Detroit goes bankrupt

198 posts / 0 new

Mon, 2014-02-24 14:17

abnormal

Quote:
Detroit’s comprehensive bankruptcy reorganization blueprint calls for shedding billions of dollars in debt, spending more than $500 million for blight removal and investing another $1 billion to improve city services.

The city’s Chapter 9 bankruptcy “plan of adjustment” — filed today in U.S. Bankruptcy Court — details offers to more than 100,000 creditors, and a “disclosure statement” reveals Emergency Manager Kevyn Orr’s plan to dramatically reshape the city’s bureaucracy.

......
Orr proposed 34% cuts to the pension checks of general city retirees and 10% to police and fire retirees.

But those cuts would be reduced to 26% and 4%, respectively, if the city’s two independently controlled pension boards agree to support the plan of adjustment. The city has about 24,000 retirees.

The city proposed paying secured bondholders 100% of what they’re owed, while unsecured general obligation bondholders would receive 20%.

......
The city proposed paying about 20% to 30% of its retiree health care liabilities to a newly created trust fund called a VEBA, or Voluntary Employees' Beneficiary Association, which would manage insurance benefits. Orr proposed contributing $526.5 million over 20 years

.....
Orr blamed poor investment strategies and a pattern of excessive bonuses — called “13th checks” — for underfunding the city’s pension funds and making cuts necessary.

[b]Attorneys for Jones Day, which represents the city in Bankruptcy Court, proposed a much less aggressive rate of annual investment returns for the pension funds: 6.25%, compared to the current rates of 7.9% and 8%. That move drastically increases the underfunded amount of the pensions, but the pension boards and creditors are fighting that calculation.[/b]
.....
As expected, the city proposed higher payouts for its 24,000 retired pensioners than other unsecured creditors, in part because several nonprofit foundations and potentially the state of Michigan may donate more than $800 million to reduce pension cuts and preserve the Detroit Institute of Arts.

The DIA’s building and artwork would be donated to the nonprofit that currently operates the museum as part of the restructuring proposal. But a coalition of bond insurers have vowed to fight the proposal, seeking a selloff of city-owned DIA artwork to pay off debts.

http://www.freep.com/article/20140221/NEWS01/302220007/Detroit-Chapter-9...

With regards to the highlighted paragraph - the proposed rate of 6.25% is still extremely aggressive and I don't see how anyone can support the existing rates of 7.9% and 8.0% currently in use.

Tue, 2014-02-25 06:42

#53

KenS

It may not be in the same league as stripping pensions, but it would break my heart the prospect of having the Detroit Institute for the Arts broken up.

And if the collection is emptied, what becomes of the building itself? Join the other derelicts of Detroit? Sell all those Diego Rivera murals too? Sell the whole Rivera Court- which you probably know even if you dont know where it is.

Tue, 2014-02-25 09:01

#54

abnormal

KenS wrote:

It may not be in the same league as stripping pensions, but it would break my heart the prospect of having the Detroit Institute for the Arts broken up.

And if the collection is emptied, what becomes of the building itself? Join the other derelicts of Detroit? Sell all those Diego Rivera murals too? Sell the whole Rivera Court- which you probably know even if you dont know where it is.

This is a damned if you do and damned if you don't situation. I'd hate to see the collection broken up as well but cultural issues aside, the Institute is a tourist attraction - if the collection is sold the city receives a badly needed influx of cash (whether it would be enough to "solve" its current problems is an question) but if that happens they lose any potential future income that would be generated by the collection.

Tue, 2014-02-25 10:21

#55

josh

Disaster Capitalism.

Tue, 2014-02-25 11:20

#56

KenS

The City of Detroit will receive nothing if the DIAcollection is sold off. The creditors are demanding that it not be excepted from the bankruptcy, and I would think they very much have the law on their side.

Tue, 2014-02-25 14:48

#57

abnormal

KenS wrote:

The City of Detroit will receive nothing if the DIAcollection is sold off. The creditors are demanding that it not be excepted from the bankruptcy, and I would think they very much have the law on their side.

Not sure how you conclude the city would receive nothing. It would receive much needed cash that it would have to use to pay off its debts (which includes topping up the various pension funds)

Tue, 2014-02-25 16:00

#58

KenS

I think you are missing the meaning of what you posted above.

The City is in bankruptcy, which means it does not have control over what happens from proceeds of sales. It no longer has any choices about 'paying of its debts,' whether it does, how much, or which ones get priorities.

