Detroit goes bankrupt

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ygtbk

@josh:

I'll try this again.

Do you think anyone other than Detroit is obliged to pay Detroit's debts? Not "wouldn't it be nice if", but actually obliged?

I completely agree with you that "too big to fail" is a severe problem. A purist would not have bailed out GM, AIG, RBS, Fannie, Freddie...

What would have happened in the absence of bailouts is a matter of conjecture, but it could have gotten much uglier than it did.

Reworking the system so that "too big to fail" is met with a snort of derision is (in my mind) a good goal.

mersh

Quote:

So you're comparing yourself to a large municipality?

 

If you were a city, what city would you be? Wasteful and bloated like Detroit after decades of lazy promises and government cheese dependency? Or lean and mean like Colorado Springs, where they know personal responsibility is the ultimate form of governance? Don't forget to bring your own flashlight...

 

josh

ygtbk wrote:

@josh:

 

Do you think anyone other than Detroit is obliged to pay Detroit's debts? Not "wouldn't it be nice if", but actually obliged?

Obliged?  Legally?  Morally?  Practically?

ygtbk

josh wrote:

ygtbk wrote:

@josh:

Do you think anyone other than Detroit is obliged to pay Detroit's debts? Not "wouldn't it be nice if", but actually obliged?

Obliged?  Legally?  Morally?  Practically?

It can be a three-part question if you like.

abnormal

BTW, if anyone doubts that Detroit's pension liabilities are far larger than the current bankruptcy plan says

http://www.suntimes.com/news/martin/27440924-452/even-after-reform-pensi...

Quote:
The amounts of these unfunded liabilities, as reported, are about to take a great leap upward. When government accounting (GASB) Statement No. 67 becomes effective for plans ended June 30 or later, it will require pension plans that are not adequately funded to report using a different — and lower — blended discount rate to calculate the unfunded liability. Economists have known for years that the use of a discount rate of 7.5-8 percent was way too high. Using a more realistic rate — reflecting a municipal borrowing rate *— will produce estimated unfunded liabilities that are many billions higher than those that have been reported.

But as for using realistic (i.e., lower) discount rates I wouldn't bet that the sponsors of public plans will do "the right thing".  There is at least one RFP out there where the state in question [Montana, Wyoming or some such - don't remember - I'd have to dig it up] where the state explicitly stated that they wouldn't consider any consultanting actuaries that supported lower discount rates.  Whether or not the actuary can relieve himself of professional and/or legal liability by saying the client mandated the use of a particular rate is an open question - my gut feel is that any disclaimer that is strong enough to protect the actuary is likely to have the client go ballistic and refuse to engage them.

 

 

abnormal

http://mobile.nytimes.com/blogs/dealbook/2014/05/15/detroit-bankruptcy-d...

Quote:
The federal judge handling Detroit’s bankruptcy indicated on Thursday that the current timetable for finishing the case might be unrealistic given the many disputes outstanding, raising questions about whether Detroit can exit bankruptcy before the end of its emergency manager’s term.

Judge Steven Rhodes made the observation in a hearing after saying he had heard that the state had promised to give Detroit some money — but only if the city could get him to approve its bankruptcy exit plan by the end of September. He said state lawmakers needed to understand he could not guarantee meeting that deadline.

“There are a bazillion things that could happen between now and Sept. 30,” the judge said.

Don't you just love precise legal jargon?

Quote:
Judge Rhodes seemed to be alluding to the thick stack of objections to Detroit’s bankruptcy plan that piled up in the courthouse this week in response to a deadline. For months, a team of mediators has been trying to negotiate out-of-court settlements to Detroit’s many obligations, and until recently it seemed to be having remarkable success, particularly with the so-called grand bargain, which proposed to use the city’s famous art collection to raise $816 million for retirees’ pensions. The grand bargain calls for $466 million from private foundations and the Detroit Institute of Arts and a $350 million appropriation from the state — with the contingency that Judge Rhodes said he heard about through the grapevine.

 

 

 

abnormal

http://mobile.bloomberg.com/news/2014-05-15/detroit-creditors-seek-to-de...

Quote:
A bond insurer wants the chance to fight Detroit’s effort to cancel $1.4 billion in pension debt, while the city is asking a judge to take a bus tour of its blighted areas before ruling on its $18 billion bankruptcy plan.

The insurer, Financial Guaranty Insurance Co., along with investors who would be wiped out by the plan, wants to take part in a lawsuit Detroit filed to cancel the debt, which was issued in 2005 and 2006 to prop up public worker pensions. FGIC and the investors claim that a trustee now opposing the suit won’t represent their interests adequately.

FGIC faces $1 billion in claims over pension bonds if the city succeeds in throwing out the debt, Edward Soto, an attorney for the bond insurer, told U.S. Bankruptcy Judge Steven Rhodes in Detroit yesterday.

Canceling the debt will free up money to pay other creditors, said Chris DiPompeo, one of the city’s attorneys. Letting FGIC and the investors participate in the lawsuit would make the case more complex and may disrupt the city’s plan to seek approval of its debt-adjustment proposal in July, he said.

DiPompeo said keeping the lawsuit narrowly focused would allow key issues in the bankruptcy to be resolved before the July plan-approval trial.

BTW, last time I looked FGIC (the insurer) was insolvent by a couple of billion.  At year end they have [url=http://www.fgic.com/investorrelations/financialreports/annualstatement20... Capital & Surplus[/url] of approximately $66 million.

 

josh

Americans for Prosperity, the conservative advocacy group supported by the Koch brothers, has launched an effort to torpedo a proposed settlement in the Detroit bankruptcy case, potentially complicating chances for completing the deal just as its prospects seemed to be improving.

The organization, formed to fight big government and spending, is contacting 90,000 conservatives in Michigan and encouraging them to rally against a plan to provide $195 million in state money to help settle Detroit pension holders' claims in the case, a key element of the deal.

The group has threatened to run ads against members of the Republican-controlled Legislature who vote in favor of the appropriation before the state's August primary.

http://talkingpointsmemo.com/news/koch-brothers-group-fighting-detroit-b...

abnormal

http://archive.coloradoan.com/usatoday/article/9354503?from=global

Quote:
Detroit officials were concerned enough about a wave of city employees putting in for retirement that top administrators and consultants held a series of forums for workers to explain details about Detroit's pension reductions - and to alert workers that retiring now, rather than staying on with the city, won't preserve pension benefits from cuts in bankruptcy.

