Good news: Bailed-out automakers set to bail out Detroit pension funds desperately seeking bailout

posted at 9:41 pm on June 9, 2014 by Mary Katharine Ham

Sigh:

Saying the fate of the Detroit Institute of Arts and easing pension cuts in Detroit’s bankruptcy are critical to the city’s future, representatives of Detroit’s three automakers today committed $26 million to the grand bargain on which much of the city’s exit from bankruptcy is based.

The donations are about preserving the city’s cultural heritage and helping pensioners facing steep cuts to retirement benefits, but “most importantly this money is intended to help the Motor City get back on its feet again,” said Reid Bigland, an executive for Chrysler, which is donating $6 million to the DIA-pension deal. “This is really about being a contributor and working with those who are also committed to revitalizing this city.”

General Motors and Ford and their charitable arms also are donating $10 million apiece…

Ford is welcome to donate, as it didn’t receive a bunch of your money to prop it up in 2009 (though it did argue for bailing out its competitors).

These donations are part of a sort of Grand Bargain that sits none too well with pensioners who were promised a bunch of stuff politicians and union leaders knew damn well they couldn’t deliver. Pensioners, for their part, mostly gladly signed on and empowered those who kept lying to them. And, this is what it looks like when you let an entitlement crisis go this far, past the point where you could have fixed things with tweaks and small prices. This is what the bargain looked like at the beginning of the process, in February:

In the plan, which probably will be amended in the weeks ahead, police, firefighters and those departments’ retirees will take a 10% cut to their current pension payment. The pensions of all other city employees and retirees will be cut more than three times as much: 34%. Neither group will receive cost of living adjustments in the future.

The city says pension plans are underfunded by $3.5 billion, though unions dispute that number.

Bondholders can expect to receive about 20 cents on the dollar.

The plan treats pension holders better than bondholders in part because of $700 million from foundations and the state of Michigan that could be used to bolster the pension funds. That could create problems in court, said George South, a partner at DLA Piper in New York.

“There is still much work in front of us to continue the recovery from a decades-long spiral,” Detroit Emergency Manager Kevyn Orr said in a statement. “We must move swiftly to emerge from bankruptcy so that the financial distress harming the city can end.”

A Detroit Free Press editor offers some tough love on the current state of the deal, which has been bolstered by all kinds of moneyed interests (and the not-so-moneyed state) to make things easier on the retirees at risk:

And the grand bargain that has been crafted by the court is a remarkable, compassionate attempt to soften the blow to retirees. National and local foundations have put up about $400 million (spread over 20 years), the Detroit Institute of Arts will raise $100 million in the next decade, and state government will contribute nearly $200 million to backfill pension underfunding.

It is an unprecedented knitting together of goodwill, political power and finance to help save the state’s largest city.

An unprecedented kitting together which wouldn’t have been necessary if political power and union finance hadn’t been running a racket for years.

As a result, rather than getting a few dimes on the dollar like other creditors in the bankruptcy, pensioners will keep the vast majority of what they’re owed. All retirees will lose health care benefits. Police and firefighters will see their payouts maintained, though they will give up 55% of their built-in increases in the future.

The city’s other retirees will take a 4.5% cut to monthly pension checks and the elimination of cost-of-living adjustments. Because the city is attempting to recoup annuity payments that emergency manager Kevyn Orr says were inflated, retirees who have annuities will see an additional cut to monthly checks — which combine pension and annuity benefits — of up to 15.5%. The most vulnerable among them would be spared entirely, thanks to a deal with creditors that will free up cash for those who would fall below the poverty line.

Most banks, by contrast, will lose more than 50% of what the city owes them. If retirees fail to support the grand bargain, it’s likely that the outside money — unprecedented in a municipal bankruptcy — will go away. And things would get ugly. Really ugly.

Exit comment, thanks to Xzibit (with a nod to Andrew Moylan):

9g5rr


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Apologies, guys. I have no idea why this didn’t go up at its scheduled time. Went to check it and everything looked right, so I just saved it again.

Mary Katharine Ham on June 9, 2014 at 10:14 PM

This is ridiculous…

OmahaConservative on June 9, 2014 at 10:15 PM

Sigh, indeed!

Who will bail out the creditors?

RedPepper on June 9, 2014 at 10:19 PM

Apologies, guys. I have no idea why this didn’t go up at its scheduled time. Went to check it and everything looked right, so I just saved it again.

Mary Katharine Ham on June 9, 2014 at 10:14 PM

MKH:

DON’T DO IT AGAIN!!
(kidding)

canopfor on June 9, 2014 at 10:19 PM

Barack the Bailer!!

canopfor on June 9, 2014 at 10:21 PM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?

