Detroit's Largest Police Union to Support City's Bankruptcy Plan

By Dow Jones Business News, 
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By Matthew Dolan

A key holdout group in Detroit's municipal bankruptcy case has reached a settlement to support the city's debt- cutting plan, federal mediators said Tuesday night.

Detroit and its largest police union reached agreement "on important core economic terms" that will become part of a future collective-bargaining agreement on wages and benefits, the mediators said in a statement. No terms were immediately released.

The city and the Detroit Police Officers Association also agreed to continue negotiations with a goal of reaching a five-year collective-bargaining agreement. But meanwhile, according to federal mediators, the union made a critical concession: Urging its members to vote in favor of the city's debt-cutting plan.

Earlier, many of the city's unions and pension systems, several banks and some of the city's bond insurers reached separate deals to support the city's plan.

About 32,000 city pension holders--Detroit employees and retired workers--still have the chance to vote individually on the plan. All ballots are due by Friday.

"With this agreement, only a few remaining, albeit significant, disputes remain to be addressed between the City and its creditors prior to the Bankruptcy Court's scheduled hearing on the City's Plan of Adjustment," the mediators said.

Detroit, with about 680,000 residents, filed for municipal bankruptcy protection almost one year ago with about $18 billion in long-term obligations and a dwindling cash reserve. It was the largest such filing in U.S. history.

In the months that followed, Detroit, under an emergency manager, has secured deals with many creditors, leading to a debt-cutting plan that would trim benefits to pension holders but hit much harder against many of the city's unsecured bondholders.

If the pension holders vote for the plan, the state will contribute about $200 million to a larger effort valued in excess of $800 million to essentially buy the city-owned Detroit Institute of Arts and place it in an independent trust while using the proceeds to help make up a shortfall in city payments into its two employee pension funds.

If they vote against the plan, they risk deeper cuts and could pursue lawsuits challenging Detroit's ability to cut pensions, potentially tying up the city in court for months, if not years.

After the vote, a federal bankruptcy judge will weigh in, holding a trial expected in August on whether the city's reorganization plan, which also includes about $1.5 billion in reinvestment in services and blight removal, is viable. Detroit hopes to exit bankruptcy court as soon as this fall.

Write to Matthew Dolan at matthew.dolan@wsj.com


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