Emergency manager Kevyn Orr's spokesman, Bill Nowling, said Tuesday that the city learned last week that documents and emails being shared among workers claimed, in various ways, that retiring before July 1 might mean less of a pension cut for city workers.

Not so, Nowling said.

"That's just flat-out wrong," Nowling said. "Cuts to pensions are going to be irrespective of whether you retire now or wait to retire after July 1."

http://mobile.nytimes.com/2014/05/22/us/detroit-pension-proposal-gets-an...

Quote:
After weeks of heated negotiations with Detroit, the nation’s largest bankrupt city, lawyers for city retirees took the stage at a convention center downtown on Wednesday to face their fuming clients.

The gathering, an information session held by a committee representing former city workers and their survivors entitled to receive retirement benefits, was the first in a series of public meetings meant to help retirees understand the consequences of a vote they must take in the coming weeks. By July 11, Detroit’s 20,000 retired city workers must decide whether to accept pension cuts the city proposes, or vote no and risk losing much more.

“At the end of the day, we don’t want you to hurt yourself with a vote that, understandably, you are all angry about,” said one of the lawyers, Sam J. Alberts, as he tried to calm the crowd of about 500.

Palpable anger among those at the meeting was a clear indication that despite tentative deals the city has reached with the committee, pension funds and union officials to support a path out of bankruptcy, persuading the retirees will be a completely different battle.

“I’m going to court,” said David Sole, a former water department worker who was handing out fliers urging others to reject the city’s offer, even if it meant steeper cuts.

.....
Mr. Sole was among many retirees lobbying peers to reject the proposal, which would also reduce cost-of-living increases and slash health care benefits. A resounding no vote, they argued, would send a message that more negotiation was needed before a federal judge considers whether to approve Detroit’s bankruptcy plan this summer.

“We shouldn’t even be discussing this,” one man shouted, interrupting the lawyers as they explained the proposal. Another hollered, “Don’t give up the people’s right to fight.” At times, the room erupted into a din of arguments between protesters and other pensioners trying to ask questions about their mail-in ballots. Some directed their anger at the retiree committee, accusing its members of “selling out” in the bankruptcy negotiations.

The committee’s lawyers defended the plan, which they endorsed in a letter to retirees last week, as the best one possible under the circumstances. “You’re trying to stop a moving train,” said Carole Neville, one of the lawyers hired by the committee.

A second meeting for retirees was held at the same location later Wednesday, and more have been scheduled. Officials for the city’s pension funds are expected to hold their own informational meetings in June.

“I want to preserve my right to sue,” said John Miller, who worked for 31 years with the public lighting department and estimated that he would lose $1,500 a month under the proposed plan. A car collector, Mr. Miller said that without that income he would probably have to sell a prized 1970 Dodge Super Bee to pay off some loans.

“I did everything I was told, and now they’re trying to take it away from me,” he said. “How can they do that? There’s got to be a legal challenge.”

Bacchus

Why does that article sound like they are trying to make the workers look like rich fucks that have made a ton off their pensions? "a car collector, mr miller said without the income he would prob have to sell a prized car"?  I can't afford to collect cars, let those spoiled fucks in the unions get their rich unbelieveable pensions cut, is what it seems the article wants me to conclude afterwards

abnormal

The average pension in Detroit is pretty small (don't forget that many (most?) of these individuals are not eligible for Social Security)

Quote:
Retired general city workers, such as librarians or sanitation workers, received average payments of $18,275 a year in 2011, according to the Detroit General Retirement System. But those who put in the most time (or earn higher salaries) can see far healthier payments. A general city employee who retired in 2011 with an average ending salary of $60,000 and 40 years of service could receive around $45,000 a year.

Such benefits are more or less on par with the Detroit-area union auto workers. Retirees of the three big automakers receive average annual benefits of about $18,000 per year, in addition to another roughly $15,000 to $18,000 in Social Security payments, according to the United Automobile Workers, or UAW.

That's a big distinction: While retired Detroit firefighters and police officers receive more generous pension checks than auto workers -- checks averaged almost $30,000 a year in 2011 -- they often don't receive the added bonus of Social Security payments.

A 30-year veteran of the fire department who retired last year with an average ending salary of $60,000 would have qualified to receive around $44,000 a year, according to calculations using the plan's pension formula.

http://money.cnn.com/2013/07/23/retirement/detroit-pensions/

 

Bacchus

Oh I know they are not that generous but that article seems to me to be encouraging a negative outlook on them

abnormal

Bacchus wrote:

Oh I know they are not that generous but that article seems to me to be encouraging a negative outlook on them

Not even sure of that.  My guess is that they focussed on a loudmouth that was willing to speak on record.

abnormal

http://mobile.nytimes.com/2014/05/23/us/200-million-could-curb-pension-c...

Quote:
In a series of votes that could be critical for Detroit’s emergence from bankruptcy, the Michigan State House on Thursday agreed to contribute nearly $200 million in state money for a deal to spare Detroit’s retirees from larger pension cuts and to avoid selling artworks from the city’s museum.

The deal, which also includes pledges of hundreds of millions of dollars from private foundations, had drawn criticism from conservative groups who call it a “state bailout,” but it made it through the Republican-controlled House with relative ease after days of heated negotiation. The choice, lawmakers said, seemed less about a desirable option than some worse alternative.

“Bear in mind that if this goes down, we face a train wreck,” Representative Jim Townsend, a Democrat, had warned lawmakers before they cast votes on 11 bills that are part of Detroit’s unusual proposed bankruptcy settlement — a deal that has become known as The Grand Bargain. “This legislation really is not about the city’s finances,” he said. “It is about the city’s retirees.”

The bargain, which is still subject to support from the city’s retirees as well as a federal bankruptcy judge, also awaits approval in the State Senate, where Republicans hold a larger percentage of seats than in the House.

......
Under the deal, the state would send $194.8 million from its so-called rainy day fund into Detroit’s retirement systems. That fund would be paid back over 20 years with revenue the state gets from tobacco settlements.

The bills would also create a nine-member financial review commission — seven of whom would be appointees of the governor or state officials — to monitor Detroit’s finances for years ahead. The commission’s duties would include reviewing contracts of more than $750,000, collective bargaining agreements and operating budgets and appointing a chief financial officer.

And the bills would bar the Detroit Institute of Arts, whose works would be protected from sale as part of the larger bargain, from asking for additional property tax revenues from taxpayers in three counties after current bills expire in 2022. It was uncertain how the museum would make up for the lost tax revenues, which voters in Macomb, Oakland and Wayne Counties had approved in 2012.

abnormal

Not about Detroit proper but seems to belong in this thread:

Quote:
Public pensions are sounding their death rattle, and you might be the one who ends up paying the undertaker.