Bmore on June 9, 2014 at 10:22 PM

Apologies, guys. I have no idea why this didn’t go up at its scheduled time. Went to check it and everything looked right, so I just saved it again.

Mary Katharine Ham on June 9, 2014 at 10:14 PM

Food Truck thread cursed you.

nobar on June 9, 2014 at 10:22 PM

Or should that have read, Ponzi scheme?

Bmore on June 9, 2014 at 10:23 PM

I have to say I don’t see how $26.whatever million even puts a dent in $3.5 billion.

Cindy Munford on June 9, 2014 at 10:24 PM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?

Bmore on June 9, 2014 at 10:22 PM

It makes you an unfeeling trucon (lols). Welcome to the club.

nobar on June 9, 2014 at 10:24 PM

Interchangable?

Bmore on June 9, 2014 at 10:24 PM

Speaking of Bailouts, er, kind of:
==================================

https://twitter.com/markknoller

Mark Knoller @markknoller · 2h

Also tomorrow at 4pm, Pres Obama uses Tumblr to discuss and take questions about college affordability and student loan debt.

Mark Knoller @markknoller · 8h

Pres signed memorandum directing @arneduncan to make another 5-million eligible to cap student loan monthly payments at 10% of income.

Replied to 0 times

Mark Knoller @markknoller · 8h

Pres Obama takes his student loan policy to Tumblr tomorrow: “I have two teenage daughters so I am hip to all these things” like Tumblr.

Replied to 0 times

Mark Knoller @markknoller · 8h

Pres Obama says it would be “scandalous” to allow tax loopholes for the rich while not helping student loan borrowers deal with their debt.

Replied to 0 times

Mark Knoller @markknoller · 8h

Pres Obama calls Senate student loan bill “a no brainer” – a choice between lower tax bills for millionaires or lower student loan bills.

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Mark Knoller @markknoller · 8h

Pres Obama says more young people earning college degrees than ever before – but too many end up with too much student loan debt.

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Mark Knoller @markknoller · 8h

At student loan debt event, Pres Obama says “no young person in America should be priced out of a college education.”

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Mark Knoller @markknoller · 9h

In WH briefing, @arneduncan says contracts of college coaches should be tied to students getting their degrees, not games won or lost.

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Mark Knoller @markknoller · 9h

Duncan says Pres Obama today signing memorandum to make another 5-million eligible for cap on college loan debt to 10% of income.

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Mark Knoller @markknoller · 9h

Duncan calls college educaton the “single most important investment” Americans can make in the future.

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Mark Knoller @markknoller · 9h

Despite higher costs of college and student loan debt, Educ Secy @arneduncan says higher education “is absolutely worth it.”

canopfor on June 9, 2014 at 10:25 PM

nobar on June 9, 2014 at 10:24 PM

I suppose. Still though the entire thing must certainly collapse under its own overweightness. Might as well take pleasure in it it would seem. Must remember to ask Schadenfreude about this when I see him.

Bmore on June 9, 2014 at 10:26 PM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?

Bmore on June 9, 2014 at 10:22 PM

Bmore:

No,…its called, ..”ComeUppance”:)
(sarc)

canopfor on June 9, 2014 at 10:27 PM

Regardless. I can say this with all certainty. Travis Bickles famous quote comes to mind quite a bit lately. Plus there is a musical version of it. Making it an even more delightful idea.

Bmore on June 9, 2014 at 10:28 PM

canopfor on June 9, 2014 at 10:27 PM

Yes. I think that is right.The pendulum and what. ; )

Bmore on June 9, 2014 at 10:29 PM

“There is still much work in front of us to continue the recovery from a decades-long spiral,” Detroit Emergency Manager Kevyn Orr said in a statement. “We must move swiftly to emerge from bankruptcy so that the financial distress harming the city can end.”

Damn those republicans, they ruined everything in Detroit ;-)
everything I tell ya …

burrata on June 9, 2014 at 10:30 PM

That was sooooooo racist…I can’t explain exactly why, but I’m sure it is.

AUINSC on June 9, 2014 at 10:32 PM

Alt Headline: Detroit To Learn Nothing

BigGator5 on June 9, 2014 at 10:37 PM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?

Bmore on June 9, 2014 at 10:22 PM

It would be merciful, in the long run. Agreed.

Jaibones on June 9, 2014 at 10:39 PM

There has got to be a way to snooker Canada into taking MoTown off our hands…

JohnGalt23 on June 9, 2014 at 10:50 PM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?

