DETROIT, December 3, 2013 — It’s official: Judge Steven Rhodes ruled today that what’s left of the once mighty Motor City can go through with its filing for protection under Chapter 9 municipal bankruptcy procedures, which will constitute the nation’s largest-ever municipal bankruptcy.
Municipal workers’ unions failed completely in their attempt to halt the city’s filing, striving to retain huge but massively underfunded pensions as well as benefits the average taxpayer could only envy and will never see. It’s expected that unions will appeal the ruling, but it’s likely they will fail in the 6th U.S. Circuit Court of Appeals.
In his ruling, the Judge duly noted the accuracy of the city’s accounting figures, which, he declared, were entirely accurate, proving that the city was clearly insolvent. He also noted that nothing separates the city’s outsized pensions from other debt, ordering the city’s emergency manager, Kevyn Orr, to produce a plan to exit bankruptcy by March 1, 2014. Mr. Orr indicated he’d likely have such a plan ready earlier.
The plan could include anything from selling assets, such as art, to cutting pensions and more. Detroit would need the support of creditors and the judge to emerge from bankruptcy.
According to Reuters, Judge Rhodes also noted that while the city did not negotiate in “good faith” with creditors, there were simply too many of them to make such negotiations practical.
If there are no further legal delays and if Mr. Orr is permitted to move ahead, it’s unclear when the city might emerge from bankruptcy protection. He would like to get it done by next fall when his term ends as manager. Experts also warn the city’s legal bills and those of creditors will soar.
In the meantime, the judge’s ruling in favor of bankruptcy will allow the city to keep paying bills incurred since July 18. And it can keep police on the streets, firefighters on duty and streetlights aglow. City leaders have said those services have improved since the city filed for bankruptcy and police response times were near an hour.
The judge also ruled that while the city did not negotiate in “good faith” with creditors, there were too many of them to make such negotiations practical.
It is entirely possible that this ruling will encourage other insolvent cities as well to take this route toward freeing themselves from indebtedness and pension promises that already-overburdened, underemployed and unemployed taxpayers cannot possibly fulfill.
Unlike many political issues today, the tragedy of Detroit offers a clear moral, as one ZeroHedge commentator points out. He quotes from a recent book on the city’s intractable problems which addresses the unacknowledged irony of the situation:
“As clear as it is important, the death of Detroit is still mostly ignored. Generally, the slow destruction of a major city would get a fair amount of attention, but the lack of coverage is hardly surprising. After all, the “bad guys” aren’t the popular ones. In most circles, condemning taxation, regulation, unionization, welfarism and protectionism is unfashionable. It’s necessary to check political correctness at the door and appreciate that the case of Detroit isn’t an isolated tragedy. What happened in Detroit could be coming to a city near you.” —Dan Greenup, “The Death of Detroit”
—AP contributed to this report
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The Rev. Charles Williams II, left, leads Detroit city workers in a protest outside the federal courthouse in Detroit while awaiting the bankruptcy decision, Tuesday, Dec. 3, 2013. A judge is expected to announce Tuesday if the city is to become the biggest city in U.S. history to enter bankruptcy. (AP Photo/Carlos Osorio)
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