With few exceptions, state and local pension funds are woefully underfunded. Five heavily populated states—California, Illinois, Ohio, New Jersey, and Texas—are collectively underfunded by $431.5 billion. That’s according to those states’ own accounts published in a 2012 Harvard University study that was led by former Assistant Treasury Secretary Tom Healy.

Accounting for current low interest rates, Healy and his coauthors estimate that the true extent of underfunding is $1.26 trillion.

When your tab is floating in the nebulous zone between $431.5 billion and $1.26 trillion, does the exact number really matter? Either way you can’t pay it. Even wrapping your mind around numbers that large is difficult—like trying to visualize distances described in light-years.

.....
Speaking of taxes, individual taxpayers are no more inclined to pay for underfunded pension promises than corporations are. Just like Office Max, Illinois residents are voting with their feet. And why shouldn’t they?

Legislators can’t hike taxes indefinitely to cover underfunded pensions and other government debts, and then gasp in surprise when their constituents walk. In fact, my wife and I sold our Illinois home because we were fed up with the high taxes.

In the book How Money Walks, author Travis H. Brown writes that from 1992 to 2011, Illinois lost $31.27 billion in taxes per year because former residents like myself refused to put up with its predatory taxation.

The same goes for New Jersey, which according to wealth management firm RegentAtlantic Capital lost $5.5 billion in taxable income in 2010 alone because residents moved out of state, often fleeing the state’s “millionaire’s tax.”

......
While campaigning, Illinois governor Pat Quinn pledged to cut government expenses instead of raising taxes. We’ve heard that many times before, of course, and true to form, shortly after taking office, Quinn gave raises averaging 11.4% to 35 staffers. The public howled, so Quinn back-pedaled, giving the staffers 24 days off without pay so their salaries would ultimately stay the same.

Apparently it never occurred to Quinn that if 35 staffers can do their jobs with an additional 24 days off, he might be overstaffed. If all politicos are this financially pragmatic, don’t expect a pension-funding solution anytime soon.

http://www.millersmoney.com/money-weekly/hiroshima-2014-should-you-fear-...

 

abnormal

http://www.michigancapitolconfidential.com/20171

Quote:
In June 2009, the city of Detroit's unrestricted deficit had nearly doubled from the previous year, increasing from $501.3 million to $920.2 million, according to the city's financial audit. 

The state Legislature responded by approving a bill about six months later that doubled Detroit's ability to finance more debt. 

At the time, Mackinac Center Senior Legislative Analyst Jack McHugh wrote a blog titled, "Is Another Credit Card the Solution to Detroit's Spending Problem?"

State Sen. Coleman Young II, D-Detroit, evidently thought the extra borrowing option was a good one because as a then-state representative, he became a sponsor of House Bill 5626 in 2009. Then-Gov. Jennifer Granholm signed the bill in February 2010 and Detroit's ability to finance debt via bonds doubled to $250 million.

Five years later, Detroit's spiral to bankruptcy has been well chronicled and there were few serious attempts to fix the structural problems that have plagued the city for decades. City officials and many in the Legislature resisted potential solutions such as selling even a single piece of art, privatizing services or selling the city's water and sewerage department. 
.....
Five years later, Sen. Young had harsh words for those who allowed the city to go into more debt. Except, he wasn't blaming his fellow legislators, but "shady bankers."

.....
McHugh said the Legislature isn't free and clear of blame.

"If the lenders were 'shady' and 'predatory' then what does that make the 75 House and 30 Senate members — including then-Rep. Coleman Young II — who voted in 2010 to double how much Detroit could borrow to cover current expenses and paper over its overspending a little longer?" McHugh said, also noting that Rep. Young cosponsored the bill. "Members of the Detroit political establishment blaming lenders for the city's fiscal malpractice is like someone with a gambling problem blaming the ATM machine for delivering cash to buy more lottery tickets."

Sen. Young did not respond to requests for comment. 

abnormal

http://news.yahoo.com/detroit-rolls-dice-relying-casino-cash-110534885--...

Quote:
Detroit rolls dice by relying on casino cash

Detroit's reliance on casino cash to help fund a recovery from the city's historic bankruptcy is a high-risk bet on what is an increasingly shaky source of income.

A trial to approve Detroit's plan to exit its $18 billion bankruptcy, the largest municipal crash in U.S. history, begins in late July. Flawed revenue projections may undermine its feasibility, creating a key legal hurdle to win approval by the court. On a practical level, a revenue shortfall could knock the city down just as it is getting back on its feet.

Detroit Emergency Manager Kevyn Orr projects that wagering tax revenue from three local casinos, the city's third largest source of cash, will remain essentially steady as far ahead as 2023.

Orr has described the gambling taxes as Detroit's most stable source of money. But casino revenue has declined of late in Detroit itself and in recent years traditional gambling hubs like Nevada and New Jersey as well as relative newcomers to the wagering scene, such as neighboring Ohio, have seen swoons.

etc ...

It's clear.  This will end well.

 

abnormal

http://news.yahoo.com/detroit-rolls-dice-relying-casino-cash-110534885--...

Quote:
Detroit rolls dice by relying on casino cash

Detroit's reliance on casino cash to help fund a recovery from the city's historic bankruptcy is a high-risk bet on what is an increasingly shaky source of income.

A trial to approve Detroit's plan to exit its $18 billion bankruptcy, the largest municipal crash in U.S. history, begins in late July. Flawed revenue projections may undermine its feasibility, creating a key legal hurdle to win approval by the court. On a practical level, a revenue shortfall could knock the city down just as it is getting back on its feet.

Detroit Emergency Manager Kevyn Orr projects that wagering tax revenue from three local casinos, the city's third largest source of cash, will remain essentially steady as far ahead as 2023.

Orr has described the gambling taxes as Detroit's most stable source of money. But casino revenue has declined of late in Detroit itself and in recent years traditional gambling hubs like Nevada and New Jersey as well as relative newcomers to the wagering scene, such as neighboring Ohio, have seen swoons.

etc ...

This is going to end well.  

 

 

abnormal

Surprised it took [url=http://m.freep.com/detroitfinancialcrisis/article?a=2014307110188&f=4268... long[/url]

Quote:
Several major hedge funds have acquired a portion of Detroit's bad debt in an apparent attempt to turn a quick profit on the city's Chapter 9 bankruptcy.

