Detroit officially went bankrupt with approval of its Chapter 9 filing. This was not unexpected. What was unexpected is that during declaration of the largest municipal bankruptcy in the US, Judge Steven Rhodes also paved the way for destroying the future of public pensioners across the USA.
In his historic ruling, Rhodes declared that binding contracts by local governments – public pensions in this case – can be cut to give Detroit a new start. It doesn’t take much to understand that other bankrupt cities in the US, particularly those in California, would be happy to follow suit and shake off their pension obligations.
The Detroit bankruptcy, from its very inception, is setting dangerous precedents that can allow government to ride roughshod over the rights of citizens, because if you are allowed to cut public pensions, then there’s almost nothing you are not allowed to do against established precepts of fairness and law.
Within an hour into the hearing, Rhodes announced the court found Detroit was and is insolvent, thus approving the Chapter 9 protection and officially declaring the bankruptcy. The court also found that the case had been filed in good faith and the city authorities had played fair in trying to negotiate with the creditors.
Observing that the “city needs help,” the sympathetic judge decided that public pensioners do not need such help, or as much of the help as the city does. While reading his 140-page decision, Rhodes said that Detroit would be legally allowed to forego making payments to pensioners as part of its restructuring. Rhodes ended his summary of ruling by saying, “It is indeed a momentous day. We have here a judicial finding that this once-proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start.”
Possibly intended for the pensioners, he suggested, “I hope that everybody associated with the city will recognize that opportunity.”