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Judge green-lights Detroit bankruptcy; unions launch appeal

CHICAGO -- The city of Detroit won judicial approval to move forward with the largest municipal bankruptcy in U.S. history Tuesday despite objections from city workers fearful of losing their pensions.

Saddled with more than US$18 billion in debt and a tax base depleted by decades of population loss and urban blight, the birthplace of the U.S. auto industry has been so strapped for cash it can't even keep the street lights on.

It filed for bankruptcy protection in July, the largest U.S. city ever to do so.

After lengthy initial hearings and weeks of deliberation, Judge Steven Rhodes ruled Detroit is eligible to restructure its debt and liabilities under Chapter 9 of the U.S. bankruptcy code.

The decision was immediately appealed by the city's largest public-sector union.

It was hailed by Michigan Governor Rick Snyder as the only “viable” way for Detroit to “stay on the path toward a brighter future.”

“There will be other difficult decisions as we work through this process,” Snyder said in a statement.

“But Michigan and Detroit are resilient and are the comeback stories in the country. Working together we can and will make sure that reinvention happens.”

In an unusual move, Rhodes explained his decision in a court hearing prior to releasing his complex 140-page opinion.

Bankruptcy was a “foregone conclusion” and should have happened years ago, Rhodes told the packed courtroom.

“The city no longer has the resources to ... provide its citizens basic services,” the Detroit News quoted Rhodes as saying.

“To reverse this decline and attract new residents and revitalize and reinvigorate, Detroit needs help.”

Thousands of retired city workers are fearful they will be pushed into poverty if Detroit is able to slash their pension benefits, which are supposed to be protected by the Michigan state constitution.

Rhodes warned that federal bankruptcy law allows for the pensions to be cut, adding “the court emphasizes that it will not lightly or causally exercise federal bankruptcy law to impair pensions.”

The city-owned Detroit Institute of Arts is also at risk of closing its doors if Rhodes allows even part of its world-class collection to be sold to pay off Detroit's debts.

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In this 2009 file photo, the hand of a large sculpture extends near General Motors world headquarters in Detroit, Michigan. On December 3, Judge Rhodes ruled that the city is eligible for bankruptcy protection and that pensions can be cut. Detroit is the largest city in U.S. history to file for bankruptcy. (AFP)

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