The hedge funds, which specialize in making money off distressed debt, today revealed their moves by filing official objections to the city's restructuring plan.

But their emergence -- which was long expected -- may yet prove to be a positive development because they are often inclined toward settlements.

In other words, the arrival of hedge funds -- which critics often refer to as vulture investors -- may help resolve the largest municipal bankruptcy in U.S. history. For now, though, they are officially objecting to Detroit emergency manager Kevyn Orr's plan of adjustment.

The hedge funds that revealed themselves as creditors in Detroit's bankruptcy include Panning Capital Management, Monarch Alternative Capital, Aurelius Capital Management and Stone Lion Capital Partners.

It was not immediately clear how much debt the hedge funds had acquired, at what price or when. They may be targeting the $1.4 billion in pension obligation certificates of participation issued in 2005 by Mayor Kwame Kilpatrick's administration to fund Detroit pensions.

epaulo13 epaulo13's picture

Detroiters Put Bodies on the Line to Stop Privatization of Their Water(with video)

At 6:45 on Thursday morning, the Reverend Bill Wylie-Kellerman of St. Peter’s Episcopal Church in Detroit sat down with nine others

blocking the entrance of the facility where Homrich Wrecking’s water shutoff trucks were set to leave for the day. By 8 a.m., the “Detroit Water 10” had been charged with disorderly conduct with bail set at $100 apiece. The goal of the protest was to appeal to Homrich contractors to stop shutting off water for Detroit’s poorest residents.

“The officers had bruised up two elderly ladies who were tied together protesting; they were grabbing their arms and their wrists so hard there were bruises on their wrists,” said DeMeeko Williams, an organizer with the Detroit Water Brigade. “They also pulled one of our handicapped men out of his wheelchair, he was out of the chair and on the ground. That’s abuse, I don’t care what anybody says.”

Approximately 12,000 Detroit residents have already had their water turned off since Detroit Emergency Manager Kevyn Orr announced the plan in spring to shut off homes delinquent on water payments of $150 to $160. UN resolution 64/292 declares that water and sanitation are basic human rights. After Detroit activists appealed to the United Nations, the UN declared the water shutoffs in Detroit were a violation of human rights.

Williams says denying a basic human right like water to a major portion of the population also creates a public health crisis.

“When people go without water there’s a lot of diseases, salmonella, poor sanitation, when you can’t flush your toilet... it's just an outbreak waiting to happen,” Williams said....

quote:

The Bigger Picture of the Water Crisis: Privatization

The water shutoffs in Detroit, which is currently in the middle of a bankruptcy fight, are merely a prelude to the outright privatization of water and other public assets. Defenders of Kevyn Orr’s water shutoffs claim that residents need to simply pay their bills to avoid losing their water. Others argue that water infrastructure needs to be paid for – and if it isn’t, the only logical conclusion is that those who don’t pay for the infrastructure will lose their water....

http://www.occupy.com/article/detroiters-put-bodies-line-stop-privatizat...

epaulo13 epaulo13's picture

Thousands to March in Detroit as 'Heartless' Water Shut-Offs Continue

As crisis deepens, so does local resistance, say organizers

Thousands of people are expected to rally in Detroit Friday afternoon to demand a moratorium on the city's mass shut-offs of water to households, which they say has unleashed a public health emergency.

Dozens of local, national, and international organizations and unions are backing the march, which will call for an immediate renewal of water services to thousands of residences that have already been disconnected, with tens of thousands more slated to be next. "The more attention we can bring to this moment, the more likely we are to get action to alleviate a crisis that doesn't have to happen," Shea Howell of the communications working group for Detroiters Resisting Emergency Management and the People's Water Board told Common Dreams.

quote:

The disconnections have been condemned as a "violation of human rights" by a UN panel, with the UN expert on the right to adequate housing warning they "may be discriminatory" against African Americans. Many residents suspect the shut-offs are part of a plan to get rid of bad debts to privatize water services, and ultimately, drive residents out of this majority-black city to make way for gentrification and corporate profits.

But organizers say Detroiters are finding creative ways to resist the water shut-offs and help each other get by.

Friday morning, residents blocked the entrance to Homrich Inc., the company contracted by the city to shut off water to homes. According to Howell, the civil disobedience is still ongoing, with a standoff between protesters and police. The direct action follows a similar protest earlier this month, which led to the arrest of ten residents....

https://www.commondreams.org/headline/2014/07/18-4

 

onlinediscountanvils

Grassroots community action by the people of Detroit has won a 15-day reprieve from the shutoffs.

http://detroitwaterbrigade.org/statement-dwsd-halt-water-shutoffs/

abnormal

For the record, Detroit is only the poster child.  The smart money is on on Illinois to be the next (Chicago to narrow things down).  But to make it clear, this is hardly all sweetness and light.

http://www.wirepoints.com/inadequate-actuarial-work-meets-underfunded-pe...

Quote:
Inadequate Actuarial Work meets Underfunded Pensions and Poor Journalism – WP Guest

*Tia Goss Sawhney, DrPH, FSA, MAAA*

This article is in response to a recent article in the Forest Park Review, Police and fire pensions in the healthy zone, BGA report: Relative to neighbors, Forest Park funding above average [1] and the rebuttal article in WirePoints, Bad Pensions Meet Bad Journalism: An Example and a Lesson [2]. With one minor exception, discussed below, the WirePoints article presented a good analysis of the health of Forest Park’s pensions using the information readily available to the public. Unfortunately the information readily available to the public is limited with respect to both quantity and quality and actuaries, my professional organizations and peers, are responsible for a portion of the inadequacy. Unfortunately, the outlook for too many pensions only worsens with better actuarial work and more transparency.

.....
There is reason to believe that Illinois pension assumptions are biased. Let’s start with the Forest Park Police Plan. In order to calculate the tax levy (“bill”) for fiscal year 2013, Forest Park’s actuary assumed a 7.5% asset return and a mortality rate equal to the 1971 Group Mortality Table with no allowance for the mortality improvements observed since 1971 or the improvements likely for the future. Furthermore, he made no apparent assumptions for service related deaths or disabilities, even though there are distinct benefits associated with service related deaths and disabilities [5],[6]. In evaluating the 7.5% assumed asset return, consider that, by law, Forest Park can only invest 55% in non-cash and bond investments [7].

