28 January 2014

Detroit Domino

I haven't posted lately about the Chapter 9 bankruptcy of the City of Detroit. (Go here and here for my most recent previous posts.) There's been plenty of news but most of it too deep in the weeds to justify posting about it. Until today.

Go here to read a news item--actually not about Detroit--but about Detroit's next-door neighbor, Flint. Flint has sought to reduce its health-care obligations to retirees and, not surprisingly, the retirees have fought back. So far the federal District Court has enjoined Flint from implementing its proposed changes until there's trial on whether the city may do it. And why might Flint not be able to change retiree health benefits? Because the Michigan Constitution can be read to prohibit it.

The federal Court of Appeals for the Sixth Circuit (which includes Michigan) has agreed with stopping Flint from making changes prior to a trial but in the op-ed linked above Flint's emergency manager Darnell Earley asserts that he'll be compelled to take Flint into Chapter 9 without immediate relief. It's widely believed (including by me) that a city may take actions under Chapter 9 that would be prohibited outside bankruptcy.

I don't know if Mr. Earley is bluffing or stating the truth. I believe, however, that Detroit's filing has helped remove the stigma of Chapter 9 bankruptcy and that it would be foolish for those opposing retiree health-car cuts not to take his threat seriously.

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