroit to regain its financial footing and spark investments in key areas that will improve the quality of life for all residents and encourage growth and investment.”
— Michigan Gov. Rick Snyder, a Republican who supports the bankruptcy ruling
“As the bankruptcy restructuring plan advances, Gov. Snyder and Kevyn Orr have a responsibility to uphold Michigan’s constitution by protecting hard-earned retiree pensions over Wall Street creditors.”
— Mark Schauer, Democratic gubernatorial candidate
Detroit is eligible to shed billions of dollars of debt that accumulated during the city’s decades-long decline, including cutting pensions for thousands of workers and retirees, a judge ruled Tuesday in a decision that shifts the epic bankruptcy case into a new and delicate phase.
Judge Steven Rhodes, who wondered aloud why the bankruptcy had not happened years ago, said pensions can be altered just like any contract because the Michigan Constitution does not offer bulletproof protection for employee benefits. But he signaled a desire for a measured approach and warned city officials that they must be prepared to defend any deep reductions.
“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.”
Rhodes agreed with unions and pension funds — who argued against bankruptcy — that the city’s emergency manager, Kevyn Orr, had not negotiated in good faith 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.”
The decision set the stage for officials to confront $18 billion in debt with a plan that might pay creditors just pennies on the dollar. It is also 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.
The city contends 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 Rhodes acknowledged during a nine-day bankruptcy trial that ended Nov. 8.
Orr acknowledged that pensions would be a sensitive issue because they represent a “human dimension” to the crisis.
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,” Clark said outside the courthouse. “The working class is becoming the have-nots.”
Behind closed doors, mediators led by another judge 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.
“We need to recognize that this decision is a call to action,” Gov. Rick Snyder, who supported the bankruptcy filing, said Tuesday. “We are confronting fiscal realities that have been ignored for too long.”
Minutes after the ruling, Sharon Levine, an attorney for the American Federation of State, County and Municipal Employees, said she would appeal. City officials got “absolutely everything” in Rhodes’ decision, she told reporters.
“It’s a huge loss for the city of Detroit,” Levine said.
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