.....
In all fairness, Forest Park is an extreme example of questionable actuarial work (though its reported unfunded liabilities on a percentage basis are pretty typical for Illinois municipal pensions). Based on a review of his work for seven Illinois police funds I filed an Actuarial Board of Counseling and Discipline (ABCD) report against their actuary, Mr. Timothy Sharpe [8]. My complaint is with respect to both assumptions and the overall quality of his actuarial communication. The complaint, filed in March, remains under investigation.

The general issue with assumptions, however, is common to many public pension plans and actuaries. Only in the last few months have Illinois’ biggest state plans TRS, SERS, and SURS reduced their assumed returns to 7.5%, and 7.25% respectively. Until then each plan was 0.5% higher [9]. I reviewed the work submitted by the SERS actuaries in making their recommendations for new assumptions. Based on future projections provided to them by unnamed sources, the actuaries calculated that the plan has a 42% chance of obtaining a 7.25% return over the next 30 years. Contrary to popular notion all things do not necessarily work out in the long term, even with respect to a large, diversified portfolio. The SERS actuaries also claimed that there was no need to incorporate both mortality improvements and margin into their recommended mortality assumptions [10].

For the record, and as I've said before, I really do hope that whatever actuary signed off on the Detroit bankruptcy plan has enough insurance to cover him/her when the stuff hits the fan.  All I can say is that I'm am member of five international actuarial bodies and I wouldn't have done so.

 

 

ygtbk

@abnormal: 71 GAM? Oh my stars and garters!

Michael Moriarity Michael Moriarity's picture

Abnormal, I am not an actuary, although I have a lapel pin from the Society of Actuaries that I won in a high school math contest centuries ago. I also knew a few would-be actuaries in university, so I do have some concept of how skilled actuaries must be. My question is, do you see any possibility that the sort of work done in these Illinois cases could be incompetence rather than fraud? I find it hard to imagine that level of incompetence from a person who must pass the actuarial exams?

abnormal

Michael, I'm sure some of it can be put down to incompetence and a lack of professionalism (i.e., sloppy work).  And I wouldn't necessarily call the use of unreasonable interest rate assumptions "fraud".  Again, that's just being sloppy.  Of course it doesn't help when you've got a client that's pushing for the lowest valuation possible which, among other things, means that they're going to want the actuary to use the highest interest rate possible.

If the client told the actuary that "I want you to use X% in your analysis" the actuary's report should state that the interest rate used was one chosen by the client and he doesn't believe it's appropriate (at a minimum he should qualify things with a statement to the effect that he hasn't reviewed the asset supporting the liabilities so he's unable to comment on the appropriateness or otherwise of the interest rate).  That won't necessarily get him off the hook if someone files a complaint but it will at least help.

I find the use of a 1971 mortality table more "questionable", especially since there were apparently no adjustments to reflect improved mortality, either to date or projected in the future.

But I think that the main cause of underfunding is simple - the municipalities didn't contribute enough.  More to the point they didn't contribute as much as the actuaries told them they had to.

In the majority of cases I expect the reason is simple - they didn't have the money to do so and/or had other priorities.  After all, problems with pension funding aren't going to show up for years and by then the people responsible are long gone.

And there are cases where the law is specific about the maximum amount that the municipality can contribute (if it's less that the actuary's recommendation too bad).

But don't be surprised when you see people trying to support the use of the sort of returns mentioned earlier

http://www.cepr.net/index.php/blogs/beat-the-press/teaching-the-wall-str...

 

 

Michael Moriarity Michael Moriarity's picture

Thanks for the explanation.

abnormal

Speaking of fraud (or at least allegations of fraud)

http://mobile.reuters.com/article/idUSL2N0QK2NC20140814?irpc=932

Quote:
A bond insurance company fired back at Detroit's attempt to invalidate $1.45 billion of pension debt, claiming in a court filing late Wednesday that it was "fraudulently" led to guarantee payments on the debt.

Financial Guaranty Insurance Co, which insures more than $1 billion of the city's pension certificates of participation (COPs), filed a counterclaim against Detroit asking the U.S. Bankruptcy Court to dismiss the city's lawsuit seeking to void the debt.

If the city prevails in its lawsuit, FGIC, one of Detroit's biggest hold-out creditors, asked the court for restitution and damages from the city or its pension funds that would be determined at a trial.

Detroit, which is working its way through the biggest municipal bankruptcy in U.S. history, filed the lawsuit in January, claiming the sale of the COPs in 2005 and 2006 violated borrowing limits imposed on the city under Michigan law. The COPs were issued during the term of former Mayor Kwame Kilpatrick, now in prison on federal corruption charges.

At a Thursday court hearing on the COPs, Robert Hertzberg, an attorney representing Detroit, said the city will probably seek to dismiss FGIC's counterclaims.

FGIC said it agreed to issue insurance policies that earned the COPs triple-A ratings based on representations from the city and its lawyers that the debt was a legal vehicle for Detroit to raise money for its constitutionally mandated obligation to fund its two employee retirement systems.

"The city now alleges in its complaint that the many representations and statements it made in connection with pension funding transactions were false," FGIC's filing stated. "The city intended for its fraudulent statements to induce FGIC's issuance of the policies."

http://www.detroitnews.com/article/20140826/METRO01/308260091

Quote:
Alleged corruption and Detroit pension fund mismanagement that cost more than $1 billion is irrelevant and shouldn’t factor into the city’s bankruptcy trial next week, a lawyer argued Tuesday.

An attorney for the city’s two pension funds doesn’t want U.S. Bankruptcy Judge Steven Rhodes to consider the alleged misdeeds before deciding whether Detroit’s plan to shed about $7 billion in debts is feasible and fair. The lawyer asked Rhodes to block evidence about alleged mismanagement and misconduct from being admitted during a trial starting Tuesday in bankruptcy court.

Pension fund lawyer Robert Gordon on Tuesday said bond insurer Syncora Guarantee Inc., one of the city’s holdout creditors, is expected to argue during the trial that mismanagement and corruption weakened the city’s pension funds. Syncora has said the pension funds are being bailed out by Detroit’s debt-cutting plan at the expense of financial creditors.

....
“It is premature to conclude guilt of any kind, and for the same reason, it would be purely speculative to attempt to quantify whether that any alleged bribe contributed at all or in any material way to any underfunding problems at the (pension funds), as the facts underlying those charges have not yet been adjudicated,” Gordon wrote.

Syncora’s allegations are a “sideshow distraction,” Gordon added.

“Syncora is slinging mud at the retirement systems with inflammatory and unfounded accusations in an attempt to prejudice the court against a party whom Syncora deems to have gotten a better deal,” he wrote.

