House Democrats Seek to Protect Workers in Municipal Bankruptcy

Democrats in the U.S. House are seeking to protect local-government workers in bankruptcy proceedings, responding to the record collapse in Detroit that’s poised to reduce city workers’ retirement benefits.

A bill by Michigan Representative John Conyers, the top Democrat on the House Judiciary Committee, and three other fellow Democrats would strengthen the threshold for negotiations with workers before a filing could be approved. It would also require employees to consent to changes to contracts, including pension and health-care benefits.

“When a city files for bankruptcy, its dedicated public employees -- the policemen, firefighters and workers who selflessly served their city for years -- are at risk of having their hard-earned wages, pensions and health benefits reduced or even eliminated entirely,” Conyers, whose district includes Detroit, said in a statement today.

Detroit filed for court protection almost a year ago after decades of population decline left it unable to pay its debts. The filing led to a court fight between workers and retirees over the city’s diminished resources.

While such cases are rare, several local governments, including Stockton, California, and Jefferson County, Alabama, turned to courts too after the recession that ended in 2009 strained their finances.

The record filing by Detroit, with $18 billion in debt, drew opposition from public employees facing cuts to benefits as a result of the federal court proceedings, even though state law protects them.

Conyers said the legislation is intended to make it tougher for localities to use bankruptcy proceedings to get out of union agreements. Two Senate Democrats -- West Virginia’s Jay Rockefeller and Elizabeth Warren of Massachusetts -- have also introduced legislation making it more difficult to cut retiree benefits in bankruptcy.

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Alan Goldstein

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