There is some kind of proposal where the state of Michigan puts money into the pot in return for the pensions not being stripped as badly, and where the artwork of the DIA does NOT go into the bankruptcy process. But thats just a proposal, and at least some of the creditors are objecting. The normal process being that the artwork is sold off and the proceeds pitched into the creditor divide up pot.

But the bottom line is that this is not the City's choice- so it is not in that hard place you talk about. They can have their effects on what happens, but it is not ultimately their choice what happens with the artwork, or the pensions.

Wed, 2014-02-26 09:02

#59

abnormal

KenS wrote:

I think you are missing the meaning of what you posted above.

The City is in bankruptcy, which means it does not have control over what happens from proceeds of sales. It no longer has any choices about 'paying of its debts,' whether it does, how much, or which ones get priorities.

Ken, I know exactly what I posted. The city's assets include the gallery so if the art collection were sold the proceeds would become part of those assets - the fact that the city has no control over what they're used for is a separate matter - that's a question for the courts to decide.

Thu, 2014-02-27 10:22

#60

KenS

OK then, back to what I started this with: it will be heart breaking if the DIA collection is broken up... and its hard to see how the foundation that owns only the building could survive. The Diego Revera murals being part of the potential collateral damage. Even if Rivera Court itself is maintained, it will not be the same as a 'monumnet' rather than an active public space.

For all the picking apart of the bones of who did what really 'wrong'... the main story is capitalism as offhand tragedy: city of incredible modern beauty and vitality, to bypassed derelict in a few decades.

Thu, 2014-02-27 11:03

#61

mersh

I think Josh and KenS are hardy souls for challenging the pension/union busting narrative here, as well as the faux hand-wringing about the inevitability of it all. And they're not alone! Here's an excerpt from Jamie Peck (who teaches at UBC), who offers solid, progressive insight into Detroit's woes:

In the years since the Wall Street crash of 2008, Detroit’s crisis has become its own kind of urban spectacle. The city’s long, overdetermined slide into bankruptcy has been accompanied, in the wake of the crash and the state and local government fiscal collapse that followed, by a pervasive and consequential neoliberal narrative: what began as a banking crisis was translated first into a state crisis and then into an urban crisis.[2] How could we have not seen it? The underlying cause of the crash, and the Great Recession that followed, really had nothing to do with the reckless acts of unsupervised financial elites, or the paradigm of speculative, unequal growth; all along, the roots of the problem were the pension entitlements of firefighters and schoolteachers!

Conservative and mainstream narrations of the crisis, in as far as they have sustained and rationalized this kind of austere, anti-urban and anti-public sector commonsense, have consequently been far from innocent. These are stories that effectively repoliticize the crisis, serving the ends of spatial containment and social targeting. (Every failure, the script goes, is homemade, typically at the hands of bad actors like corrupt local politicians, superannuated bureaucrats, belligerent public-sector unions, and the feckless underclass.) These are stories that discursively (re)distribute the costs and burdens of “adjustment,” for the most part regressively. And they are stories that endogenize and localize the both the supposedly underlying causes of the crisis and the scope for politically acceptable remedies.

Source: https://citiesmcr.wordpress.com/2014/01/26/bailing-on-detroit

(And that footnote [2] refers to a journal article Peck published last year on municipal bankruptcies -- which I need to add to my pile...)

Thu, 2014-02-27 14:41

#62

abnormal

@mersh, interesting article. It's not completely clear to me what the authors think the correct path is - there is a paragraph where they mention "bailouts" by either the state or the feds. Neither is likely to happen - the state simply doesn't have the money and if the feds step in they'll be setting a precedent whereby every municipality in the country will turn up with their hands out. We've already seen a number of cities declare bankruptcy - Detroit just happens to be the biggest so far (Chicago is probably the next one to fall).

And there are a number of states that are in truly rocky shape [I don't know if a state can declare bankruptcy].

Tue, 2014-04-01 09:19

#63

josh

The city of Detroit on Monday evening proposed new details, including potentially larger cuts to pensions for some retirees, for its plan for paying off portions of its debts and emerging this year from the nation’s largest municipal bankruptcy.

. . . .

The recast plan lays out an $85 million termination agreement with financial institutions over a so-called swaps deal the city made in 2005. It also describes a deal, highly unusual in a municipal bankruptcy, to spare the city’s prized art collection from sale and avoid deeper cuts to pensions with funds from foundations and the state, still not yet secured from the State Legislature.

