Installment plan

24 July 2013 By Reynolds Holding

City workers may have to take a hit in bankruptcy court, but there are ways to ease the pain. GM cut retirees severely but let them recoup some losses in the turnaround. Giving Detroit employees a similar option would be a controversial but fair solution to a thorny legal issue.

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A U.S. bankruptcy judge in Detroit has scheduled a hearing for July 24 on whether to block state courts from considering several lawsuits challenging the city’s bankruptcy filing.
Municipal workers, retirees and pension funds have sued to overturn the filing as a violation of the Michigan Constitution’s prohibition on cutting public employee retirement benefits. The workers argue that such cuts may be inevitable if the city is allowed to enter bankruptcy. One state court has already found in their favor, and the Michigan attorney general has appealed. Detroit Emergency Manager Kevyn Orr has asked the bankruptcy judge to put the suits on hold while allowing the bankruptcy proceedings to continue.
In a separate proceeding, the Michigan Court of Appeals on July 23 ordered a temporary halt to the lawsuits pending the state attorney general’s appeal.
To remain in bankruptcy court, Detroit must show that it is insolvent and that it has made a good faith effort to negotiate with its creditors, including employee pension funds. The city has more than $18 billion of debt, including $5.7 billion in unfunded liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability, according to documents filed in bankruptcy court.

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