Lights out on Detroit as court lets city go broke

Judge allows city's bankruptcy filing to proceed; union appeals but governor says it's the only way to a 'brighter future'

PUBLISHED : Wednesday, 04 December, 2013, 9:18pm
UPDATED : Thursday, 05 December, 2013, 2:56pm

Detroit has won judicial approval to move forward with the largest municipal bankruptcy in United States history despite objections from city workers fearful of losing their pensions.

Saddled with more than US$18 billion in debt and a tax base depleted by decades of population loss and urban blight, the birthplace of the US car industry has been so strapped for cash it can't even keep the street lights on.

It filed for bankruptcy protection in July, the largest US city ever to do so.

After lengthy initial hearings and weeks of deliberation, Judge Steven Rhodes ruled on Tuesday that Detroit is eligible to restructure its debt and liabilities under Chapter 9 of the US bankruptcy code.

The city's largest public sector union immediately filed an appeal against the decision. But it was hailed by Michigan Governor Rick Snyder as the only viable way for Detroit to "stay on the path toward a brighter future".

"There will be other difficult decisions as we work through this process," Snyder said, "but Michigan and Detroit are … the comeback stories in the country."

In an unusual move, Rhodes explained his decision in a court hearing prior to releasing his complex 140-page opinion.

Bankruptcy was a "foregone conclusion" and should have happened years ago, he said.

"The city no longer has the resources to … provide its citizens basic services," the Detroit News quoted Rhodes as saying. "To reverse this decline and attract new residents and revitalise and reinvigorate, Detroit needs help."

Thousands of retired city workers are fearful they will be pushed into poverty if Detroit is able to slash their pension benefits, which are supposed to be protected by the Michigan state constitution.

Rhodes warned that federal bankruptcy law allows for the pensions to be cut, but said: "The court emphasises that it will not lightly or causally exercise federal bankruptcy law to impair pensions."

The bankruptcy is expected to make it harder for municipalities in Michigan and other US states to borrow money by undermining confidence in what used to be among the most trusted bonds available. The situation in Detroit is being closely monitored by government workers across the country who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.

Emergency manager Kevyn Orr said he hopes unions, pension funds and other creditors will work with him on a "consensual" plan to slash Detroit's debts "so it can growth and thrive". He vowed to continue to pay the city's bills and pay cheques for city workers, and hopes to publish a restructuring plan early next month.

Once a bustling beacon of industrial might, the Motor City is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.



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