December 4, 2013

Judge Okays Detroit Bankruptcy

Obama’s city might just have a second chance.

As Mark Alexander wrote in July, if Barack Obama had a city, it would look like Detroit. Michigan Republican Gov. Rick Snyder appointed Emergency Manager Kevyn Orr to work through the city’s finances. Under Orr’s direction, the Motor City filed for bankruptcy in July in a last-ditch effort to address its $18 billion in long-term liabilities, but public unions sued to stop the proceedings in their own effort to protect their gravy train. This week, however, Judge Steven Rhodes allowed the bankruptcy to proceed, saying, “This once proud and prosperous city can’t pay its debts. It’s insolvent. It’s eligible for bankruptcy. At the same time, it also has an opportunity for a fresh start.”

According to The Heritage Foundation, “Of Detroit’s $18.3 billion in debt, more than half is unfunded retirement benefits for public employees: $3.5 billion in pension liabilities and $5.7 billion in other post-employment benefits.” Meanwhile, the city’s population has plummeted over decades-long Democrat rule, meaning the taxpaying base is shrinking as costs explode. Public unions will never willingly agree to truly reasonable terms, but Rhodes’ ruling does mean they have to share the burden of the city’s financial trouble.

Smaller bankruptcies in the California cities of Stockton and Vallejo left alone public employee pension funds because of the clout of California’s union. So as The Wall Street Journal writes, “Detroit is the first Chapter 9 case in which the supremacy of federal bankruptcy law over state pension protections has been decisively challenged and resolved. … Judge Rhodes’s wise ruling is a warning to unions and their political bodyguards that Chapter 9 is not a pension safe harbor.” It will indeed be a good development if unions are forced to live in reality.

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