The late, great city of Detroit, Michigan filed for bankruptcy five months ago, and yesterday a judge ruled that the city is indeed eligible to “shed billions in debt in the largest public bankruptcy ever in the United States,” as reported in the New York Times.
Both the Times and the Wall Street Journal reported on this groundbreaking story. Both devoted plenty of space, with a top link to the story on their websites. The Times had two contributing reporters for their story, while the WSJ only had one. Regardless, both stories featured mostly the same information with a slightly different angle. Both stories also had pictures of the people protesting the judges ruling, holding signs that said “make the banks pay”, and “Bank of America owes Detroit for destroying our neighborhoods!”
The impact of this story could affect all of the U.S. Over 100,000 creditors loaned money to the city of Detroit. Due to the bankruptcy filing, the city won’t have to pay all $18 billion dollars that they owe back. This will affect several financial institutions, not to mention the 680,000 residents that still reside in Detroit.
“Judge Steven W. Rhodes said the city met every test of insolvency, including failing to pay its debts and being unable to provide a minimum level of basic services to its 680,000 residents. ‘This once proud and prosperous city can’t pay its debts,’ the judge said. ‘It’s insolvent. It’s eligible for bankruptcy. But it also has an opportunity for a fresh start,'” as reported in the Times.
However, the largest impact of this story falls straight onto Detroit’s citizens. Many retirees and city workers will lose their benefits, pension plans, and homes.
“The judge made it clear that public employee pensions are not protected in a federal Chapter 9 bankruptcy — even though the Michigan Constitution expressly does protect them.“Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said. ‘Federal law,’ he said, ‘trumps the state law’ — making the pensions of 23,000 workers fair game for the city to include in its plan of adjustment,” from the Times.
The WSJ believes that shock waves will be felt across the entire state, and the country.
“Perhaps most closely watched around the country is the fate of the city’s pension holders. Detroit’s bankruptcy could be a test case for how far a major U.S. city can go in dealing with a chronic problem facing many local and state governments: unsustainable pension costs. In Illinois, state leaders unveiled a plan last week to try to make up an estimated $100 billion shortfall in its public pension plan by changing the cost-of-living increase formula, raising the retirement age and offering a defined-contribution plan like a 401(k).”
All reported facts in these stories do not differ by much. This is only the beginning of a long court battle. This is a historic case, and since it involves so many people, lots of time and money will be spent in trying to reach a conclusion.