Detroit Agrees to Pension Cuts, Allowing Bankruptcy Case to Move Forward

As retirees and city workers vote through pension changes, Detroit takes a big step in the long path of dealing with their creditors. 

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Late last night, Detroit passed a vote on an agreement that will help city get out of the bankruptcy they filed for a year ago. Workers and retirees in the economically damaged city have voted in favor of pension changes as part of the plan to reduce municipal debt. This comes just several weeks before a trial begins to end the largest public bankruptcy filing in U.S. history. 

The pension change is actually a pension cut, and while there was previous backlash, it was passed with a vast majority. The pension cut for general retirees is 4.5 percent, and they also lose annual inflation adjustments. Still, this was approved with 73 percent in favor. For retired city firefighters and police officers, they will lose only part of their annual inflation adjustment. About 82 percent of this group voted in favor of the cut. The votes took place over 60 days and was organized by a private company. 

The votes will give the judge in the trial, Judge Steven Rhodes, greater insight into Detroit's debt reduction strategy. The judge has $18 billion in long-term debt to consider. This vote triggers an $816 million bailout from the state, local foundations, and the Detroit Institute of Arts. It will also aid in preventing the sale of the city's art collection. However, this is all still pending the judge's agreement on August 14.

Kevyn Orr, the state appointed emergency manager currently handling Detroit's finances, said, "I want to thank city retirees and active employees who voted for casting aside the rhetoric and making an informed, positive decision about their future and the future of the city." 

Still, regardless of the landslide vote, not all are pleased with this change. The pensions are already quite small. Firefighters take in only $32,000, and other city workers get even less, between $19,000 to $20,000. Michigan Attorney General Bill Schuette believes the state Constitution does not allow pensions to be cut, even though Judge Rhodes ruled that federal law outweighs that provision. However, Schuette will not stand in the way of vote by appealing. "I will respect their decision," said Schuette in a public statement. 

This article is from the archive of our partner The Wire.