In the new plan, if city police and fire department workers reject the city’s proposal for the unusual deal for state and foundation funds, Detroit will make deeper cuts to their pensions than had been initially suggested. In February, those retirees were expected to see pension cuts as steep as 10 percent, but the cuts could reach about 14 percent under the revised plan.

http://www.nytimes.com/2014/04/01/us/politics/detroits-revised-debt-plan...?

Tue, 2014-04-01 13:50

#64

abnormal

Quote:
The bankrupt City of Detroit has put forward an updated plan for settling with creditors, preserving key assets, and returning to solvency.

The plan stipulates aggressive liability cuts to the city’s two major public retirement systems, despite an $816 million infusion of outside funding. Retiree medical and death benefits are treated as any other outstanding debt, while pensions are afforded higher priority.

Members may vote on whether or not to accept the city’s plan once it has been finalized in coming weeks, according to municipal documents.

Retirees belonging to the police and fire system who accept the proposal would have their pensions cut by 6%, while those rejecting the plan face 14% benefit reductions. For members of the General Retirement System, a "yes" vote accepts lowering payouts by 26%; a "no" leads to a 34% benefit haircut.

Regardless of vote or pension system, the plan drops cost of living adjustments from benefit calculations.

In total, the proposal allocates $1.59 billion for police and fire pension claims and $2.3 billion for the General Retirement System. Until 2023, both systems’ assumed rate of return on investment would be capped at 6.25%.

These reforms reflect deeper benefit cuts than those laid out in the previous scheme, which was released in late February.

The updated restructuring plan protects the collection of the Detroit Institute of Art, which was potentially up for liquidation during earlier negotiations. In January, a group of non-profits including the Detroit-based Kresge Foundation and the Ford Foundation committed $330 million to help save the art works.

[i]etc ...[/i]

http://ai-cio.com/channel/REGULATION,_LEGAL/Detroit_s_New_Plan.html

Thu, 2014-04-03 10:44

#65

abnormal

Quote:
A committee representing Detroit’s 20,000 municipal retirees is demanding a more thorough review of the Detroit Institute of Arts (DIA) collection, arguing that Emergency Manager Kevyn Orr’s revised bankruptcy plan is less favorable than the original, MLive.com reported. The revised Orr plan, a 602-page document filed on Monday, incorporates the multiparty deal that uses a mix of state and foundation funds to save DIA artworks purchased with city money from potentially adverse alternatives.

Of the city’s $18 billion of debt, an estimated $9.2 billion affects retiree pensions and health benefits. According to the plan filed Monday ...

http://hyperallergic.com/118206/pension-committee-subpoenas-detroit-muse...

Fri, 2014-04-04 10:11

#66

abnormal

Not particularly fond of the source of this article but they do make a valid point:

Quote:
And there’s more bad news in this story for retirees in other cities on the edge of bankruptcy. Detroit bondholders are taking huge hits—perhaps as much as 85 cents on the dollar. This will translate into higher interest rates for cities and states with bad credit (yes, you wastrels in Illinois, this means you) and speed the development of death spirals as rising debt-service costs hit more cities and states.

http://www.the-american-interest.com/blog/2014/04/02/detroit-cuts-pensio...

The question isn't whether anyone major will go bust but rather who the next major city to go down is - the smart money seems to be saying Chicago.

Mon, 2014-04-07 15:06

#67

abnormal

Quote:
[b]Detroit Announces Planned Pension Benefit Reductions[/b]

April 4, 2014 (PLANSPONSOR.com) – New bankruptcy paperwork filed by city of Detroit includes benefits reductions for the city’s two public pension funds.

This week, the city filed an amended plan of adjustment and a related disclosure statement with the U.S. Bankruptcy Court for the Eastern District of Michigan. This paperwork offers clarification for retirees about how much pension benefit reductions would be should the two pension classes involved accept or reject the revised plan of adjustment and the proposed $816 million in outside funding. Detroit’s two public pension funds have opposed the city’s bankruptcy from the beginning (see “Detroit as Bellwether? Maybe Not”).

According to an announcement from the city, for Police and Fire Retirement System participants, voting ‘yes’ for the plan would mean a pension benefit reduction of 6% and elimination of cost of living adjustments (COLA). Voting ‘no’ would mean a 14% benefit reduction and COLA elimination.

As for General Retirement System participants, voting ‘yes’ would mean a 26% pension benefit reduction and elimination of cost of living adjustments. Voting ‘no’ would mean a 34% pension benefit reduction and COLA elimination.

