Dec 3, 2013 10:43 PM by Jennifer Horbelt
DETROIT (AP) -A U.S. bankruptcy judge says Detroit can't pay its debts and needs help.
Judge Steven Rhodes turned down objections from unions, pension funds and retirees today in ruling that the city is eligible for bankruptcy. In issuing his ruling, Rhodes says bankruptcy will provide a "once proud and prosperous city" with an opportunity for a fresh start.
The ruling clears the way for the city to come up with a plan to shed $18 billion in debt. It comes four months after Detroit sought Chapter 9 protection in the largest public filing in U.S. history.
Unions and Detroit's public pension funds vigorously opposed bankruptcy during a nine-day trial. They claim emergency manager Kevyn Orr and his team didn't negotiate in good faith before the summer filing, a requirement for a government to be eligible to shed debts under Chapter 9.
The entire nation is watching closely what happens in Detroit, especially when it comes to those pensions.
In his ruling, the federal judge ruled pension could be reduced despite a state constitutional ban.
It's not just aging Rust Belt cities like Detroit where public workers' pensions are at risk. Chicago's credit rating has been downgraded because of a $19 billion pension fund shortfall.
It's a problem for states, too. According to the Pew Center, in 34 states, including Colorado, pension funds cover less than 80% of their retirees' pension and health care obligations.
Analysts say cash-strapped cities and states gave workers bigger pension benefits instead of pay raises.