As the once-proud city of Detroit humbles itself in bankruptcy court, its financial future may hinge on this key question: Is the city obliged to its past? Or can Detroit renege on its promises to thousands of retirees for the sake of its present city services?
The legal question at the heart of Detroit's bankruptcy filing has never definitively been answered by the nation's highest courts. But it could become increasingly important as cities from coast to coast are grappling with shortfalls in pension funds that left unchecked could force cutbacks to police, firefighters and other essential city services.
The question matters because pensions pose a major liability for states, counties, cities, schools and other local governmental entities. A report released earlier this year by the Pew Charitable Trusts found that the nation's largest cities had a combined pension shortfall of almost $100 billion and an even larger shortfall in retiree health-care benefits as the nation's financial crisis peaked in the 2009 fiscal year.
Although municipal finances generally have improved since then, many local retirement plans remain on an unsustainable path, the Pew organization said.
Laws governing local public employee pensions are one of those areas left to state control.
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