Detroit Bankruptcy Ruling Could Set Pension Precedent
By guest blogger Katie Ash
This post originally appeared on the District Dossier blog.
Detroit has become the largest municipality in the United States to enter bankruptcy, being declared 'insolvent' by U.S. Bankruptcy Judge Steven Rhodes Dec. 3.
In his ruling, Rhodes also said that he would allow pension cuts for unionized workers as the city negotiates its bankruptcy plan—although teachers' pensions will not be impacted because they are part of the state-administered system.
But although teachers' pensions will not be affected, the ruling could have far-reaching implications for teachers' pensions in other states and municipalities, said Keith Johnson, the president of the city's 5,000-member Detroit Federation of Teachers, in an interview with Education Week.
"I believe that ultimately the issue of the pensions is going to end up in the U.S. Supreme Court," he said. "We have to keep an eye on this because this is going to set a precedent."
Lawmakers in Illinois, for example, are debating a bill that would cut pension benefits for retired teachers there, reports the Chicago Tribune.
The Detroit ruling ends almost five months of uncertainty after the city originally filed for bankruptcy in July. The move was almost immediately ruled unconstitutional by a Michigan judge, prompting the new ruling by Rhodes.
The city currently owes more than $18 billion to its creditors, of which the Detroit school system is one. Officials at Detroit Public Schools have said that the impact of the city's bankruptcy would be minimal since it is its own separate organization from the city and funding for the school system comes from the state.
However, as Johnson, from the teacher's union, explained, it's impossible to extricate Detroit's education system from the city itself.
"Detroit's recovery plan has to include something that incentivizes people to want to invest here and people [to] want to live here," he said, which includes providing a high-quality education for the students of Detroit.