It's official. It's now okay for public entities to promise workers a decent retirement, then renege.
A federal judge has ruled Detroit should be granted protection from its creditors, marking the largest public bankruptcy in US history.What about Michigan's constitution, which declares pension benefits sacrosanct? Hahahah.
US bankruptcy judge Steven Rhodes said payments to retired staff, which make up half of the city's liabilities, could be "impaired" as a result.
((Unions)) had also argued that the Michigan state constitution explicitly protects pension benefits from being cut.If I were Detroits pensioners right now I'd be marching towards that courthouse with pickaxes and torches. But that's just me. My guess is no one is going to fight very hard for the pensioner getting $19,000 a year, forced to take a cut. But lots and lots of very well paid lawyers will fight for millionaire bond holders who might be required to get a haircut rather than a life-crushing reduction in their monthly retirement checks.
However, Mr Rhodes ruled: "Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy."
8:27 AM PT: Oh well, that's a relief. As long as it's not done "casually or lightly!"
Mr Rhodes tried to reassure those worried about potentially life-altering cuts by saying the court would not "lightly or casually" make changes to existing pensions before exhausting other options.
The ruling came as a significant surprise to people observing the case. Rhodes previously signaled that he planned to decide the issue of whether the pensions can be cut later in the case. But today he said he changed his mind and deciding that ruling on the issue today would expedite the bankruptcy.
8:32 AM PT: And the justification:
The Michigan Constitution protects public pensions as a “contractual obligation” that cannot be “diminished or impaired.” But the U.S. government allows contract cuts in bankruptcy — and Rhodes ruled that federal law preempts the state Constitution.8:37 AM PT:
Fed. Judge allows Detroit's Emergency Mngr. to proceed with austerity through bankruptcy: http://t.co/...— Darwin BondGraham (@DarwinBondGraha) December 3, 2013
8:43 AM PT: More from the Guardian:
In court Rhodes said the city’s pension liabilities were “complex and confusing.” The city borrowed about $1.4bn in 2005 to eliminate its unfunded pension liabilities. Then it "entered into a wager," Rhodes said that it lost “catastrophically”...http://www.theguardian.com/... 8:57 AM PT:
Orr has calculated the city’s debts at $18bn, a figure disputed by his critics, but no matter the real sum Detroit’s bankruptcy dwarfs all other municipal bankruptcy filings. The previous record was held by Alabama's Jefferson County, which filed for bankruptcy with debts in excess of $3.1bn...
Chapter 9 is rarely used and the only one of any real size is Detroit,” he said. “The complexity, expense and uncertainty of these types of filings make them very unattractive.”
Spiotto said that the stigma that bankruptcy causes in capital markets when the city comes to borrow money again would have very real consequences for Detroit. “If you pay 2% more interest for 30 years, that’s 60% more money that you are not spending on employing people, infrastructure. It’s a very expensive business,” he said.
Judge rules: in America it is legal for rich people to steal workers pensions-Rich people call it freedom or reform when they steal from us.— Alyssa (@alyssa011968) December 3, 2013
“The average Detroit pensioner gets $19,000 a year...