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Detroit’s Bankruptcy Plan

Today, Detroit officials laid out a plan for exiting the largest municipal bankruptcy in U.S. history. I thought this was an interesting article/event since our professor is a frequent visitor to Detroit for auto conferences, and since I do not know of any city this big in America going bankrupt at least in my lifetime. Detroit plans to do this by cutting pensions for non-uniformed retirees by nearly 1/3 and by paying bondholders .20 on the dollar for every dollar owed to them by Detroit. Also, they will cut pensions for firefighters and police officers by 10%.

On the other hand, the city is proposing $1.5 billion in expenditures over the next 10 years on capital improvements. I do not know how much this is compared to the pension cuts, because I could not find the details of the plan online. But I feel that spending that goes to people who have already worked and earned their pensions should come before spending to ensure the possibility of future workers in Detroit.

I realize that these capital investments are necessary to ensure future economic activity in Detroit, but if I were a worker who was depending on this pension money I would not want money going towards future improvements before prior obligations were fulfilled. After all, people can go work in different cities, but it is much harder for someone 70 years of age to go find a new job because the money they had planned their retirement around isn’t coming in anymore.

You can read the full article here:


  1. dillard dillard

    Needless to see how Detroit is explicity lying out another plan to assuage the debts they hold cuts must be somewhere. To see these cuts coming from employee pensions I understand how this can exacerbate the economy, but if it can get workers to work longer rather than retiring earlier this could help improve economic conditions. By cutting pay to firefighters and police officers we may yet see a stagnation of crime, which rates have already increased since the bailouts and worsening economic situations. I think taking much of this and investing in capital is headed in the right direction and seeing spending in this way makes me more optimistic and amenable of their future and 10 year plan to get back on its feet.

  2. gjeong gjeong

    Due to the financial crisis in 2008-2009, Detroit lost its economic power. For the auto industry class, we went to Detroit last Spring, and what we saw was the decline of Detroit. It will be interesting to see how the city will try to recover. I heard a lot of Chinese investment is going to Detroit and the governor hopes that it can be a turning point for the economy in Detroit. However, I do not think it is enough. Can $1.5 billion in expenditures over the next 10 years on capital improvements? We should think about the question “what about the workers and people who are currently suffering?”

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