Judge Says Detroit Is Eligible For Bankruptcy, Could Lead To Pension Cuts

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Judge Steven W. Rhodes handed down a ruling today that many of us have expected for some time: he declared the city of Detroit insolvent, saying it needs help to get back on its feet. However, the ruling sets the stage for cuts to things like pensions.

With the judge’s ruling, the city can start the process of reorganizing its debt and restoring basic city services, like ambulances and regular trash pick up, which have been lacking for quite some time. Since the city filed for bankruptcy in July, it has been picking and choosing which of its many creditors to pay, with many fearing they’ll never see the money they’re owed. The hope is that the city will come out of bankruptcy next year. Detroit, home to the American auto industry, is currently in debt to the tune of $18 billion. This is the largest municipal bankruptcy in US history.

“The court finds that Detroit was and is insolvent,” Judge Rhodes said this morning.

Appeals of the ruling are expected; pension groups and others who are owed money maintain that the city government didn’t make any real effort to negotiate with them, throwing into question the need for “good faith” compromising. Judge Rhodes agreed, but also ruled that the city could enact pension cuts. That doesn’t mean they’ll be included in the final reorganization. That plan will be submitted in the next few weeks.

[via Marketplace, The New York Times, Chicago Tribune, USA Today]

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