City Workers and Retirees Approve Detroit’s Bankruptcy Plan

by San Antonio Attorney

Retirees and city workers voted for pension cuts in the restructuring plan of Detroit. This is an important step to exiting from the biggest municipal bankruptcy in the nation’s history.

The city announced the result of voting that lasted for two months. Judge Steven Rhodes must still hold a trial next month to determine if the bankruptcy plan is feasible and fair to all creditors, but approval from pensioners is critical.

The retirees’ pension would be cut by 4.5 percent and they will no longer get yearly inflation increases. About 73 percent agreed to the cut. Retired firefighters and police officers would lose only a percentage of their annual cost-of-living increase. Around 80 percent in that class agreed to the cut.

The results of the balloting raise a tremendous $816 million bailout from Michigan, the Detroit Institute of Arts, and foundations. If the judge agrees with the bankruptcy plan, the funds would allow the city to keep its valuable art collections and prevent further pension cuts.

Detroit’s $18 billion bankruptcy has tens of thousands of creditors, from bond holders to companies that supply soap, but nearly all of the attention since last year has been on the approximately 32,000 current and former workers and retirees counting on a pension.

The standard annual pension for firefighters and police retirees is $32,000, while other city workers receive between $19,000 and $20,000. The city’s emergency manager Kevyn Orr has stated pension modifications are regrettable but needed mainly because two pension funds have billions in deficit. If the performance of investments gets better in the coming years, he said, the original pension could be brought back.

Based on the Michigan Constitution, the public pensions cannot be reduced, but Rhodes, in his biggest decision in the bankruptcy case, said that federal bankruptcy law beats that protection. It was a unprecedented opinion that could have an impact on local governments in the United States that go insolvent.

Michigan Attorney General Bill Schuette does not agree with Rhodes, but he has said that he will not differ if retirees accept the changes.

 

 

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