Lawyers jammed a courtroom Wednesday for the first hearing in Detroit's bankruptcy case, as a judge set out to decide whether anxious city retirees can slow down the process with lawsuits in other courts.
Detroit is the largest U.S. city to file for bankruptcy protection. U.S. Bankruptcy Judge Steven Rhodes was not expected to dive into any numbers during the first hearing, but he may settle a dispute that looms as a big threat to the reorganization.
The city wants Rhodes to put a stop to lawsuits that aim to halt the bankruptcy process, especially after an Ingham County judge last week said state officials ignored the constitution and acted illegally in approving the Chapter 9 filing. Those cases remain alive, although the Michigan appeals court temporarily stopped any further proceedings Tuesday.
No backup for public pensions
Sharon Levine, an attorney for a union that represents city workers, urged Rhodes to let those lawsuits run their course. She said there's no federal insurance for public pensions once they're broken, unlike pensions at private employers.
"Our members who participate at most are at or below $19,000 US a year. There is no safety net," Levine said.
The Michigan Constitution states public pensions "shall not be diminished or impaired."
Pension payments have not been frozen or reduced in the bankruptcy process.
As lawyers for some of the thousands of creditors arrived Wednesday, they passed protesters holding a banner saying: "Cancel Detroit's debt. The banks owe us."
Detroit faces $18B in long-term debt
Michigan Gov. Rick Snyder signed off on Detroit's bankruptcy on July 18, calling it the only "feasible path" for a city whose population has plummeted to 700,000 from 1.8 million decades ago. Detroit's $18 billion in long-term debt has become an urban millstone.
Residents "are not getting the services they deserve and they haven't for a very long time," Snyder said Sunday. "So this can has been getting kicked down the road for decades. Enough is enough and now's the time to turn it around."
In March, Snyder appointed a bankruptcy expert, Kevyn Orr, as Detroit's emergency manager. Orr had sweeping powers to reshape city finances but recommended bankruptcy to the governor after failing to reach any significant deals with creditors, including Wall Street bankers and Detroit pension funds. Many of those creditors, however, accused him of being inflexible and believe bankruptcy always was the plan.
Detroit has more than double the population of Stockton, Calif., which had been the largest U.S. city to file for bankruptcy before Detroit trumped it last week.
Pensioners are anxious. Retired police officer K.D. Bullock, 70, gets a monthly benefit of $2,400. He's worried about that check getting smaller in bankruptcy and wonders if he'll have to sell his home in the historic Indian Village neighbourhood, one of Detroit's most stable areas.
"It just means our lifestyle is going to change — we have no way of knowing," Bullock said.
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