The judge left open whether Mr Orr could sell off city-owned cultural treasures in the prestigious Detroit Institute of Arts or whether creditors could demand their disposal. But he did appear to counsel caution, saying that the city “must take extreme care that the asset is truly unnecessary in carrying out its mission”.
Mr Orr said later that the fate of the art collection, including masterpieces by the likes of Van Gogh, Matisse, Bruegel and Diego Rivera, was still on the table. A financial assessment of the value of the art is expected this month.
The judge ruled that the pensions of city retirees were eligible for cuts under a “plan of adjustment”, despite arguments that they were contractually protected.
“Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy,” Mr Rhodes said.
There were angry scenes at the court after his ruling and public sector unions announced an immediate legal appeal after arguing in court that Mr Orr did not negotiate in good faith and that he exaggerated the city’s financial black hole.
Michigan’s state constitution protects public pensions as a “contractual obligation” that cannot be “diminished or impaired”. But federal bankruptcy law allows contracts to be cut to reach a deal with creditors and Mr Rhodes ruled that trumps the state constitution.
After the ruling, Mr Orr said that his message to pensioners was that cuts were unavoidable, but “we’re trying to be very thoughtful, measured and humane”.
Mr Orr was appointed to run the overwhelmingly Democrat city by Rick Snyder, Michigan’s Republican governor. He said his goal was for Detroit to emerge from court bankruptcy protection next year with a formal plan for a new financial start.
The city was the cradle of the US car industry and the engine of American prosperity for much of the last century, as well as the birthplace of the Motown music phenomenon.
But as America’s industrial roots crumbled, it has been blighted by population flight, soaring crime and a collapsing tax base, leaving it unable to meet even the most basic financial obligations.