On Dec. 3, a U.S. Bankruptcy Court judge ruled that the City of Detroit can file for Chapter 9 municipal bankruptcy. That makes Detroit the nation’s largest municipality to file for bankruptcy, greatly eclipsing others on the list, including three California municipalities. Orange County, Stockton and San Bernardino County came in at third, fourth and fifth, respectively, with the largest involving debt levels only a ninth the size of Detroit’s.
Shortly after the ruling, however, the American Federation of State, County & Municipal Employees union filed an appeal. However, it asked for the appeal to be expedited “in the interest of justice,” and the bankruptcy judge agreed to allow the appeal to skip the U.S. District Court and head straight to the U.S. Court of Appeals for the Sixth Circuit.
AFSCME told reporters that the “highly charged” issues at stake, which include unpaid pension obligations owed to city employees, would almost certainly lead to an appeal from the U.S. District Court to the 6th Circuit anyway. With federal appeals sometimes taking years before resolution, the union hopes to prevent the courts from reducing or taking away the city’s legal obligation to pay those pensions.
AFSCME represents 70 percent of Detroit’s active unionized workers other than first responders such as police and firefighters, along with between 40 and 50 percent of the city’s retired city workers. Unfortunately, courts have interpreted bankruptcy law in other cases to allow municipalities to slash pensions legally owed to municipal workers.
City workers stand to lose big in Detroit’s bankruptcy, even though, if they themselves had filed for personal bankruptcy, it’s likely that their pensions could be legally protected.
Despite the appeal, Detroit will move forward with plans to resolve its approximately $18 billion in debt, which will almost certainly include hacking away at the approximately $3.5 billion in pensions legally owed to current and retired city workers who relied on them in good faith.
AFSCME argued that the direct appeal “would serve the most basic interests of justice,” not only for the members of its union but for all residents of Michigan and the 6th Circuit, which also includes Ohio, Kentucky and Tennessee.
According to a senior economist from Capital Economics, a leading economics research company, Detroit’s bankruptcy makes other municipal bankruptcies “look like loose change.” Unfortunately, time is running out to protect the future of the city’s municipal workers.
- The Wall Street Journal’s Bankruptcy Beat blog, “Union Seeks to Speed Up Detroit Bankruptcy Appeal,” Jacqueline Palank, Dec. 6, 2013
- Forbes, "Biggest Municipal Bankruptcies In U.S. History," Dec. 3, 2013