Detroit Bankruptcy Could Set Legal Precedent For Bankrupt Cities With Pension Obligations, Experts S
DETROIT -- Pensioners across the country have reason to watch Detroit's historic bankruptcy filing closely. The legal wrangling over whether the city's filing is unconstitutional may have widespread impact on cities in crisis across the United States.
Detroit Emergency Manager Kevyn Orr says the city's crippling lack of services and devastating population loss can't be fixed without bondholders, banks, unions and even retirees settling for less money than they are legally owed. With the blessing of Gov. Rick Snyder, a Republican, Orr filed for bankruptcy at 4:06 p.m. on Thursday -- just five minutes before Circuit Court Judge Rosemary Aquilina was set to consider an injunction from pension groups and retirees to stop the city from filing the paperwork.
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Michigan is one of nine states that explicitly protects public employee pensions in its state constitution. But the state of Michigan doesn't guarantee the money to public employees if a city defaults or can't pay those bills. In Detroit, pensions and health benefits for the city's 9,500 current employees and 21,000 retired workers account for $9.2 billion of the city's total debt -- $18 billion. The city also owes money on more $1 billion in bonds it took out to pay into its pension when it could not afford the money.
The law of bankruptcy is enshrined in the U.S. Constitution. And the limited case law of Chapter 9 bankruptcy, which applies to cities and municipalities, doesn't say whether a bankruptcy judge can legally subvert Michigan's constitution to lessen Detroit's obligation to its pensioners.
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http://www.huffingtonpost.com/2013/07/21/detroit-bankruptcy-legal-precedent_n_3629018.html?ir=Detroit
