Judge Upholds Detroit Bankruptcy Eligibility
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The city of Detroit is now officially bankrupt. A federal judge ruled today that the city meets the criteria for Chapter 9 protection. It is insolvent and went through the proper legal steps to file bankruptcy. As Quinn Klinefelter of member station WDET reports, Detroit still faces a long road to financial recovery and a number of legal hurdles.
QUINN KLINEFELTER, BYLINE: A half century ago, Detroit produced three quarters of all the cars sold in the world. But decades of dwindling population, lost tax base and gross mismanagement by city government forced Detroit to borrow billions of dollars to stay afloat. It now owes more than 18 billion, and the state installed an emergency manager who filed for bankruptcy four months ago.
Creditors Detroit owes money to challenged that move, saying the city could have found savings if it had negotiated contracts in good faith. But today, Federal Judge Steven Rhodes says the city ran into what he called a stonewall while trying to negotiate with creditors, and it acted properly in filing for Chapter 9. Emergency manager Kevyn Orr says it's now time for the city's stakeholders to work together.
KEVYN ORR: This eligibility ruling is a start for us, but it's also an overture. It's also an invitation.
KLINEFELTER: It's a welcome invitation for Detroit's business community where leaders say getting the city out from under its crushing debt will create a clean slate for new investment. Meanwhile, on the streets of the city, many Detroiters are greeting the ruling with an air of resignation, something they were almost sure was coming. In fact, the union representing Detroit's emergency medical workers recently negotiated a new contract with Orr before the bankruptcy ruling even as other labor groups argue the city wasn't bargaining in good faith.
Inside an ambulance donated to the city, Detroit EMT Tony Spitznagel grimaces at a contract he says brings his wages back only to what he used to make in 2006. But he says it was better to get a contract before other unions and creditors began knocking on Kevyn Orr's door.
TONY SPITZNAGEL: You got to get what you get. You know, when you come to the table first, you get a choice of the whole meal. When you come to the table last, you just get the scraps that are left over.
KLINEFELTER: The judge also ruled that even though Michigan's constitution guarantees public pensions, they could still be cut in bankruptcy court. Spitznagel says, for many city employees here, working for a pension that could be cut significantly is really no choice at all.
SPITZNAGEL: You know, if it comes down to the point where they say you're no longer working for your pension, I think my resignation will be tendered the next day. And I think you'd see a lot of people with more than 10 years on the job saying, we're done. Not only EMS but police, fire, anybody with more than 10 years on the job is not working for your future anymore.
KLINEFELTER: Bankruptcy experts note that workers in cities across the country share similar concerns. Many municipalities are on the hook for hefty pension payments, and Detroit could set a precedent that a city can get out of its legacy obligations by going to court. Bankruptcy attorney Michael Sweet says any contracts negotiated by Detroit's emergency manager could be suspect.
MICHAEL SWEET: Look, Kevyn Orr can cut deals all day long. But these are legal issues - significant legal issues that really have never been decided in the United States. And it's highly likely that we see the U.S. Supreme Court weigh in on the pension issue, and it could be out of the Detroit bankruptcy case if that happens.
KLINEFELTER: Detroit's creditors are already on the legal path heading to the High Court. The union representing the majority of Detroit City workers immediately filed a notice to appeal today's ruling. For NPR News, I'm Quinn Klinefelter in Detroit. Transcript provided by NPR, Copyright NPR.