Bmore on June 9, 2014 at 10:22 PM

This is just a puny preview of the disaster coming when the Social Security time-bomb goes off.

Stock up on Alpo.

s1im on June 9, 2014 at 10:51 PM

I think the phrase is, “Hooray for crime”.

formwiz on June 9, 2014 at 11:07 PM

that meme is perfect! haha

Sachiko on June 9, 2014 at 11:33 PM

Just a hint of what’s going to happen to California. Pisses me off that liberals promise stuff to get elected and then default so the rest of us responsible adults can pick up the pieces.

COgirl on June 9, 2014 at 11:53 PM

While I certainly don’t wish misery on anyone I was sort of looking forward to the knashing of teeth, keening and gob-smacked clueless whining as the leaders of public employee unions were forced to admit how their whole shtick was total BS from start to finish.

MTF on June 10, 2014 at 12:58 AM

It is an unprecedented knitting together of goodwill, political power and finance to help save the state’s largest city.

Yeah, doncha hate it when all those Repub cities started declaring bankruptcy and screwing the little guy?!?

DublOh7 on June 10, 2014 at 1:00 AM

We are going full speed ahead toward the canyon floor. We’re Fluked.

HiJack on June 10, 2014 at 1:12 AM

The pensioners should decline and make the city sell EVERYTHING at the DIA. This is just getting silly that Detroit’s largest asset is being protected for some odd reason. As a retired police officer I feel for the pensioners. However my tax dollars should not be used in anyway to bail them out.

Far too often we have done so already. Sell the fu**ing art.

Conservative4Ever on June 10, 2014 at 1:13 AM

Just a hint of what’s going to happen to California. Pisses me off that liberals promise stuff to get elected and then default so the rest of us responsible adults can pick up the pieces.

COgirl on June 9, 2014 at 11:53 PM

Nope. Maybe it’s time to start seriously thinking of ways to go on the dole while maintaining some semblance of a decent lifestyle.

HiJack on June 10, 2014 at 1:14 AM

Money changing hands? But first it came out of your pocket.

The government has no money but what it gets from you.

But I guess they have forgotten that at every level of the guv.

Especially, Obama’s guv.

Sherman1864 on June 10, 2014 at 2:05 AM

While I have some sympathy for innocent employees whose pensions were underfunded through incompetence and/or corruption, those in Detroit do not qualify.

Most of them got a 13th pension payment at Christmas, for “free,” courtesy the crooks controlling the pensions, who were also paying themselves huge bonuses and distributing random checks to city council members and department heads instead of making sure the pension fund was secure.

The fund managers are thieves who should be stripped of all wordly goods and sent to prison for their crimes. And the employees and retirees who chose not to question how the fund could be so generous share the blame.

Adjoran on June 10, 2014 at 2:30 AM

Selling the art would be tantamount to looting the public’s cultural treasures which were either donated by people in the private sector or paid for with tax dollars collected from city residents and those paying non-resident income taxes. Using that art to pay off the pensions of public employees who have already brought the city to bankruptcy would be morally wrong.

BTW, art isn’t the only valuable asset the city owns. The Detroit Historical Museum owns about 6 dozen very valuable collectors cars including a Chrysler Turbine car, the Dodge brothers’ personal Dodges and the first Mustang.

rokemronnie on June 10, 2014 at 2:41 AM

No more bailouts. Period.

Theophile on June 10, 2014 at 5:58 AM

If you want to ‘revitalize’ Detroit, then help by tearing down the unoccupied buildings and shifting the city limits in to that of a decent sized town or small city… and revert what used to be the suburbs back to the State. Bailing out pensioners won’t help with a city that is in decay trying to retain its status which it lost decades ago due to population flight.

Want a better Detroit?

Go through bankruptcy, cut the pensioner promises down to very little, resize the city down, and also tell pensioners that if they remain in the new city they can get a bit better deal on taxes. Kill all the regulations and taxes of Old Detroit and start from scratch with a new base, a flat tax, and a new government that has very little to do beyond police, a hospital or two, sanitation and a few other utilities and then make sure that they WORK for ALL RESIDENTS of the city.

Band-aid ‘solutions’ on gaping chest wounds is throwing good money after bad.

Detroit might survive as a decent sized town or even small city, but it cannot survive with its current government, current taxes and current geographical footprint.

ajacksonian on June 10, 2014 at 6:25 AM

Detroit just needs to increase the minimum wage. Duh…

reaganaut on June 10, 2014 at 7:43 AM

Money down the drain.

Steve Eggleston on June 10, 2014 at 7:59 AM

I have to say I don’t see how $26.whatever million even puts a dent in $3.5 billion.

