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Detroit bankruptcy raises red flags in other US cities

Washington, July 23 (IANS) Even as a federal judge set a hearing on a challenge to a bankruptcy filing by Detroit, America’s famed automotive city, questions are being raised about the fate of several other debt-crushed major US cities.

The federal judge overseeing Detroit’s bankruptcy filing would hold a hearing Wednesday to determine whether a lawsuit by retired public employees can block it, according to the New York Times. The judge, Steven Rhodes of US Bankruptcy Court, agreed to the hearing requested by Detroit’s emergency manager in response to a Michigan judge’s ruling that the city’s bankruptcy filing violated the state’s Constitution because it could cut city workers’ pensions.

The emergency manager, Kevyn D. Orr, had filed a motion asking that the city be protected from litigation as it proceeds with its historic bankruptcy filing, made last week.

At the heart of Detroit’s problem is a growing unfunded debt on benefits owed to current and future retirees – some $3.5 billion,- which mirrors a circumstance being seen across the US, according to Orr, as cited by Detroit Free Press.

While many smaller cities have filed for bankruptcy, most notably California’s Stockton and San Bernardino in 2012, no other city of Detroit’s size appears to be on the cusp of imminent financial collapse, according to Fox News.

However, those bankruptcy filings together have resulted in speculation about whether more are on the horizon.

Other cities now on the radar include Cincinnati, Minneapolis, Portland, Oregon, and Santa Fe, New Mexico-following Moody’s saying in April that they and 11 other municipalities were being reviewed for a possible credit downgrade, it said.

The situation is highlighted by a Pew Charitable Trusts Study of 61 major US cities that found they collectively had enough money to cover 74 percent of pension liabilities but only 6 percent of health care liabilities, Fox News said.

The total difference between what the cities owed to retired employees and what was covered equalled $217.2 billion, according to the report, “A Widening Gap in Cities,” released in January.

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