Detroit bankruptcy judge: Pensions are fair game

Dec 3, 2013

  In a case being watched nationwide, a federal bankruptcy judge in Detroit today ruled that the city is eligible for Chapter Nine municipal bankruptcy protection.

Judge Steven Rhodes also surprised some when he ruled that the city’s pensions can be cut.

The word spread quickly among a group of protestors outside the federal courthouse in Detroit.

“That would hurt me greatly if he cuts that pension of mine,” said Sylvester Davis, a Department of Water and Sewerage retiree.  “I rely on it like I did my job. We were made a promise when I first started. That’s what I worked for.”

City employee unions have argued that Michigan’s constitution protects public pensions.

Judge Steven Rhodes says those protections don’t apply in federal bankruptcy court. But he also said he won’t necessarily agree to a plan that calls for pension cuts.

Rhodes also admonished the city for its efforts to broker a deal with creditors – including unions.

“He basically said I think the city has played around a bit, by saying they were negotiating, but they weren’t really negotiating in good faith,” said John Pottow, a bankruptcy expert at the University of Michigan.

From the bench, Rhodes said good-faith negotiations were impossible in the face of a deepening financial crisis and mounting legal challenges. And Pottow says he also had some criticism for the unions, “and said by the way, you guys, you didn’t negotiate at all. You basically said we have a constitutional protection and that’s it, and you crossed your arms, and you said we’re not going to budge from that.”

Like a lot of observers, Pottow did not expect Rhodes to rule on the pension question this early in the case. Rhodes said from the bench that deciding the issue now would mean a speedier resolution of the case.

Pottow says he thinks Judge Rhodes is trying to push the parties toward a settlement.

“He wants them to get to yes. And so just like a really good mediator will sit down with the parties and scare the pants off them…to try to get them to move, he’s kind of doing a little bit of that from the bench.”

Minutes after the hearing ended, a press conference got under way at Detroit city hall, and the man who took Detroit into bankruptcy court stepped up to the podium.

“We have some heavy work ahead of us,” said Kevyn Orr, the city’s state-appointed emergency manager.  Orr says he hopes to submit a restructuring plan submitted to the court by the first week of January. But he says adjusting the city’s debts and improving services are going to be tall orders even with restructuring.  

And he urged patience.

“One of the things we need to do is recognize that we’ve been marching our way here for 60 years – that’s two generations. It’s going to take awhile for us to dig our way out of this predicament citywide. It’s a lot of city.”

Orr says some demonstration projects to fix broken streetlights, and clean up blight, should give people a glimpse into what Detroit can look like.

Meanwhile, the city’s biggest union, AFSCME, has filed a motion to appeal Judge Rhodes’ ruling.