Detroit bankruptcy case can go forward: US judge

Pedestrians walk along Woodward Avenue in Detroit, Michigan, on Dec 3, 2013. The city of Detroit won approval to move forward with its bankruptcy filing from a federal judge on Tuesday despite objections from city workers fearful of losing their pens
Pedestrians walk along Woodward Avenue in Detroit, Michigan, on Dec 3, 2013. The city of Detroit won approval to move forward with its bankruptcy filing from a federal judge on Tuesday despite objections from city workers fearful of losing their pensions and other creditors, local media reports. -- PHOTO: REUTERS

CHICAGO (AFP) - The city of Detroit won approval to move forward with its bankruptcy filing from a federal judge on Tuesday despite objections from city workers fearful of losing their pensions and other creditors, local media reports.

Saddled with more than US$18 billion (S$23 billion) in debt and a tax base depleted by decades of population loss and urban blight, the birthplace of the United States (US) auto industry has been so strapped for cash it can not even keep the streetlights on.

It filed for bankruptcy protection in July, the largest US 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 US bankruptcy code that applies to municipalities.

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

"The city no longer has the resources to... provide its citizens basic services," he told a packed courtroom, the Detroit News reported.

"To reverse this decline and attract new residents and revitalise 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 state constitution.

But Judge Rhodes warned that federal bankruptcy law allows for the pensions to be cut, adding "the court emphasises 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.

Judge Rhodes indicated that may not happen, arguing that selling assets would be a one-time fix that would not address Detroit's deeper problems.

"When the expenses of an enterprise exceed its revenue, a one-time infusion of cash, whether from an asset sale or borrowing, only delays inevitable financial failure unless the enterprise reduces expenses or enhances income," he said, according to the Detroit News.