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Detroit officially enters bankruptcy

Published: Tuesday, Dec. 3 2013 1:05 p.m. MST

In an Oct. 10, 2013 photo, a manhole cover is seen in Detroit. The next step for emergency manager Kevyn Orr if the bankruptcy gets approved is to put together a reorganization plan, which he has said he plans to do quickly, possibly by the end of the year. He’s already indicated what that plan would look like but those plans may be disrupted depending on what Judge Steven Rhodes has to stay in his bankruptcy decision on Tuesday, Dec. 3.

Carlos Osorio, Associated Press

Detroit is finally officially bankrupt, a federal bankruptcy judge certified on Tuesday.

"It is indeed a momentous day," U.S. bankruptcy judge Steven Rhodes said at the end of a 90-minute summary of his ruling, USA Today reported. "We have here a judicial finding that this once-proud city cannot pay its debts. At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity."

Rhodes surprised some observers by saying he would support the city in shaving pension expenses, a key bone of contention. The ruling on pensions has significant implications for others cities elsewhere. In California, for example, cities such as San Bernardino could seize the precedent, the Sacramento Bee suggested.

"But one crucial component was establishing that city officials negotiated in good faith with its creditors before filing for bankruptcy," The Huffington Post reported. "Rhodes said that the city did not negotiate in good faith on June 14, when it met with union leaders and other stakeholders, one month before filing for bankruptcy. The filing, and particularly Detroit's attempt to negotiate with creditors, has been hotly contested by unions and other debtors in court since the trial began in October."

The ruling by Rhodes could help bankrupt San Bernardino in a potential legal showdown with CalPERS over the sanctity of employee pensions.

"CalPERS, which argues that pensions can’t be cut, has tried unsuccessfully to get San Bernardino’s bankruptcy filing thrown out of court, saying the city is just trying to get out from under its lawful pension obligations," the Bee reported. "The city temporarily halted pension contributions to CalPERS right after going bankrupt, and while it has renewed the payments, it still owes the big pension fund about $15 million in past-due payments."

"It's a sad day for the people of Detroit," American Federation of State, County and Municipal Employees attorney Sharon Levine told CNBC in an interview. Levine said the AFSCME had filed an immediate appeal.

Email: eschulzke@desnews.com

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