Detroit Bankruptcy Legality Questioned By City's Biggest Public Union

Tuesday, 20 Aug 2013 01:47 PM

By Clyde Hughes

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Weeks after Detroit filed for bankruptcy, the city's largest public union joined dozens of other creditors Monday challenging the legality of the filing.

The Michigan chapter of the American Federation of State, County & Municipal Employees charged that the city's Chapter 9 bankruptcy was unconstitutional and that the state-appointed Emergency Manager Kevyn Orr did not negotiate in good faith with the city’s creditors, wrote the Detroit Free Press.

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In the filing, according to the Free Press, AFSCME attorneys claimed that Detroit was "seeking the haven of bankruptcy to illegally attempt to slash pension and other post-employment benefit obligations and cram such reductions down the throats of current and former city employees."

U.S. Bankruptcy Judge Steven Rhodes scheduled a trial for Oct. 23 to hear arguments about whether the city has a right to file for bankruptcy.

The newspaper said the objections centered on Detroit’s financial standing, if the city had the legal authority to file for bankruptcy, and the process leading up to the filing, which happened July 18.

Orr, hired in March by the state to fix Detroit’s finances, told The Associated Press that there are no other options better for Detroit. He said the city’s budget deficit has hovered near or above $300 million for several years.

The city is claiming $18 billion in liabilities that include underfunded pensions, health care costs, and bonds that lack city revenue to be paid off.

Michigan Attorney General Bill Schuette has taken the side of the city pensioners. Schuette filed a 20-page statement in federal court Monday, saying that the city's pensions were protected on constitutional grounds, noted the Associated Press.

Since 1954, 29 of 62 municipal bankruptcies pursued in the U.S. have been dismissed.

Detroit News columnist Daniel Howes said despite the objections, no one has come up with a better solution to resolve the city's financial crisis beyond bankruptcy.

"Detroit’s government is insolvent and managerially spent, facts unaltered by complaints that Emergency Manager Kevyn Orr and his team failed to bargain in good faith. Or that the bankruptcy filing may violate state constitutional protections for vested pension benefits. Or that the workout may be anathema to elected democracy."

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