[i]etc ...[/i]

http://www.plansponsor.com/Detroit_Announces_Planned_Pension_Benefit_Red...

Documents can be found [url=http://www.detroitmi.gov/EmergencyManager.aspx]here[/url].

Don't know why police and firefighters get a special carveout with lower reductions.

Mon, 2014-04-07 15:13

#68

josh

abnormal wrote:

Don't know why police and firefighters get a special carveout with lower reductions.

Uh . . . maybe because of the danger that was inherent in their jobs.

Mon, 2014-04-07 15:17

#69

abnormal

josh wrote:

abnormal wrote:

Don't know why police and firefighters get a special carveout with lower reductions.

Uh . . . maybe because of the danger that was inherent in their jobs.

Maybe - but I doubt that would carry too much weight in a bankruptcy court (or with the other unions). Don't know.

Fri, 2014-04-11 10:17

#70

abnormal

Quote:
[b]Report: 85% of pensions could fail in 30 years[/b]

You might have thought your public pension was on shaky ground, but you're likely still being too kind.

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades.

Bridgewater came to these conclusions by stress testing the nation's public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.

Public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades, Bridgewater says. An investment return of roughly 9% a year is needed to meet those onerous obligations.

Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.

[i]etc ...[/i]

http://www.cnbc.com/id/101572727

Sat, 2014-04-12 09:54

#71

abnormal

I don't see how Orr is going to be able to justify turning this down. And if he does, he may be setting off a battle over the bond insurance.

Quote:
Detroit's emergency manager Kevyn Orr showed little enthusiasm on Wednesday for a new proposal from a bond insurer to sell or securitize the insolvent city's world-class art collection.

The collection, housed at the Detroit Institute of Arts, has been in question since Detroit filed for an $18 billion municipal bankruptcy last July, the largest in U.S. history.

The city is pushing what it calls a "Grand Bargain" to save the collection by raising about $815 million from the state, private donors and several foundations to pay the city for the entire collection. That would stop any potential move to break it up and sell it off to pay off the city's creditors.

But bond insurer FGIC Corp, which insurers $1.1 billion of the city's pension debt, said on Wednesday it had received proposals from "credible third parties" for acquiring or monetizing the collection that would generate $1 billion to $2 billion for the bankrupt city, considerably more than Orr's current plan.

Orr poured cold water on that idea in an interview with Reuters late on Wednesday. "We have no intention of selling art," Orr said. "In a Chapter 9 you cannot compel the city to sell anything, not a park, not a zoo, not the DIA."

.....
The four proposals FGIC said it had received range from an offer to buy a small percentage of the DIA collection for between $896 million to $1.473 billion to using the collection as security for a loan to the city of up to $2 billion, FGIC said.

"How can the City even consider blindly forging ahead with the Grand Bargain when presented with real alternatives that would allow it to substantially enhance creditor recoveries (to the tune of $1 to $2 billion) while maintaining the DIA as a culturally relevant institution?" Steve Spencer, a financial adviser to FGIC, said in a statement.

http://www.reuters.com/article/2014/04/10/usa-detroit-dia-idUSL2N0N12FX2...

Sat, 2014-04-12 11:17

#72

KenS

There's a lot morepragmatic leverage than you think abnormal.

And Orr has never shown himself to be a big booster of saving the DIA.

But he is a negoiater. And the CLAIMS that creditors, and now bond insurers, and all the other viltures, that they can get more for the DIA collection than the Grand Bargain offers... they are just that: claims.

At bottom, they are posturing to get more out of the Grand Bargain. Saying they can do better is a bluff, with the bankruptcy judge that has ultimate say not too likely to call their bluff.... leaving them free to make their demands.

Sat, 2014-04-12 14:46

#73

abnormal

Ken, if the insurers think they're going to get a judge to sign off on their deal they'll have to come to the table with something a lot more definite than a "we're confident we can ..."

But no doubt that Orr is a negotiator. It's not clear how much of his lack of enthusiasm is simply a negotiating tactic and how much is a true lack of interest. We'll have to wait and see how this shakes out.

Mon, 2014-04-21 08:38

#74

abnormal

Quote:
Public officials charged with maintaining stable funding levels within their retiree pension systems are being forced to take a more conservative approach toward projected annual investment return rates.

Experts say it’s about time.

Consider the deal reached earlier this week between the bankrupt city of Detroit and groups representing the city’s retired firemen and police officers as part of Detroit’s ongoing efforts to restructure its $18 billion in debts.

