In a much-anticipated decision this morning, U.S. Bankruptcy Judge Steven Rhodes ruled against a group of labor unions and other creditors and allowed the City of Detroit to file for municipal Chapter IX bankruptcy. It gets worse for the city’s municipal unions, as Judge Rhodes put city workers’ pensions on the potential chopping block:
In a surprise decision Tuesday morning — Rhodes also said he’ll allow pension cuts in Detroit’s bankruptcy. He emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable.
The AFL-CIO desperately wants a federal bailout for its members’ pensions, but it and its member unions bear at least partial responsibility for the fall of the Motor City. Detroit’s fiscal ruin was in part the fault of the demands of unions, both public- and private-sector. While public sector unions ran up high public pension liabilities—which now leave their members and retirees hanging out to dry—the United Auto Workers’ demands of the Big Three automakers made them uncompetitive and helped gut the city’s tax base. Other cities and industries should take heed from Detroit’s example—getting in bed with the unions can be costly.