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Detroit Files for Chapter 9 Bankruptcy Protection

July 18, 2013

Michigan’s Governor Rick Snyder authorized the City of Detroit’s emergency manager Kevyn Orr to seek federal bankruptcy protection for the City. Detroit is currently saddled with $18 billion in debt and unfunded liabilities, according to the governor’s office, and 38 cents of every dollar the City has goes toward debt repayment and other obligations. The governor’s office said that by 2017, 65 cents of every City dollar will go toward repayment.

Orr filed for Chapter 9 bankruptcy protection on July 18 after receiving authorization from Snyder. Orr's restructuring plan calls for investing $1.25 billion over 10 years in core City services, for example police and fire services, trash pickup and street lighting. 

On Friday, July 19, Ingham County, Mich., circuit court judge Rosemarie Aquilina declared that the bankruptcy filing violates Michigan's state constitution by authorizing an emergency manager to proceed under Chapter 9 bankruptcy and threaten employees' pension benefits. In response, Michigan's Attorney General Bill Schuette filed an appeal with the Michigan Court of Appeals, according to the Court's daily news summary.

One of the primary concerns for Detroit City employees, and retirees, is whether their pensions would remain intact if the bankruptcy filing proceeds. In a joint statement, the Metro Detroit AFL-CIO’s President Chris Michalakis and Michigan State AFL-CIO’s President Karla Swift disagreed with the filing.

“Every step of the way, the citizens of Detroit were told that they had to give up their right to democratic representation in order to avoid bankruptcy,” the statement read. “Now that this filing has come anyway, it is clear that either state control has failed or that Governor Snyder and his emergency manager appointee were not honest about their intentions in the first place. City workers have already made severe concession to keep the city afloat. It is time to put the needs of Detroit residents above the interests of out of town creditors.”

Regarding pensions in the immediate future, Orr said in an interview on Detroit Public Television the City has no plans to change the status quo for the rest of the year.

For more on Chapter 9 bankruptcy and what it means for municipal officials, non-profit organization State Budget Solutions has an explanation here.

Updated 7/19/2013, 4:44 pm.

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