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Detroit Meltdown: Appeals Court Rejects Pensioners’ Challenge

Public union leaders, take note: A U.S. Court of Appeals just struck a major blow against retired public workers challenging Detroit’s cuts to their benefits as the city claws its way out of pension-induced bankruptcy. Reuters reports:

A divided federal appeals court on Monday rejected claims by Detroit retirees that their pensions were unfairly cut to help the city end the largest U.S. municipal bankruptcy.

The 6th U.S. Circuit Court of Appeals in Cincinnati said restoring the pension cuts would “unavoidably” unravel Detroit’s reorganization plan, which helped the city shed $7 billion of debt and end its 17-month bankruptcy in December 2014. […]

Thousands of retired Detroit city workers were subjected to 4.5 percent pension cuts, the end of cost-of-living increases, and reduced insurance coverage to help the city close a $1.88 billion pension plan funding gap.

One of the most significant obstacles to pension reform is the political capture of state and local governments by public sector unions, whose priority, for better or for worse, is to guarantee maximum possible compensation for their members. In the short run, demanding implausible retirement benefits is good politics for union leaders, and acceding to those demands is good politics for legislators who hold the purse strings. In the long run, however, such promises exert tremendous strain on state and local budgets and can even force them into bankruptcy, as has already taken place in places like Detroit and Puerto Rico, and is just over the horizon for cities like Chicago.

The story of Detroit’s fiscal cataclysm is: Once cities go into bankruptcy, all bets are off for public pensioners. So it’s not in the interest of public sector unions to squeeze every cent they can from local governments. If their employer goes belly-up, they may be left with far less than they first bargained for.

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