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The city of Detroit filed for bankruptcy earlier this year,
and last week Detroit
residents and several city officials testified in bankruptcy court to
object to the filing. Many of the residents
were city employees afraid of losing their pension. After working twenty to thirty years as a
municipal worker, many citizens are left feeling they will be desolate without
the money they were promised.
Detroit has $18 billion in debt. About half of the debt comes from providing
benefits for retired workers. Detroit
has suffered from losses in revenues since 1960. Housing prices have significantly dropped and
city officials have failed to make proper adjustments to financial policy. In 2012, Detroit has over 21,000 people receiving
a pension and only 10,000 employees.
Currently the money spent on retirement benefits for Police and Fire
department workers is greater than the current operating budget.
A bankruptcy would cause pensions to be reduced, but not
eliminated. Michigan state law protects
pensions for government employees, so the filing was challenged as a violation
of the state constitution. The judge in
bankruptcy court, however, ruled the filing to be legal in July.
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The attorney for Detroit is hoping to submit a financial
restructuring plan early next year.
Hearings this month will determine whether or not the city is eligible
to move forward.
Bankruptcy will not solve Detroit’s struggles. Most likely the population decline will
continue after benefits are cut. While
the auto industry, the heart of Detroit’s economy, is financially healthy
again, the lack of economic diversity and decline in property value will keep
the city underfunded.
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