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Lawyers representing ratepayers in the Jefferson County, Ala., sewer debt bankruptcy told a federal judge that the terms of a settlement are unconstitutional and will cost the ratepayers too much money in coming years, Reuters reported yesterday. County lawyers say that the agreement is a done deal that even a federal judge has no right to unwind, a position that Judge Sharon Blackburn found "shocking." Creditors took a $1.4 billion cut in the adjustment plan. The question that the judge will decide is whether the settlement violates the U.S. Constitution. Calvin Grigsby, a lawyer for the ratepayers, cited the 10th Amendment, saying that powers not claimed by federal authorities belong to the people. Grigsby said separately that ratepayers should have been able to vote on the settlement regarding the rate increases.

Detroit's city workers and retirees overwhelmingly agreed to accept the city's debt-adjustment plan, according to results filed late Monday, potentially clearing the way for the struggling city to exit bankruptcy in the next few months, Reuters reported today. Documents filed in bankruptcy court show that the city's current and retired police and fire employees, along with other active and retired city workers, will accept pension reductions to help adjust $18 billion in debt in the largest-ever U.S. municipal bankruptcy case. Most bondholders rejected the plan, along with insurers that are backing some of the debt. The city declared that the "overwhelming" vote by members of its two retirement systems to accept changes to their pensions puts it on track for a coming trial to determine whether the plan is fair and feasible. That phase is scheduled to begin on Aug. 14 and will be overseen by Bankruptcy Judge Steven W. Rhodes. "The voting shows strong support for the city's plan to adjust its debts and for the investment necessary to provide essential services and put Detroit on secure financial footing," said Detroit Emergency Manager Kevyn Orr.

Pennsylvania received its third bond downgrade in two years yesterday after Gov. Tom Corbett signed a budget that papers over a massive deficit with stopgaps and failed to win passage of legislation to rein in the state’s rising public pension debt, The Associated Press reported yesterday. Moody's Investors Service dropped Pennsylvania's $11.1 billion of general obligation bonds down a rung on its ratings ladder, from Aa2 to Aa3, rendering it among the six worst states in Moody's ratings for the 47 states with general obligation debt. It was the second downgrade by Moody's in two years. Fitch Ratings downgraded Pennsylvania last year, and Standard & Poor's has warned that it could downgrade Pennsylvania if it didn't see significant strides to address deficits and pension liabilities. Moody's cited Pennsylvania's growing structural deficit and weak reserves, as well as relatively slow economic growth, that it said makes the state unlikely to keep up with its growing public pension liabilities.

The U.S. commonwealth of Puerto Rico asked a federal court to dismiss as premature a lawsuit filed by U.S. mutual funds that sought to strike down a recently enacted Puerto Rican law that the funds said posed a threat to American investors, Reuters reported yesterday. The Public Corporation Debt Enforcement and Recovery Act allows certain public corporations to modify their debts, and its passage in June spooked the $3.7 trillion U.S. municipal bond market and weighed on the prices of bonds issued by Puerto Rico's electric authority, known as PREPA. Puerto Rico said that the lawsuit, brought by bond funds run by Franklin Templeton and OppenheimerFunds, was untimely because PREPA had not sought to restructure its debt. Puerto Rico has about $73 billion of debt, of which roughly $19 billion is in its public corporations, according to an estimate by Barclays.

Detroit neighborhoods are being relit, its vacant homes are being sold off or torn down, its public transportation is cleaner and more often on schedule, and the city has renegotiated some burdensome union contracts, The Associated Press reported yesterday. In the little more than a year since state-appointed Emergency Manager Kevyn Orr made Detroit the largest U.S. city to seek bankruptcy protection, it has experienced a wide range of improvements that will factor into Judge Steven Rhodes’s decisions during next month's bankruptcy trial. A major piece could fall into place today, with the expected release of the results of a vote by creditors, including more than 30,000 retired and current city workers, on whether to accept millions of dollars in cuts. When the city filed for bankruptcy, Detroit's debt was estimated to be $18 billion, and its revenue streams were too small to keep up with basic city services. Some of the most dramatic changes were designed to save the city money and didn't need to wait for the August bankruptcy confirmation trial.

Flint Emergency Manager Darnell Earley said that the city may be Michigan’s second to plunge into municipal bankruptcy unless retirees accept cuts in health benefits that threaten to unravel a balanced budget, Bloomberg News reported yesterday. The specter intensifies the conflict over finances in the city of 100,000, which twice has been under state control. Like Detroit, which a year ago this week filed the largest U.S. municipal bankruptcy, Flint has struggled with loss of population, jobs and revenue. The birthplace of General Motors Co. has only half its population of 1960. “If we have no ability to mitigate the cost of retiree health care, that’s going to make it very difficult for the city to remain financially stable over the next few years,” Earley said. Without changes, retiree pension and health expenses would consume 32 percent of the $55 million general fund.

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, Bloomberg News reported yesterday. 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. 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. Conyers said that 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.

The federal judge overseeing Detroit’s record $18 billion bankruptcy is trying to reduce the number of legal disputes he must resolve before the start of trial on the city’s debt-adjustment plan next month, Bloomberg News reported today. Bankruptcy Judge Steven Rhodes today began two days of hearings on about a half-dozen technical matters raised by opponents of the bankruptcy, including whether the counties surrounding Detroit have a right to challenge the city’s plan. By culling the issues, Judge Rhodes is seeking to focus the trial on disputes over the basic facts underlying the city’s proposal. Detroit is trying to win court permission to cut at least $7.4 billion in unsecured debt owed to bondholders, public employees and retirees.

The Detroit Institute of Arts said yesterday that it has secured another $26.8 million in pledged donations to cover its portion of the "grand bargain" intended to help Detroit emerge from bankruptcy while sparing a sale of the museum's art works, Reuters reported yesterday. The bargain is the linchpin to the city's bankruptcy plan, providing a way for Detroit to pay its pensioners and avoid a sale of the city-owned museum's art collection that some creditors have suggested to raise cash. The deal is expected to provide more than $800 million over 20 years to retired Detroit workers, according to the institute. The DIA has agreed to pay for $100 million of the bargain, and the latest donations bring its total amount secured to $80 million. Also under the deal, philanthropic foundations have pledged $366 million over 20 years and the state of Michigan approved a lump sum payment of $195 million last month.

Detroit’s current and retired employees pleaded with the judge overseeing the city’s bankruptcy to limit the financial suffering they face from a reorganization plan that imposes $7.4 billion in cuts on them and other creditors, Bloomberg News reported yesterday. At the hearing, Bankruptcy Judge Steven Rhodes heard from city creditors who aren’t represented by lawyers in Detroit’s record $18 billion bankruptcy. Active and retired city workers, as well as investors, would be forced to take less than the $10.4 billion they are owed if Judge Rhodes approves Detroit’s plan. Judge Rhodes is to take their comments into consideration when he holds a trial next month on whether to approve the plan. Remaining opponents include bond insurer Syncora Guarantee Inc., which may have to cover losses imposed on bond investors, with some facing a recovery of as little as 11 percent.