City Workers Fret Over Pensions As Detroit Enters Bankruptcy

A federal judge has ruled Detroit qualifies for bankruptcy. But the cash-strapped city, laden with roughly $18 billion in long-term debt, faces a long road to regain financial solvency. Unions whose members face pension payment cuts are appealing the ruling, and the ultimate decision about paying the pensions may be made by the U.S. Supreme Court.

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It is official. The city of Detroit is bankrupt. Yesterday, a judge formally declared that Detroit meets the criteria to seek Chapter 9 protection, making it the largest municipal bankruptcy in U.S. history.

Quinn Klinefelter of member station WDET reports.

QUINN KLINEFELTER, BYLINE: The financial wheels started to come off the capital of the nation's automotive industry decades ago. A dwindling population and tax base left city officials borrowing billions just to pay for basic services like police and fire.

This year, with the city now facing $18 billion of debt, the state of Michigan appointed Emergency Manager Kevyn Orr to take control of Detroit's finances.

The city filed for bankruptcy in July, and Orr says the court action approving that move means Detroit can begin to emerge from a sea of red ink.

KEVYN ORR: While we are very pleased, we remain very concerned about the need to adjust the city's debt, to improve its level of services for its citizens, and to also prepare for the city to exit this receivership in a fashion that restores democracy.

KLINEFELTER: For the next year, however, Orr's financial decisions will supersede any made by Detroit's mayor or city council. He says any of the city's assets might be sold, as he looks to restructure debt and find money to improve Detroit's infrastructure.

That includes the world-famous collection at the Detroit Institute of Arts museum, worth billions of dollars and currently being appraised by Christie's auction house.

Even the bankruptcy judge says selling that art would only be a short-term fix, but the Institute's chief operating officer, Annmarie Erickson, says museum officials have yet to convince the emergency manager of that.

ANNMARIE ERICKSON: We still are kind of looking to negotiate. We've been looking for money for years for the museum, so of course we've looked at renting the collection. And we know what we can do there, and we did it a couple times with limited success, and certainly not the kind of money the EM wants.

KLINEFELTER: Some of the city's employees say the situation is even more dire for them.

UNIDENTIFIED GROUP: Pensions, yes. Bankruptcy no.

KLINEFELTER: As the judge delivered his ruling, dozens of union members protested in front of the court house. Michigan's constitution prohibits cutting public pensions, but the judge ruled they can be cut in bankruptcy court. The pensions account for a large portion of Detroit's debt.

Retired city workers, like Elmira Willis Stuckey, fear they could be left with very little to live on.

ELMIRA WILLIS STUCKEY: It's sad, because everybody that can afford to is leaving Detroit, because they afraid. They afraid if they cut the pensions, you won't have the proper police officers or none of them, because their pensions are going to be cut, too.

KLINEFELTER: The union representing the majority of city workers immediately gave notice it would appeal Detroit's eligibility ruling. Union attorney Sharon Levine says many cities face large pension obligations and are closely watching what happens in Detroit.

SHARON LEVINE: Somebody might view it as an invitation not to negotiate with their employees or their retirees or their creditors, saying, oh, it was impossible. That's a dangerous precedent, if that's how this decision gets interpreted.

KLINEFELTER: But experts say banks and other creditors are unlikely to join the appeal. Bankruptcy attorney Michael Sweet says even the pennies Detroit is offering for every dollar it owes creditors are better than nothing.

MICHAEL SWEET: When you have a debtor that's negotiating with creditors with whom it will continue to do business, you can usually get a better deal. Most of the creditors have an interest in seeing Detroit pick itself up and turn itself around and reinvent itself.

KLINEFELTER: Indeed, Detroit's business community is welcoming the bankruptcy as a way to erase debt they say inhibits new investment, even as some city retirees wonder if they will be able to afford to continue living here.

For NPR News, I'm Quinn Klinefelter, in Detroit.

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