Authors: Meryl H. Nacco
Addresses: Ernst and Young LLP, 5 Times Square, New York, NY 10036, USA
Abstract: Detroit was founded as a city with a rich history and base in the auto manufacturing industry. However, its strengths became its weaknesses when the industry left the area. In addition to numerous other factors such as politics and racial tensions, Detroit's economy has degraded since the 1950s. Due to the lack of economic stimulating activities and population decline, as of 18 July 2013, the city filed for Chapter 9 Bankruptcy protection. Certain controversies surround the case regarding eligibility and creditor rights, specifically in terms of pension obligations. Can and should pensions be impaired as requested by the city? Detroit was also claiming to have more pension debt than reported on their financials. On 15 December 2013, Judge Steve Rhodes decided that pensions could indeed be impaired but any impairment would have to be approved by the courts. With that ruling, Kevyn Orr, the city's emergency manager has come up with a few proposals for settlement in regards to their pensions and the rest of the debt, some of which include severe pension impairment and outside funding made to the plan. However, no firm decision on the future of Detroit and its bankruptcy has been finalised.
Keywords: Detroit bankruptcy; government accounting; US cities; regulation; pensions; USA; United States; eligibility; creditor rights; pension obligations; pension debt; pension impairment.
International Journal of Critical Accounting, 2015 Vol.7 No.2, pp.157 - 172
Available online: 16 Jun 2015 *Full-text access for editors Access for subscribers Purchase this article Comment on this article