(NEW YORK) — If Detroit is allowed to proceed with its bankruptcy filing, it could lead to painful changes elsewhere for millions of teachers, firefighters, police and other city and state workers.
“There’s been a belief in the public sector that these pension promises are safe no matter what,” finance professor Robert Novy-Marx of the University of Rochester.
But if the court allows Detroit to reduce its pension payments, Novy-Marx says that could lead to cuts elsewhere.
“It is possible this is potentially an important precedent setting case,” he says. Some generous public sector pensions are seriously under-funded.
On July 18, Detroit became the biggest American city to file for bankruptcy after its emergency manager filed for Chapter 9 protection with more than $18 billion in accrued obligations. In the filing with the U.S. Bankruptcy Court in the Eastern District of Michigan, state-appointed emergency manager Kevyn Orr indicated that the city’s estimated number of creditors was “over 100,000.”
Copyright 2013 ABC News Radio
Julia Horowitz, CNN
Paul Menser, BizMojo Idaho
Nate Eaton, EastIdahoNews.com