Cindy Munford on June 9, 2014 at 10:24 PM

That was my first thought. It’s not even 1% of the liability. It’s an auto exec’s annual salary.

talkingpoints on June 10, 2014 at 8:05 AM

As devoid of logic as this article is, it maintained high invective content against those paying most for this deal:

The grand bargain has inspired a vicious campaign of lies and fear-mongering, led by banks that don’t want pensioners to get a better deal, and joined by right-wing zealots whose motives are to prevent tax money from helping pensioners and, frankly, to be sure that retirees don’t make out any better than the banks. Some union officials also have been cool to the proposal, in a belief that a better deal can be won some other way.

The modern progressive is unthinking and unable to learn. The banks and auto makers should be implementing an exit plan. Let it burn.

ROCnPhilly on June 10, 2014 at 8:56 AM

Is it wrong to hope the entire pyramid scheme collapses and that people drown on their way to starving?
Bmore on June 9, 2014 at 10:22 PM

I just wish that for once in those disaster movies, instead of the Vatican collapsing or an asteroid wiping out Paris, that Detroit would be ground zero. And it wouldn’t hurt to take out those Pedophile Prophet worshippers in Dearborn too.

Nutstuyu on June 10, 2014 at 8:58 AM

Pres signed memorandum directing @arneduncan to make another 5-million eligible to cap student loan monthly payments at 10% of income. -canopfor

I am not sure this 5 million number might just be smoke and mirrors.

There is a difference between the loans the students got back then, before 2007. It was only in 2006 when Nancy Pelosi took over the student loans by raising the interest to high rates, and blaming the republican inaction in the House saying they wanted high interest rates. A law setting the rates around 3 percent expired…on schedule.

Before this date, the worst student loans would be graduate student rates, and those people might be helped by the law, but not students with only a BA. Since I have piles of children, all in college at this time I can tell you the older children had low interest rates and therefore the payments don’t meet this 10% threshold, and they have jobs and got jobs when they graduated.

This is only going to apply to certain people.

If you graduated before 2007 you might be 28 or 29 years old by now. Those kids had some opportunity when they got out of college, even if it was not like earlier generations.

In 2005 and 2006 colleges still had lots of recruiters in the career services office, I was there. It is the Obama era that has killed opportunity for all, and now your best opportunity is to hope for a government job? with loan forgiveness? THAT is sick. They also cannot take the best and brightest in government because it is unfair to single out achievement, places are filled in more suspicious ways, ability being one of the last factors.

Fleuries on June 10, 2014 at 9:20 AM

Higher Education sure failed Obama!

Obamatrix on June 10, 2014 at 9:34 AM

I have lived in the shadows of the “D” all my life. I have seen what liberal rule has done to a once great city. When I see all the efforts that has been made to try and save the city only to have one group after another tear down the deal because they are not getting their “Fair share” or “what was promised” (like 90% of pay in retirement for some people) all I can think of is this movie quote:
(replace Klingons for Democrats or Union workers)

[on whether to help the Klingons]

Captain James T. Kirk: They’re animals.

Captain Spock: Jim, there is an historic opportunity here.

Captain James T. Kirk: Don’t believe them. Don’t trust them.

Captain Spock: They’re dying.

Captain James T. Kirk: Let them die!

mechkiller_k on June 10, 2014 at 9:38 AM

I just wish that for once in those disaster movies, instead of the Vatican collapsing or an asteroid wiping out Paris, that Detroit would be ground zero. And it wouldn’t hurt to take out those Pedophile Prophet worshippers in Dearborn too.

Nutstuyu on June 10, 2014 at 8:58 AM

If an asteroid hit in the city of Detroit you could not tell which buildings and houses where destroyed by the impact or from the last 40 years of liberal neglect. The only difference you would see is that the high winds from the impact would blow all the garbage off the streets.

mechkiller_k on June 10, 2014 at 9:43 AM

Does it matter what is done to save Detroit? Millions moved here or there will not solve the union and political corruption that created this failure. As long as the office-holders and parasites are still there, it is lost.

This is up to the people of Detroit – whether they want to continue or not.

virgo on June 10, 2014 at 11:16 AM

Xzibit FTW!

Ward Cleaver on June 10, 2014 at 11:40 AM

You can keep your pension if you accept a city assigned piece of property in Detroit as $10,000 worth of the pension AND live there the rest of your life. If you leave the city limits to live elsewhere your pension is reduced to 5 cents on a dollar.

{^_^}

herself on June 10, 2014 at 7:51 PM