Detroit Bankruptcy Could Slash Pensions 90%: CA Take Note

unions pension benefitsDetroit declared bankruptcy last week. For California, here are the takeaways from the Detroit News report:

“A bankruptcy judge could trump the state constitution by slashing retiree pensions, ripping up contracts and paying creditors roughly a dime on the dollar for unsecured claims worth $11.45 billion.”

That’s because the bankruptcy will be heard in a federal bankruptcy court. The California Constitution has similar clauses. California’s pension funds insist that, no matter what, the pensions are sacrosanct; that state law trumps federal bankruptcy law. The Detroit bankruptcy could provide an answer.

Emergency Manager Kevyn Orr…

“proposed paying most of the money owed to secured creditors while pension funds, unions and unsecured bondholders would receive, in some cases, 10 cents on the dollar.”

That’s right: 10 percent. Which means the funds themselves effectively would become insolvent, and pensioners would not get paid.

As I’ve written before, about 30 years ago the same thing happened to Detroit’s neighboring city of Highland Park. Bankruptcy led to the pensions being entirely canceled. When there’s no money, there’s no money.

“The bankruptcy filing comes as an Ingham County judge is preparing Monday to hear arguments from retirees seeking to stop the bankruptcy filing, which produced an automatic stay of all pending litigation and capped a month of intense talks between Orr’s team and creditors, which largely have failed to restructure as much as $20 billion in debt and long-term liabilities.

“News of an imminent filing prompted lawyers for the city’s pension funds to request an emergency hearing this afternoon in Ingham County Circuit Court to block a bankruptcy authorization.”

It’s hard to see how a state court could trump a federal bankruptcy court. Federal bankruptcy law is long established and is one of the few parts of the federal government that actually works fairly well.

“Instead of paying creditors in full, Orr would use $1.25 billion over the next decade to buy police cars and fire trucks, replace broken street lights, tear down burned-out homes, fight blight and improve city services.”

That’s the question: Pensions or services?

Corollary question: If there are no services, why even have a city government — or a state government?

(John Seiler is the managing editor of CalWatchdog. Originally posted on CalWatchdog.)


  1. SKEPTICAL says

    To Sacramento progressives et al :
    BWA-HA-HA-HA-HA-HA-HA!! How does it feel to realize you could be at personal financial risk to prop up your bloated arrogant progressive bureaucracy instead of the taxpayers you designated as financial victims!
    You truly have earned that outcome.

  2. askeptic says

    I’m sure that San Berdoo and Stockton officials are looking at this very closely, and in Valejo they’re wondering “Why did it take Detroit so long to do this?. We could have saved Million$!”

  3. Needs to happen here on the state level on down. Absolutely unconscionable to retire with these kind of pensions and expect the taxpayer to fund them.


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