In effect, both companies are claiming that they were fraudulently induced to issue the policies in question.  While fraud and material misrepresentation are generally very tough to prove the basic question is "if the insured had been honest and told you about these things would you still have issued the policies?"

 

 

 

abnormal

First, Detroit's bankruptcy hearings started today.  Live blog is here 

http://www.freep.com/article/20140902/NEWS01/309020105/live-blog-detroit...

Quote:
Detroit has the highest rate of taxes in Michigan and the worst level of services in the region.

Quote:
Detroit: Come live where the taxes are crippling and the services are crippled... How many of you can I put down for investment and residence?

Quote:
Speaking specifically about taxes, Bennett says, "Detroit is in a downward spiral."

 

 

abnormal
abnormal

More on Forest Park (post #123 above)

http://www.forestparkreview.com/News/Articles/9-9-2014/Police-and-fire-pension-funds-report-%24200%2C000-shortfall-/

Quote:
Forest Park's police and fire pension systems took a hit this year because a simple actuarial change recalculated how long safety personnel can be expected to live. Actuary Timothy W. Sharpe, of west suburban Geneva, changed one element of his calculations last year, revealing a $104,000 shortfall in the police pension fund and a $94,000 shortfall in the fire pension fund. 

.....
The change came when Sharpe switched last year from a 1971 mortality table to a new table that more accurately reflected the lifespans of police officers and firefighters living in 2000. 

For more than a decade, Sharpe had been using a group annuity mortality table called the GAM-1971. As its name implies the table was created in 1971 using mortality data from police officers and firefighters collected between 1964 and 1968. Life expectancies on the tables tracked public safety workers who, at age 50, would have been born between 1914 and 1918. 

According to the updated table, called the RP-2000, male police and fire personnel at age 50 in 2000 could be predicted to live an average of 4 years longer than they did on the 1971 table. Statistically, most firefighters and police officers are male. Longer-living employees mean more money needs to be socked away in pension plans to cover their retirement.

Sharpe was criticized for using the 1971 tables in his calculations. 

.....
Sharpe defended his actions saying he was using the same tables the Illinois Department of Insurance offered until 2012.

Chicago actuary Sandor Goldstein, who was asked to file complaints on behalf of Champaign and Hinsdale's police and fire boards, told the Review the Department of Insurance was "way out of date" by offering the 1971 tables. He said professional literature always urged actuaries to use relevant mortality tables.

But according to Sharpe, pension boards would request a calculation from the state Department of Insurance and then a second calculation from him.

http://www.wirepoints.com/busted-45-year-old-mortality-data-hid-some-pensions-debt-wp-original/

Quote:
·How many other pensions are using outdated actuary tables and why isn’t that information readily available? The Illinois Department of Insurance has it but you have to file a Freedom of Information Act request to get it. Inexcusable.

· Are even the supposedly more modern mortality tables accurate? As Ms. Lotus points out, the 1971 tables (called GAM 1971) are based on data three to seven years prior to that. A commonly used modern one is the RP-2000. Is it based on data now 17 to 21 years old?

 

abnormal

Quote:

The bankruptcy judge overseeing Detroit's historic restructuring again hinted that conservative estimates of future returns are prudent for the city's pension investments.

Judge Steven Rhodes peppered an actuarial consultant Tuesday with tough questions about the generally accepted practices of U.S. public pension funds, stopping just short of outright blaming pension shortfalls on unrealistic market expectations.

"In your view, is it fair to conclude that the standard practice in the industry ... has been part of the cause of the (underfunding) that public pensions in this country are now struggling with?" Rhodes asked Milliman consultant Alan Perry on Day 9 of the city's bankruptcy trial.

"Yes," the city's consultant responded.

The city is estimating an annual return rate of 6.75% for its two pension investments — down from 7.9% and 8% previously estimated.

Several major financial creditors have objected to the new figure, saying it's artificially low and improperly allows the city to divert money to pensioners to make up for their funding shortfall. But Rhodes has telegraphed on several occasions that he believes Detroit has been making imprudent and unrealistic pension investment decisions and must stop.

Rhodes pressed Milliman's Perry to say whether 6.75% would be a good rate. "Are you telling me that, given Detroit's insolvency, that your view might be that prudence might suggest an even lower rate?" he asked.

Perry responded: "Yes, that might be true."

"No further questions," Rhodes said.

snip ...

Also testifying Tuesday was Vanessa Fusco, a vice president of New York-based auction house Christie's. Fusco testified about her role in evaluating the collection of the Detroit Institute of Arts in the fall. Her testimony repeated the details of her assessment of the DIA's city-purchased properties.

Fusco called the DIA a "spectactular and world-class collection" but said there were a limited number of top masterpieces that the museum would be able to sell for significant sums of money. Chief among them: Bruegel the Elder's "The Wedding Dance," which Christie's estimated could fetch $100 million to $200 million.

Still, "not every work in a museum is a masterpiece — that's not unusual at all,"Fuscosaid, explaining why Christie's evaluated a limited number of the proposed 3,500 works the city asked it to evaluate.

Initially, the number Christie's said it needed to evaluate dropped to about 2,770 because of inventory management practices that included giving two pieces of the same artwork separate category numbers. In addition, Christie's found about 1,000 of the works to be of "incredibly minimal commercial value," Fusco said.

Creditors have accused Christie's of low-balling the worth of the DIA's pieces.

[url=http://www.freep.com/story/news/local/detroit-bankruptcy/2014/09/16/detr...

 

 

 

 

 

abnormal

This is New Jersey (better known as the only state with an "official state smell") but a lot of it is relevant to Detroit, Chicago, and any other city (or state) that is due to go belly up.

http://www.state.nj.us/treasury/pdf/NJPHBSC.pdf

Look at the pie chart on page 4 and the bar graph on page 7.  

 

abnormal

onlinediscountanvils wrote:

[url=http://www.thenation.com/blog/175467/vultures-and-red-wings-billionaire-... Vultures and Red Wings: Billionaire Gets New Sports Arena in Bankrupt Detroit[/url]

Speaking of Red Wings:

Quote:
The city of Detroit agreed this week to raze the Joe Louis Arena, the home of the Red Wings hockey team, and hand the land over to one of its corporate creditors in order to satisfy a small portion of a $1 billion debt.

The move brings the Motor City closer to resolving its June 23, 2013 bankruptcy filing. The settlement will leave creditors with pennies on the dollar and retired public employees with only about half of what they were promised.

