Detroit’s Pension Ruling: Should Workers in Other Broke Cities be Scared?

December 3, 2013 – In The News
Fox Business

Michael Sweet was quoted in the Fox Business article "Detroit’s Pension Ruling: Should Workers in Other Broke Cities be Scared?" While the full text can be found in the December 3, 2013, issue of Fox Business, a synopsis is noted below.

U.S. Bankruptcy Judge Steven Rhodes ruled the city of Detroit eligible for Chapter 9 bankruptcy protection and said city officials can negotiate with bondholders, pension funds and unions.

While a decision on whether pensions will be cut has yet to be made, Michael Sweet says the judge’s decision means other struggling cities may now see bankruptcy as a way out.

“There will certainly be other municipalities looking at Detroit and thinking that bankruptcy isn’t such a bad idea,” he says. “Some cities are suffering worse than others and are in a hole they can’t get out of. People [in struggling cities and municipalities] may start discussions with their pension funds and unions to modify their pensions.”

“Rhodes sent a pretty clear message that pensions can be cut, and Orr has sent a pretty clear message that he will propose a plan to cut pensions,” Sweet says. “The next question is how much will the city propose to cut, and how much will the judge say is too much?”

Sweet said he wouldn’t be surprised if the city tried to cut 10-15 percent of pension funds, which he expects the judge to approve.

“There are people in Detroit who are barely making ends meet and who rely on these pensions to survive day to day,” he says. “A 10% to 15% cut for someone who is barebones and relying on a city pension will really hurt.”