As the city of Detroit looks to sort out its mess to the tune of $18 billion in long-term debt in the country’s largest municipal bankruptcy filing, a settlement with retired first responders is expected to be a part of the city’s revised debt-reduction plan that will be filed later this week in federal court.

Detroit Muncipal Bankruptcy

While the mediators made it clear that the retirees will be forced to eat the cost-of-living increases, these increases could be restored in time. Added to the deal is a move towards a voluntary employee beneficiary association plan, known as a VEBA, rather than a reliance on the city to handle their health care in the future. While the city is looking to increase independent oversight of the pension system, the retirees will also be allowed to keep some representation on the board.

Detroit’s retired police and firefighters voted unanimously in favor

The board of the Retired Detroit Police and Fire Fighters Association voted unanimously in favor of the proposal today. The group represents over 80% of the city’s retired uniformed workers numbering around 6,500. According to court documents filed late last month, the vote was needed in order for the city to receive $816 million from the state and private foundations in order to continue to fund the city pensions. The use of state money and that of private foundations is part of the city’s “grand bargain” to protect pensions while saving the city’s art collection.

This is by no means finished as all of Detroit city’s creditors will also be given a vote on the matter and also requires ALL retiree groups voting in its favor. Even if it makes it through that process, U.S. Bankruptcy Judge Steven Rhodes will still have the final say before its approval.

Prior to today’s accord, retired police and firefighters were looking at the elimination of cost-of-living benefits and a reduction of their pensions somewhere between 6% and 14%. Police and firefighters are not the only pensions in dispute with employee unions still having to negotiate along with a committee that represents all retirees and two city pension systems.

The “cramdown”

That is not to say today wasn’t a breakthrough in this landmark Chapter 9 municipal bankruptcy. Just last week, Judge Rhodes urged thousands of creditors and Detroit city to find a compromise after the judge approved a settlement with two banks that were owed close to $300 million. A group of bondholders also decided to settle for around 74% of $400 million they were owed though that has yet to be approved by Judge Rhodes.

“The message is, ‘Now is the time to negotiate,'” Judge Rhodes said Friday in court. While addressing other creditors he reminded them of the city’s abilities under the “cramdown” to simply get himself on board with any settlement and his ability to approve the city’s debt-cutting plan regardless of voice disapproval of the city’s remaining creditors.