Detroit cuts deal with retired first responders on pensions

posted at 9:21 am on April 16, 2014 by Ed Morrissey

A new agreement with the city of Detroit could potentially be a very big deal, at least politically. Trying to climb out from under a fiscal collapse, the city managers had to restructure the massive pensions to eliminate or at least greatly reduce the debt overhang — but cutting pensions to first responders was highly unpopular. City managers got those retirees on board with their restructuring plans by protecting their benefits while cutting those of others, essentially splitting the opposition, but there is a huge caveat involved (via Ron Fournier):

Detroit has reached a deal with some retired workers over pension benefits, but cut monthly payments for other former employees, in a move that could give a boost to the city’s plan to exit bankruptcy in October, officials said Tuesday.

According to tentative agreements, retired police officers and firefighters will continue to receive their pensions while those who do not work in public safety will have some of their benefits scrapped.

There will be a 4.5 percent cut and an elimination of the cost-of- living payments for the general fund pensioners, said Tina Basset, spokesperson for the fund.

The agreement will cover more than 20,000 retired workers in a city going through one of the largest public bankruptcies in U.S. history. Both the retirees, as well as current workers who qualify for a future pension, will be allowed to vote as creditors in the bankruptcy.

How will Detroit fund these pensions? That’s been the problem all along, and not just in Detroit. Across the US, cities and states have massive pension overhangs thanks to defined-benefit plans that never got properly funded, rather than defined-contribution plans that get funded up front. That’s a major part of the debt Detroit is attempting to shed, although not the only component of it.

The answer? Detroit needs a bailout, and they’re not getting it from the federal government. Or will it?

Michigan officials and President Barack Obama’s Administration are discussing a plan to free up $100 million in federal money to aid Detroit’s retired city workers, the Detroit Free Press reported on Tuesday.

Citing two people familiar with the talks, the newspaper said the talks were centered around federal money flowing to Michigan for blight removal. Under the plan, $100 million would be earmarked for Detroit, reducing the $500 million the city’s emergency manager, Kevyn Orr, plans to use to eliminate blight over the next 10 years.

The $100 million saved could then be used by Orr to ease pension cuts for retirees under the city’s plan to adjust its $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history, according to the report.

That’s the best the White House can do without going to Congress — and the House won’t rush to bail out Detroit with federal money, no matter what that might mean for Michigan Republicans.

In case that doesn’t work out, Detroit is trying to raise the money from the state of Michigan and private donations. This deal depends on raising nearly a billion dollars for its bailout, mainly to keep the city’s art collection. In order for that deal to go through, Detroit had to cut a deal with its pensioners to get the bankruptcy court on board:

If completed, the agreements with the pension funds and with a group representing 6,500 retired police officers and firefighters seemed certain to provide Detroit’s blueprint for paying off portions of its debt, known as a plan of adjustment, with a simpler journey through court. They may also offer a political boost to the city’s plan in the eyes of the public. In Detroit, retired municipal workers make about $19,000 a year on average from pension payments, pension fund officials say, and retired police officers and firefighters, who do not get Social Security benefits, receive about $32,000 a year.

Support from the pension funds and some retirees should also help solidify an unusual arrangement that has become a central piece of the city’s plan for starting over: Some $800 million from charitable foundations and the state would go to retiree pensions in an effort to retain the collection at the Detroit Institute of Arts. As a stipulation for that arrangement to go forward, though, retirees have to agree to the city’s overall plan. Still unanswered is whether state lawmakers will agree to contribute their share of the money, $350 million.

The deal will cut further into retiree health coverage than previously thought, however:

The city, which filed for bankruptcy last July, has proposed shedding nearly $10 billion in unfunded liabilities in the largest municipal bankruptcy ever. More than $3 billion of that gap was the estimated underfunding in pension funds.

The biggest liability on Detroit’s books is the cost of health care for current and future retirees and their families. And retirees are likely to see deeper cuts in their original coverage as part of this deal. Bankruptcy court mediators said Tuesday a fund would be established for retiree health care costs but did provide details.

