Friday, Jun 22, 2018
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After Detroit’s bankruptcy

Any restructuring plan for the city must fairly balance the interests of creditors and retired municipal workers




A federal judge’s determination this week that Detroit is eligible for bankruptcy was hardly surprising. The city is $18.5 billion in debt; as Bankruptcy Judge Steven Rhodes noted, it would have run out of money months ago if it had paid its bills on time.

The once-mighty Motor City can no longer legally increase taxes. It now provides such a wretched level of services that police may take an hour to respond when someone is murdered.

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But Judge Rhodes raised eyebrows — and blood pressure — when he ruled that despite Michigan’s constitution, cutting the pensions of retired municipal workers would be legal as part of whatever restructuring plan the city’s emergency manager, Kevyn Orr, proposes.

The judge also seemed to leave the door open to a possible sale of some treasures of the Detroit Institute of Arts — a move that could bring the city hundreds of millions of dollars, but would destroy a major cultural resource. Within hours of the ruling, city leaders were working on a deal whereby a coalition of foundations would put up half a billion dollars to ransom, in effect, the art museum from Detroit.

Michigan Attorney General Bill Schuette is loudly challenging the judge’s ruling on pensions. But his attack seems more sound than substance, and motivated by the need to score political points as an election year approaches.

Nobody denies that Detroit’s creditors have valid grievances. Many people who lent money to the city in good faith are now going to lose most of it.

But the question is: How much more should Detroit’s long-suffering citizens endure? That will be largely up to Mr. Orr, who is working on a restructuring plan, and Judge Rhodes, who must approve or reject it.

If pension cuts must be made, at the very least, a system of tiers must be established. It may make sense for a healthy 53-year-old clerical retiree to be asked to part with a portion of his pension. It would be unconscionable to ask a frail 90-year-old to give up any of hers.

The problem could be solved if Michigan Gov. Rick Snyder were to ask the Legislature to extend the state‘s guarantee of public-sector pensions to City of Detroit workers, in the interest of fairness.

The bankruptcy process will take months, and Detroit faces many difficult challenges. But as problems that have been shoved under the rug for decades are finally being dealt with, the city’s agonies bear watching.

Detroit is unlikely to be the last American city to wind up in receivership. Everyone needs to hope that a new Detroit will emerge from financial ruin, free of debt and with an opportunity to be viable and even prosperous again.

Whatever your politics, that outcome would benefit not just Detroit, but also all of Michigan, Ohio, and the Midwest.

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