According to Moody’s Investor’s Service, Detroit’s filing for bankruptcy protection could change the approach to pensions and other long-term liabilities for other struggling local governments in the U.S. Some of these distressed local governments that are essentially ‘below investment grade’ could find bankruptcy more appealing if Detroit can use its Chapter 9 case to eliminate pension benefits and general obligation debt.
However, on the contrary costly litigation could deter other cash-strapped cities from filing for bankruptcy protection. If Detroit is burdened for years with expensive court proceedings which fail to restructure its liabilities, other distressed cities will be unlikely to follow its approach.
Moody’s reports that there could be a “modest increase” in the number of those towns that choose to use tactics similar to Detroit’s if the Michigan city cuts accrued pension benefits and general obligation debt.
Click here to read more on the far reaching effects of Detroit’s bankruptcy proceedings.
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