Detroit’s officials claim that the renaissance is right around the corner. But that will only be true if the city learns from its lessons over the last 50-plus years and avoids the kind of irrational pension debt and cronyism that eventually sunk Motor City. And other cities and states had better learn those lessons, too — and fast.


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retired police officers and firefighters will continue to receive their pensions while those who do not work in public safety will have some of their benefits scrapped.

They are all the same…screw the PEU’s, they all get trimmed…they were all part of the dirty political payoff’s for bennies in union contracts while negotiating with the politicians they delivered votes for year after year…

PatriotRider on April 16, 2014 at 9:28 AM

In case that doesn’t work out, Detroit is trying to raise the money from the state of Michigan and private donations.

So what else is new? Detroit views the rest of the Mitten State as nothing but a giant ATM machine.

Happy Nomad on April 16, 2014 at 9:29 AM

That’s the best the White House can do without going to Congress

Right. Because that’s always stopped Obama in the past.

Doughboy on April 16, 2014 at 9:31 AM

Why because they are “heroes”…it’s their job…period…

PatriotRider on April 16, 2014 at 9:31 AM

100 mil? Pocket change to The One, but will still ensure all the dead voters and union thugs in Detroit stay Dem. Look for a multitude of multi-billion dollars bailout bills to be initiated in the House, with the obligatory mantra, “It’s for the Children”.

vnvet on April 16, 2014 at 9:39 AM

No federal bail out… just put Obama’s economic policies to work in Detroit and you’ll have all your problems fixed…

Khun Joe on April 16, 2014 at 9:39 AM

Interesting. We’re north of $7 billion here in Houston and the only paper in town covers mightily for our liberal lesbian mermaid that has been along for the entire development of that debt. It only took 12 years to get here.

DanMan on April 16, 2014 at 9:42 AM

Print more money…and auction dilapidated houses in E-Bay…

WINNING!

workingclass artist on April 16, 2014 at 9:45 AM

Interesting. We’re north of $7 billion here in Houston and the only paper in town covers mightily for our liberal lesbian mermaid that has been along for the entire development of that debt. It only took 12 years to get here.

DanMan on April 16, 2014 at 9:42 AM

Wendy Davis will save Houston?

workingclass artist on April 16, 2014 at 9:47 AM

Wendy Davis will save Houston?

workingclass artist on April 16, 2014 at 9:47 AM

Of course not! All abortion Barbie cares about is the “right” of women to kill their children.

Happy Nomad on April 16, 2014 at 9:51 AM

Interesting. We’re north of $7 billion here in Houston and the only paper in town covers mightily for our liberal lesbian mermaid that has been along for the entire development of that debt. It only took 12 years to get here.

DanMan on April 16, 2014 at 9:42 AM

Our city tax supported debt is going down a little from the peak of 2009?

http://www.texastransparency.org/Special_Features/Debt_at_a_Glance/City.php?cityname=Dallas&citysubmit=GO

workingclass artist on April 16, 2014 at 9:54 AM

Even “courageous” Scott Walker caved to the “first responder” flood of steer manure.

A bureaucrat is a bureaucrat is a bureaucrat.

corona79 on April 16, 2014 at 9:54 AM

Wendy Davis will save Houston?

workingclass artist on April 16, 2014 at 9:47 AM

Of course not! All abortion Barbie cares about is the “right” of women to kill their children.

Happy Nomad on April 16, 2014 at 9:51 AM

Bbbbbut….Free Daycare for the win?

workingclass artist on April 16, 2014 at 9:55 AM

I call B$. Typical Liberal strategy at play here. Everyone should take a haircut of the same amount if they get a check from the City. No special deals for anyone.

Johnnyreb on April 16, 2014 at 9:55 AM

Any chance they’ll transition that benefits package to a defined contribution plan and address the problem, or are they just going to raid everyone elses retirement packages, slap a bandaid on a third of their debt and call it a win?

Sure they are.

Recon5 on April 16, 2014 at 9:57 AM

workingclass artist on April 16, 2014 at 9:54 AM

what a great site you linked there. Either the day of or maybe the day after the last election I heard Ma Parker actually cop to an almost $10 billion debt and have never found the data for her statement. She has on several occasions mentioned $3b or so but only in the context of “we’re solving or problems and making progress” type pabulum.

