On Remand: Marissa A. Wiesen, Chapter 9 Bankruptcy in Detroit and the Pension Problem

When Detroit filed for Chapter 9 bankruptcy on July 18, 2013, it became the largest U.S. city by population to do so. Once known as the “Paris of the West” and the home of America’s lucrative automotive industry, Detroit filed after fighting decline for over fifty years. While Detroit grew at a constant rate for the first half of the twentieth century, it has been shrinking at a stunning rate since. In 1950, the population was over 1.8 million; now Detroit is home to only 700,000 residents. There are tens of thousands of abandoned buildings and vacant properties. This has left Detroit with a shrunken tax base and a huge, 139-square-mile city to maintain. In the past fifty years, the city has also been plagued with increased borrowing and financial mismanagement, vastly underfunded pension funds, and “widespread dysfunction”—all factoring into Detroit’s decision to file for municipal bankruptcy.

Upon approving Detroit’s petition for municipal bankruptcy, U.S. Bankruptcy Judge Steven Rhodes gave the city approval to adjust its pension and retirement funds as part of the restructuring plan, despite a Michigan constitutional provision that explicitly protects pensions. Judge Rhodes ruled that pensions are to be treated as contracts and can be compromised in federal bankruptcy court. Many unions and retiree organizations are appealing the decision, citing that pensions are constitutionally protected.

Read more from the most recent On Remand article, Chapter 9 Bankruptcy in Detroit and the Pension Problem by Marissa A. Wiesen here.

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