Municipal bankruptcy was the only way for Detroit, which until recently ran annual deficits as high as $380 million, to discharge its $18.5 billion in debt. Years of dramatically overstaffed city agencies, over-generous retirement promises to public employee unions, and white-elephant development projects had left the city unable to police its streets, keep street lamps on, maintain parks, or provide other basic government services, no matter how much the city government raised taxes.

The lesson of Detroit is one that governments everywhere can learn: In a world with finite resources, governments that try to do too much end up neglecting even the essential.

http://m.washingtonexaminer.com/article/2555009

 

 

abnormal

And I just find this one "peculiar":

Quote:
A Mystery Bidder Offers $3 Million for 6,000 of Detroit's Worst Homes

Three million dollars can barely buy a new townhouse in Brooklyn these days, but it could be enough to purchase a bundle of more than 6,000 foreclosures up for auction in Detroit.

The cost of dealing with the many blighted buildings included in the Detroit mega-auction means a $3.2 million bid received last week—roughly the minimum allowable bid of $500 per property—will likely prove too high to turn a profit. “I can’t imagine that you are going to make money on this,” says David Szymanski, chief deputy treasurer of Wayne County, which is selling the properties

So it’s all the more mysterious that the auction, opened with little fanfare earlier this month, has attracted any bidder at all. Still, at least one unidentified party is willing to pay $3.2 million take control—and responsibility—for scores of dilapidated homes. In fact, winning the bid could cost the lucky winner a small fortune beyond the auction price.

Finding a way to deal with Detroit’s blight is critical for the city’s future.

etc ...

http://www.msn.com/en-us/money/realestate1/a-mystery-bidder-offers-dolla...

ygtbk

@abnormal: do you know if they are geographically concentrated, or if they're all over the city?

abnormal

ygtbk wrote:

@abnormal: do you know if they are geographically concentrated, or if they're all over the city?

That was actually my first thought.  Had someone offered to buy a huge plot of land next to the soon to be demolished arena?  No idea.

KenS

I looked quickly at the PDF for the properties.

They are within a linited area of the city, but there are not primarily contiguous lots. In other words, they are not ripe for development- even the speculative possibility of development.

The area is not next to anything currently valuable. If the properties were contiguous someone MIGHT have an idea they could raze everything and start over, as has been done in at least a couple cases. But the properties are not contiguous. And I'll bet those new developments the developers did not even have to pay 3 million for the lots themselves [unless the City or someone else had already done the demolitions].

It is pretty puzzling. The City thought it was just putting the properties through a formality that after [predictably] no one bid on the lot, they could proceed to demolition. [They cannot go straight to demolition even if taxes have not been paid for decades.]

The only thing that makes sense is that there are some wealthy people who out of some combination of philanthropy and quirky business sense see an opportunity to transfrom the areas, starting with owning a critical mass of the area. By my guesstimation they would need to have about 100 million that they have or are confident they can tap into... just to get the demolitions done and get a bit more than that STARTED.

But as far as I know, everyone is just guessing what these people have in mind.

It may turn out that they are all nutbars who really only can raise the [non-refundable] deposit on the 3.2 million- and have notions they can raise the rest. But my guess is that at least one of them will have a credible source of funding. And the City [actually the County acting on their behalf] probably has a means of choosing among bidders for the one with the most credible backing.

The City is not going to want to kick a gift horse in the mouth. [Not the 3million, which is nothing. But the chance someone will do something for the area.] But they also dont want someone paying the $3million and then just sitting on the properties. The point is to at least get the demolition done- prerequisite before anything else can happen. [Let alone safety issues.]

The area of the City is bombed out- where no one with any degree of choice wants to live. [Remember that black people with jobs or any kind of income stability have also fled the core- have been for decades.] But the area is not far from the downtown core of sustained prosperity.

abnormal

Ken, have to agree - this doesn't seem to make any sense but, who knows?

KenS

Some context that might make this more comprehensible. [Though it is bizarre anyway.]

To demolish a derelict house the City has to own it.

On a derelict house taxes have not been paid. [Thay have not been paid for years on many an occupied house.] But they have to foresclose on it. 

Even hugely streamlining the foreclosure process and doing it in "bulk," the property still has to go to a Sheriif's Sale for highest bidder. The principle being protection of owners- that there in principle might be enough to pay all debts, with something left over for the owner.

These properies are not worth the taxes owed, but they still have to go through foreclosure.

Letting individuals buy even cherry picked best properties that the City foreclosed on has not worked. The original ownersin the first place abandoned what looks like a nice house, that they were probably very attached to, because the naighbourhood has become too unsafe. The new owners find they cant buck that, and the houses remain abandoned- just the City having wasted more money on the attempt to get it lived in.

So now the City pust them up for sale in bundles of many thousands. The presumption being that no one will want to buy. But then they will have crossed all the Ts, own the properties when no one else offers to buy them, and can proceed to demolition.

But surprise- their are bidders on the bundles.

ygtbk
abnormal

As expected, the actuarial firm that signed off on the Detroit pension fund is being sued:

Quote:

With the nation’s states and cities slowly sinking in a $3 trillion pension hole, the professionals who advise their pension plans have long wondered whether the fingers of blame might eventually point to them.

One of those fingers has surfaced in bankrupt Detroit, and it is singling out Gabriel Roeder Smith & Company, a top actuarial consultant for public pensions, which has hundreds of clients across the country that rely on it to keep track of data, calculate required annual contributions and advise on key assumptions like future investment returns.

Detroit has been a client of Gabriel Roeder since 1938, when the city first started offering pensions. Now the city is bankrupt, the pension fund is short, benefits are being cut and one of the system’s roughly 35,000 members, Coletta Estes, is suing the firm, contending it used faulty methods and assumptions that “doomed the plan to financial ruin.”

Gabriel Roeder’s job was to help Detroit’s pension trustees run a sound plan, she says, but instead the firm covered up a growing shortfall and encouraged the trustees to spend money they did not really have. Her complaint contends that the actuaries did this knowingly, “in concert with the plan trustees to further their self-interest.” The lawsuit seeks to have the pension plan made whole, in an amount to be determined at trial, and to have Gabriel Roeder enjoined “from perpetrating similar wrongs on others.”

