Detroit Bankruptcy Plan to Hit City Workers

The plan calls for cutting pensions for non-uniformed retirees by nearly one-third and repaying bondholders just $1 of every $5 owed to them by the city.

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Protesters outside the U.S. Courthouse while federal bankruptcy Judge Steven Rhodes ruled on Detroit's Chapter 9 bankruptcy eligibility on Dec. 3, 2013, in Detroit

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In an effort to exit the largest municipal bankruptcy in the U.S., Detroit officials on Friday released a financial recovery plan that calls for cutting pensions for non-uniformed retirees by nearly one-third and repaying bondholders just $1 of every $5 owed to them by the city, the Washington Post reports.

The proposal, filed in federal bankruptcy court in Detroit, marked the first time that the city put a price tag on potential cuts since filing the $18 billion bankruptcy case in July. Michigan Gov. Rick Snyder appointed Kevyn D. Orr as the city's emergency manager last March to help solve Detroit’s financial crisis.

The strategy, however, alarmed city union leaders and retirees because it involves an estimated 10 percent cut to pensions for police and firefighters, many of whom do not receive Social Security benefits, the Post writes. And advocates for non-uniformed city workers say that the plan would cause severe and undue pain to current and former workers who did not cause the crisis.

“The proposed plan of adjustment is a gut punch to Detroit city workers and retirees,” AFSCME Council 25 President Al Garrett, who represents Detroit municipal workers, said in a statement. “The plan essentially eliminates health care benefits for retirees and drastically cuts earned pension benefits. Retirees cannot survive these huge cuts to the pensions they earned. The plan is unfair and unacceptable.”

The plan still faces weeks and months of scrutiny and negotiations in federal bankruptcy court. And talks could still yield changes. Under Chapter 9 of the bankruptcy code, Judge Steven Rhodes is required to get some of the creditors to agree to the terms.

But city officials argue that the plan represents a sound path forward.

“We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work,” Orr, a D.C. bankruptcy attorney, said in a statement. 

Read more at the Washington Post.