Stakes Now Even Higher for Detroit Retirees

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“No one is more aware of the hardship that this is going to cause to a number of different people than me,” Orr told radio station WWJ on Wednesday.

But the reality, he added, is inescapable: “The city has no cash on hand to pay the magnitude of the debt we have.”

The narrow issue for the judge was whether Detroit met key steps to be eligible to stay in bankruptcy court and extinguish its debt. Rhodes surprised many by declaring public pensions are like any contract that can be broken in bankruptcy, even if states have protected them in their constitutions.

His opinion isn’t binding in any other case, but it at least cracks the door open for local governments or bankruptcy judges grappling with pensions elsewhere in the U.S. At least six states besides Michigan have some constitutional protections, according to the Center for Retirement Research at Boston College.

“He took a step further than anyone has yet. But it’s just a judge who is applying federal law and giving his opinion,” said Michael Sweet, a bankruptcy attorney who has advised local governments in California.

He believes Rhodes’ message has a pragmatic purpose for Detroit and lawyers representing pensioners: Get talking.

“It was an important statement. It saved people a lot of time and gave them a better sense of how they need to frame their discussions as they go into mediation,” Sweet said.

Indeed, mediation between all parties in Detroit’s bankruptcy has been going on for weeks in private in the courthouse. Sharon Levine, an attorney for the American Federation of State, County and Municipal Employees, said she filed an appeal notice immediately after Rhodes made his decision Tuesday and then stepped into another negotiating session.

“We absolutely believe a negotiated resolution is the best resolution,” Levine said. “But it seems to us the retirees are being kicked to the curb. We’re not in a position to give up a litigation route.

“If I’m living on $19,000 a year, I don’t know if I’m going to have to live on nine, 12 or some other number. These people are scared,” she said. “They don’t even know what their worst day is.”

(Photo: AP)

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