Govt. workers challenge Detroit bankruptcy in court

DETROIT: Detroit's bankruptcy was challenged in court Friday by government workers fighting to protect their retirement benefits as Michigan's governor insisted it is the only way for Motown to survive.
A county judge ordered that the proceedings be halted because it violates the US state's constitution, but it's not clear how much weight that would carry in federal bankruptcy court. The order was immediately appealed by Michigan's attorney general.
Saddled with more than $18 billion in debt and a shrunken tax base, the birthplace of the US auto industry has been so strapped for cash it can't even keep the streetlights on.
"Now is the opportunity to stop 60 years of decline," Governor Rick Snyder said at a news conference a day after approving the biggest municipal bankruptcy in American history.
"We will come out with a stronger, better Detroit and a format to grow this city. The citizens of not just this city but the state deserve it."
Once a bustling beacon of industrial might, the Motor City is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.
Detroit has seen its population shrink by more than half — from 1.8 million in 1950 to 685,000 today — as crime, flight to the suburbs and the hollowing out of the auto industry ate away at its foundations.
The bankruptcy is expected to make it harder for municipalities in Michigan and other US states to borrow money, by undermining confidence in what used to be among the most trusted bonds available.
Snyder insisted there was no other "viable" option because the city is "broke," with 38 percent of its budget spent on debt and pension obligations.
The situation in Detroit is being closely monitored by government workers across the country who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.
About $9 billion of the city's debt is owed to the pension funds and retiree health care benefits of the Detroit's 10,000 employees and 20,000 retirees.
State-appointed emergency manager Kevyn Orr said the city simply does not have the money to cover all its outstanding debts.
"Yes, there are 10,000 employees. Yes, there are 20,000 retirees. But there are 700,000 citizens who don't deserve 58 minute (police) response times," Orr told reporters.
"Does anybody think it's okay to have 40-year-old trees growing through the roofs of dilapidated houses? Does anybody think our children should walk through the streets in the dark after school?"
The head of the nation's main public workers union castigated Snyder and Orr for refusing to negotiate an alternative approach.
"Detroit's public service employees worked hard and played by the rules, and now their freedom to retire with dignity is in peril," AFSCME President Lee Saunders said in a statement. "Apparently Gov. Snyder and Kevyn Orr want Detroit's public service workers to rely on their children for food and shelter, or have to work until they die."
The city will continue to function during the bankruptcy process and could even end up paying its bills "quicker than usual," Orr vowed.
Lifelong resident Milton Walker, 45, said that while it's "unfortunate" that city workers will lose their benefits, bankruptcy was "right thing to do."
"They can't pay them if they don't have it — you can't get blood out of a turnip," Walker told AFP.
Rachel Lutz, who owns two boutiques near the Detroit Institute of Art, said she expects the city will be able to pull through the bankruptcy.
"I'm both a resident and a business owner in Detroit, but I don't think it's going to affect me on any intimate level," she said, as a steady stream of customers perused the clothes in her shop.
It will be up to a federal judge to determine if Detroit is allowed to restructure — and even shed — its obligations in a Chapter 9 bankruptcy.
Unlike General Motors and Chrysler — which were able to restructure under bankruptcy protection in 2009 in a matter of weeks thanks to the backing of the US government — it could take years for Detroit's case to be resolved.
Especially since the city can't expect much help from the federal or state government.
Asked about the possibility of a bailout, White House spokesman Jay Carney told reporters "on the matter of their insolvency, that's something for the city and the creditors to resolve."