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Breakingviews: Detroit’s next hurdle

Tuesday, Jul 23, 2013 - 03:31

July 23 - Breakingviews columnists explain why Detroit’s bankruptcy filing doesn't just pit bondholders against retirees, but also federal versus states' rights in an 80-year-old legal dispute.

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And Detroit's bankruptcy filing last week. May end up settling an eight year old legal argument about state assists. Federal rights. Of course it's initially all about the money but read what's this what's this legal equality eighty year old or 76 year old or whatever it is legal question is can -- federal bankruptcy judge. -- public state public right pension and see if there's a protected by the constitution of the state Asia particularly ran as in many states. The constitution says that that cannot be done right you cannot appear. Public pension benefits for. They're really two things going on here in Detroit and refers -- as always look complicated it's. Very complicated and we'll try and run through it very quickly him in the first that she was K in Detroit and it. Some rest state judges said no. Governors. The authorization the petition is illegal because it violated state government the governor wanted it to happen to these that if they ever wanted to happen and actually rushed to get it done and it because there are practical. We didn't want it to -- -- rationally and in the state to a degree with a simple no because it's a state constitution says you cannot -- public. Pension benefits and by filing for bankruptcy implicit is that is that -- you're gonna cut public -- I think that goes away I think eventually goes into the for a federal bankruptcy -- then comes of the he's -- -- question that we just talked about. Can this federal judge cut pension benefits along with making bondholders taking care. Right in the face of this constitutional stay constant but he says he can't do it. Sets up a real class you know classic clash between the power of the federal government. And the power of the states to run her own just just to be clear on the -- -- opening the last time. The Supreme Court. Has addressed this night this kind of sense and was a little sad yes. Municipalities can go into bankruptcy if the state. Authorized wrote in other words if the state wants to go to federal bankruptcy proceedings it can't run it that's the last time we. And it didn't violate this constitutional. Separation between it and it is also. And right now this next site has been the slow burning issue I mean we've been talking about this at least since the financial crisis right -- The pensions are you that this city addicted to licensing case -- it is city stroke. Revenue -- destroy everything is Sharon if if if they gonna get out of bankruptcy it's gonna take everybody's sharing not just apparently I would argue that. Pensions and intentions of becoming the problem because revenues are falling. Wright rev -- and have to obviously cut services. And that's he's living losing partly -- the last fifty years putts on I think so that makes it a little bit different and but I mean again if if it is ruled that you can't cut the pensions then they're gonna have to have these very hard decisions -- right. How can you. Just stabilize the situation it and also Detroit unlike other cities actually have to has to completely re imagined itself and potentially. Should race issue has come up in Stockton California at San Bernardino California. But I mean presumably those municipalities will survive they have a base of which will you know allow them to survive. Detroit that's a real question that makes it very different. It's not only bigger yes not only older but it has a real question goes beyond just sort of that's. You can't you pay your pay attention can't pay your politics -- and you survive the senate. Okay we'll leave that. We'll follow the financial and legal aspects of the Detroit bankruptcy we'll have more breaking news for you tomorrow.

Breakingviews: Detroit’s next hurdle

Tuesday, Jul 23, 2013 - 03:31

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