Lawsuits like the one Ms. Estes filed have also been brought against Gabriel Roeder by members of Detroit’s pension fund for police and firefighters, and the fund for the employees of surrounding Wayne County. The plaintiffs cite damage growing out of Detroit’s financial collapse, but the litigation may have implications far beyond southeastern Michigan because of Gabriel Roeder’s status and influence in the world of public pensions. Its method for scheduling pension contributions is exceptionally popular and widely used by governments, although federal law does not permit companies to use it. A former chairman of the Governmental Accounting Standards Board, James F. Antonio, tried 20 years ago to disallow it for governments, too, saying it “fails to meet the test of fiscal responsibility.” But he was outvoted, and cities and states have been using it ever since.

snip ...

Records for her pension plan show a number of anomalies. Not only was pension money spent on off-the-books benefits like “13th checks” and ad hoc death payouts, but some of the actuarial assumptions clearly conflict with reality. For example, Gabriel Roeder assumed that Detroit’s total payroll was growing by 4 percent a year. But in fact, Detroit’s payroll has been shrinking at 5 percent a year since 2003.

snip ...

Mr. Mantese also questioned the plan’s assumption that its investments would earn 7.9 percent over the long term, when the average in recent years was much less.

etc ...

http://dealbook.nytimes.com/2014/10/28/lawsuit-contends-consultant-misle...

Of course the obvious question is whether Detroit contributed the amounts recommended by the actuaries.

And the actuarial firm's response

http://www.gabrielroeder.com/wp-content/uploads/2013/10/Press-Release-20...

 

abnormal

Quote:
The historic hearings on whether Detroit will exit the nation's largest-ever municipal bankruptcy came to a quick end Monday after closing arguments, which were abbreviated by settlements with major creditors.

Moving the city closer to self-rule and something of a sense of normalcy, Judge Steven Rhodes said he would reveal his decision at 2 p.m. Nov. 7 after a fast-paced bankruptcy that defied predictions of drawn-out battles that could have stretched for years.

"We think we made our case and we met our burden," Detroit emergency manager Kevyn Orr said outside court after closing arguments from city lawyers, attorneys for creditors and even individuals who object to the plan.

Rhodes pressured Detroit's bankruptcy attorneys to justify better treatment for pensioners than financial creditors, making for an unexpectedly dramatic exchange.

.....

Still, Judge Rhodes must approve the plan after an exhaustive trial that lasted nearly two months. During the proceeding, Rhodes heard testimony from dozens of witnesses and examined hundreds of exhibits documenting the city's plan to slash more than $7 billion in unsecured liabilities and reinvest $1.4 billion over 10 years in basic services.

Bennett said the largely amicable plan is "very remarkable" after a tumultuous negotiation period with retirees, insurers, bondholders and unions.

http://www.freep.com/story/news/local/michigan/detroit/2014/10/27/judge-...

You do have to wonder how long it'll be before whatever deal is struck falls apart - the actuaries for the pension funds are being sued because they've supposedly drastically understated the true liabilities.  Assuming that's true (and everything I've seen suggests it is) it's only a matter of time before the city runs out of money to pay even reduced pension benefits.

KenS

The bankruptcy process entails a hugely more robust and critical constant testing of claims of solvency. Which is no guarantee, but it is entirely different than the lazy and self-interested "why should we do anything different than we have" approach in assessments before.

abnormal

Ken, my question (concern?) relates to pension funding.  Given the issues surrounding the assumptions underlying the work performed by Gabriel Roeder Smith & Company, the city's actuaries (7.9% investment return and 4% payroll growth...in Detroit?) this is not going to be pretty.  

As far as I can see, Gabriel Roeder Smith & Company used every trick in the book to minimize the required contributions.  And while I know that Milliman provided the latest (one of the latest?) opinions I don't know whether or not that opinion fully reflects the reality of GASB 67.  

 

ygtbk
KenS

"Deal" falls apart. Surprise, surprise.

abnormal

KenS wrote:

"Deal" falls apart. Surprise, surprise.

No surprise - but usually deals fall apart before they happen.  This is different in that "they" have put together a deal that the pensioners were willing to sign off on.  But it's a given that this is going to crash and burn.  The real question is "when".  And when it does the pensioners that accepted the original deal are going to be "unhappy".

abnormal

Quote:
A group opposed to emergency management and the treatment of pensioners in the city’s newly confirmed debt-cutting plan hosted a news conference Monday, vowing a continued fight against the “mass robbery.”

Representatives of Detroiters Resisting Emergency Management assembled at St. Peter’s Episcopal Church along with a handful of residents and city pensioners to voice concerns over the impact of the plan that’s designed to shed $7 billion in debt and free up $1.7 billion over the next decade to restructure and improve city services.

Wearing a T-shirt that read “Hands Off My Pension,” retiree William Davis proclaimed the cuts are “illegal” and mainly on the backs of pensioners. Davis, a member of the Detroit Active and Retired Employees Association, added that the group and others plan to file an appeal.

.....
Under the plan, general city workers will endure a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase. In addition, the city will seek to recoup $239 million from the optional annuity savings fund accounts of some general city retirees who were credited with interest earnings that exceeded the retirement system’s actual investment returns.

The pensions of police and firefighters will not be cut under the plan, but their annual 2.25 percent COLA will be reduced to about 1 percent.

During a historic 60-day vote that ended in July, about 82 percent of retired and active Detroit police and firefighters voted to approve the terms of their treatment in the plan. Members of the General Retirement System approved their cuts by a margin of approximately 73 percent yes, 27 percent no.

http://www.detroitnews.com/story/news/local/wayne-county/2014/11/10/detr...

 

epaulo13 epaulo13's picture

Pay Rent or Drink Water: The Human Rights Crisis in Detroit Escalates

Despite mass protests, the emergency management water shutoffs in Detroit have resumed, even as UN experts publish a press release calling the water disconnects "contrary to human rights" and activists decry them as "genocide."

The corporate-led humanitarian crisis in Detroit is escalating, forcing local activists to appeal for international intervention. "The indignity suffered by people whose water was disconnected is unacceptable" according to Ms. Catarina de Albuquerque, the special United Nations rapporteur on human right to water and sanitation, in a press release October 20.

The "unprecedented scale" of water shutoffs is targeting the "most vulnerable and poorest" of the city's population, including tens of thousands of African Americans, said Leilani Farha, UN special rapporteur on the right to adequate housing.

The Detroit Water and Sewerage Department has been disconnecting water services all spring and summer from households who have not paid bills for two months, and has sped up the process since early June. Now the number of disconnections is rising to around 3,000 customers per week. As a result, some 27,000 households have had their water services disconnected so far this year. Many activists have stated that Detroit's water system is being prepared for privatization by the 1 percent....

http://truth-out.org/news/item/27211-pay-rent-or-drink-water-the-human-r...

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