DanMan on April 16, 2014 at 10:20 AM

You shouldn’t begrudge the first responders their perks, look at how the money flows through the community. Those donuts aren’t going to eat themselves, you know.

If Detroit really wants to make a change in how it’s perceived, they should start with melting down the giant black fist that’s aimed at everyone coming into time. I understand why Old Detroit wanted to send that message, but is that really the “Welcome!” sign that New Detroit wants future residents and would be benefactors to see?

p.s. I can think of quite a few humorous things one could do with that fist, but overall it’s probably best if its just melted for scrap.

Tom Servo on April 16, 2014 at 10:43 AM

what a great site you linked there. Either the day of or maybe the day after the last election I heard Ma Parker actually cop to an almost $10 billion debt and have never found the data for her statement. She has on several occasions mentioned $3b or so but only in the context of “we’re solving or problems and making progress” type pabulum.

DanMan on April 16, 2014 at 10:20 AM

You mean this?

Dated 2012

“Houston, for example, has total outstanding debt of $13.1 billion. With a population of nearly 2.1 million, debt per capita is $6,264. Most city debt, the comptroller’s report points out, is backed by fees and other revenue sources.

“We could do a better job on being smarter about borrowing,” Combs said. “Are we really being careful before we build another building?”

Voters will be considering $2.7 billion in bond issues on the ballot this November from the city, Houston Community College and Houston Independent School District.

Janice Evans, speaking for Mayor Annise Parker, said the mayor has a record of limiting debt, from ending the practice of issuing bonds to pay pensions to supporting the pay-as-you-go drainage fee dubbed Rebuild Houston. The latter, Evans said, allows the city’s bond proposals this fall to be the smallest in 30 years and to require no tax increase….

Combs’ report puts Houston third in per-capita debt, behind San Antonio and Austin. Debt service makes up 18 percent, or $804 million, of the city’s $4.2 billion budget this fiscal year, Evans said.

Combs acknowledged that “there is plenty of good debt” that voters approve to help finance highway and water-related projects, for example. Still, she charged that too many governmental bodies are piling up debt without regard to its impact on future generations of Texans. “Have they done all their due diligence? Have they tried as hard as they know how to be strategic, to be careful?”

Combs suggested several ways to make debt obligations more transparent. As new debt is presented to voters for approval, her report recommended including on the ballot the amount of outstanding debt, debt service, per capita obligation, the amount of new debt, estimated debt service and the estimated per capita burden for proposed bonds….”

http://www.chron.com/news/houston-texas/article/State-comptroller-raises-the-red-flag-on-debt-3897326.php

workingclass artist on April 16, 2014 at 10:48 AM

B A I L O U T

If the federal government gives Detroit a bailout, the rest of the mismanaged, Democratic Party strongholds, will line-up right behind Detroit.

Both Chicago and the State of Illinois cannot possibly meet their pension obligations, or even fund debt service for much longer. Illinois Democrats have been begging for a federal bailout (because you can’t cut spending, or go against the unions if you are an Illinois Democrat).

JUST SAY NO!

pilsener on April 16, 2014 at 11:56 AM

Fungibility of money. Funding Democratic boondoogles for years. Just look at any school funding ballot initiative or referendum. It never says the money actually goes to where it winds up.

byepartisan on April 16, 2014 at 12:08 PM

Michigan officials and President Barack Obama’s Administration are discussing a plan to free up $100 million in federal money to aid Detroit’s retired city workers, the Detroit Free Press reported on Tuesday.

Here we go again. Good ol’ dumb schmuck low-brow workin’ Joe has to bail out these financial geniuses again. For all of their financial wizardry, learned publications, advanced degrees, and high-powered salaries, these idiots have never managed the fundamentals of cash-flow. This isn’t even Econ 101 – cash flow is before you even get to Econ 101.

I, as a stupid hick, have to manage mine, and so I do. But I guess as you penetrate further into the financial world, you get seduced by your own hubris, with the result of getting progressively stupider. Trees, meet forest.

ss396 on April 16, 2014 at 1:25 PM

Sell off the artwork. When you are bankrupt you liquidate assets

neyney on April 16, 2014 at 4:12 PM