0 Members and 1 Guest are viewing this topic.
Detroit's historic bankruptcy will move forward after a judge ruled Tuesday that the financially crumbling city is eligible to shed billions in debt. Judge Steven Rhodes turned down objections from unions, pension funds and retirees, which all stand to lose big under any plan to address Detroit's long-term liabilities. The decision Tuesday was long-awaited, and clears the way for the city to proceed in the largest public bankruptcy in U.S. history. "This once proud and prosperous city can't pay its debts. It's insolvent. It's eligible for bankruptcy," Rhodes said in announcing his decision. "At the same time, it also has an opportunity for a fresh start." The plan isn't on the judge's desk yet. The issue for Rhodes, who presided over a nine-day trial, was whether Detroit met specific conditions under federal law to stay in bankruptcy court and turn its finances around after years of mismanagement, chronic population loss and collapse of the middle class. The city has argued that it needs bankruptcy protection for the sake of beleaguered residents suffering from poor services such as slow to nonexistent police response, darkened streetlights and erratic garbage pickup -- a concern mentioned by the judge during the trial. 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. "The status quo is unacceptable," emergency manager Kevyn Orr testified. Rhodes said Tuesday that Detroit has a proud history but no longer has the resources to provide critical services, the judge said, adding: "The city needs help." Rhodes' decision is a critical milestone. He said pensions, like any contract, can be cut, adding that a provision in the Michigan Constitution protecting public pensions isn't a bulletproof shield in a bankruptcy. The city says pension funds are short by $3.5 billion. Anxious retirees drawing less than $20,000 a year have appeared in court and put an anguished face on the case. Despite his finding, Rhodes cautioned everyone that he won't automatically approve pension cuts that could be part of Detroit's eventual plan to get out of bankruptcy. There are other wrinkles. Art possibly worth billions at the Detroit Institute of Arts could be part of a solution for creditors, as well as the sale of a water department that serves much of southeastern Michigan. Orr offered just pennies on every dollar owed during meetings with creditors before bankruptcy.
He said ... a provision in the Michigan Constitution protecting public pensions isn't a bulletproof shield in a bankruptcy.