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Pensioners will face negotiations as Detroit starts road to financial recovery

A federal ruling will allow Detroit to move forward with its bankruptcy and to possibly cut pensions as part of the debt-shedding process. Judy Woodruff talks to Christy McDonald of Detroit Public Television about the choices the emergency manager Kevyn Orr has to consider when crafting a restructuring plan for the Motor City.

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    Finally: the choices ahead as Detroit moves forward with bankruptcy.

    Today's ruling by a federal judge begins to clear the way for it to happen, and he said public pensions could be cut as part of other changes aimed at shedding billions in debt. Unions and pension funds had argued that Michigan's state Constitution protected those pensions.

    Christy McDonald of Detroit Public Television joins us again.

    Christy, welcome back to the program.

    Remind us why this judge's ruling was necessary. The city was pretty much already clearly going into bankruptcy, wasn't it?

  • CHRISTY MCDONALD,┬áDetroit Public Television:

    It was.

    But, Judy, he had to answer several legal questions before he could clear the way for Detroit's eligibility for Chapter 9. One of those is, is the city insolvent? And the judge found, yes, the city is insolvent. It can't pay its debts. And no one really argued that point there. There is an $18 billion debt.

    The other question he had to answer was, did the city negotiate in good faith with its creditors before they even filed for bankruptcy? And while he chastised the city and said, you know what, the city really didn't negotiate in good faith, he moved to the next legal question was, did the city — was it even possible for them to negotiate?

    And he said it really wasn't, given the fact they had 100,000 creditors and an $18 billion debt. And then the other question he had to answer was, was it constitutional to file for bankruptcy? And, indeed, he said, yes, it was.

    And, interestingly enough, the judge said that Detroit should have and could have filed for bankruptcy even years ago, given the financial situation it is in.


    So, Christy, how did the pensions of city workers become a part of this?


    Well, once they started going into Chapter — once they started going into Chapter 9, the creditors, and looking at the pensioners and the retirees, they wanted to make sure that that money wasn't going to be touched.

    But what happened is, is they took a look at it and the judge said, you know what? In federal bankruptcy court, that is a contract. The pension is going to be termed as a contract that can be restructured in this process. So even though the pensions are protected under the Michigan Constitution, in federal bankruptcy court, it is going to be fair game.

    But he did caution the city, once they start to go through their restructuring plan, that he said, tread lightly on this. He's not going to go with any kind of agreement that guts those pensions. And when you look at 21,000 retirees from the city of Detroit, you have got 10,000 current workers right now, those retirees, they worked their lives and they knew that they were going to get the pensions at the very end. And they could be losing some of that money that should be coming to them.


    Well, is it possible to know at this point what percentage of their retirement money, their pension could be affected, reduced by this?


    No, we won't know. That is going to be part of the ongoing negotiations now that Kevyn Orr, the emergency manager of the city of Detroit, is going to now start to go through with the pensioners and then other creditors.

    We won't see anything until probably the first or second week of January. They do have until March 1 to get that restructuring, that restructuring order in to the judge.


    How is the — tell us just briefly, how is that process going to work? Who makes these decisions, which, of course, the workers themselves, their unions are going to continue to push back on?


    They are going to continue to fight on that.

    One union has already filed an appeal to today's ruling. And you can probably expect some more litigation in the days and the weeks to come. But, eventually, they are going to have to sit down and they're going to have to sit across the table from Kevyn Orr, who is the emergency manager, who is the one who is going to be negotiating this entire process.

    And not only is he going to be negotiating with retirees. He is going to be negotiating with the lenders. He's going to be negotiating with other creditors, in trying to figure out how to pare down this massive debt.


    And, finally, Christy, tell us about the services. The city has lost so much in the way of services. I was reading today the average, for example, response time for the police is something like five times the national average. What is the city expecting in the way of seeing some of those services lost restored now?


    When we see the headline of the largest municipal bankruptcy in U.S. history in Detroit, we see that massive headline.

    But, really, what this is starting to make way for, when you start to erase the debt and what they say is come out with a clean slate, is you are going to be able to a take the tax revenue that comes into the city of Detroit and put it back into the services, like the police that you're talking about, shoring up the police department, like the fire department, making sure the fire rigs are working when they are called out to a fire, like picking up trash, like making sure that the lighting grid is back up and running and you have working streetlights in the neighborhoods in the city of Detroit.

    So what that is going to do, when you bring down the debt and you bring it — you erase it and you start with that clean slate, you are going to be able to infuse money back into the city of Detroit, back into the services, and really make Detroit a better place to live. And that is the bottom line in this story.


    A big day in the life of your city, Detroit.




    Christy McDonald, we thank you very much.


    Thanks, Judy.