After months of negotiations, the city agreed to set the projected investment return rate for those group’s pension funds at 6.75%. That means that the funds expect to see their investments increase by 6.75% each year.

In fact, the 6.75% rate was a concession on the part of the city’s negotiators who had wanted to set the rate even lower, possibly at 6.25% or 6.5%. They agreed to raise it apparently in part because of strong stock market returns in the past 18 months.

Still, the 6.75% figure is well below the 8% projection rate used by most public pension plans. But that’s changing.

....
In its recent annual study of 134 state public pension systems, Wilshire Consulting found that 96% of them were underfunded.

“If expectations were more realistic we wouldn’t be having these problems,” said Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco. “The expectations aren’t in line with reality.”

Six Percent Assumptions Not “Outlandish”

More than five years after the worst of financial crisis, 10-year U.S. Treasury bonds are earning between 2% and 3%, and corporate bonds are returning a slightly higher 4% or 5%. Meanwhile, stock markets remain volatile despite surging last year. (“Who knows on stocks?” said Spiotto).

.....
Before adopting sweeping new pension reform legislation in 2011, the state of Rhode Island lowered its projected rate of return from 8.25% to 7.5%. Overall in 2010 and 2011, in the immediate wake of the Great Recession, 18 public pension plans in 14 states lowered their return assumptions, according to the Pew Center on the States.

In a 2013 study of 126 public pension plans, the National Association of State Retirement Administrators found that more than half have reduced their return assumption since 2008. The study found that while 8% remains “the predominant rate assumption,” the average has dropped to 7.72%.

Elsewhere we see arguments over whether or not the correct interest rate is 4% or 2%.

[url=http://www.foxbusiness.com/economy-policy/2014/04/17/public-pension-fund...

Mon, 2014-04-21 11:04

#75

ygtbk

@abnormal:

I personally would go with about 2.5% real (depends on asset mix), which is less than the 4% (or so) real assumed by CPP.

Mon, 2014-04-21 11:27

#76

NorthReport

Underfunded pensions inch closer to surplus

http://www.cbc.ca/news/business/underfunded-pensions-inch-closer-to-surp...

Mon, 2014-04-21 12:11

#77

quizzical

why does a city own so much art work and why aren't the city employee pp's putting a lien on them?

Mon, 2014-04-21 12:22

#78

Bacchus

Because they are unsecured creditors, they are rather lower on the list of those to be paid back

Mon, 2014-04-21 17:37

#79

abnormal

quizzical wrote:

why does a city own so much art work and why aren't the city employee pp's putting a lien on them?

As Bacchus says, the pension funds are unsecured creditors so they have to assume their place in line during the bankruptcy process. The pension funds can't simply turn around and say "give us the artwork".

To oversimplify, the City (the City in Liquidation if you prefer) has a pool of assets that includes the artwork. The liquidators job is essentially to maximize those assets and distribute them among the various creditors as dictated by law (reality is there will be a lot of negotiating between the various parties as to who gets what - how much of a haircut each will take and so forth).

Mon, 2014-04-21 17:40

#80

abnormal

ygtbk wrote:

@abnormal:

I personally would go with about 2.5% real (depends on asset mix), which is less than the 4% (or so) real assumed by CPP.

That's not unreasonable - of course doing that would greatly increase the magnitude of the existing underfunding problem.

Mon, 2014-04-21 18:57

#81

KenS

quizzical wrote:

why does a city own so much art work, and why aren't....

That part of the question was skipped over.

The Art INSTITUTE has always been 'owned' by the City. [We're talking strictly property here.]

It has always been run by a foundation. Both those facts would be common to a lot of other museums and art institutes. In a sense, somebody has to own it. And frankly, not a lot of thought was ever put into it.

But little of the money for buying art work over the decades came from the City. And much of the artwork itself was donated. Not all of the funds for purchasing came from wealthy people, and even when it did, it was people of broader classes who raised it.

So the City is directly responsible for not much of the artwork. That would be true anywhere, and the DIA has always been more of a peoples' institution than art galleries of other big cities. It aint the Tate. It anint the Met.

But a bankruptcy is all about property. And as far as property goes, the City owns the artwork... therefore the asset is available for the creditors to go after.

There are private and public funded efforts to correct this unfortunate accident of property. Essentially, to chip in as money as the creditors could REALISTICLY expect to get for the artwork if it were sold on the market.

It helps a great deal in raising that money that the main beneficiary as creditors is the pension funds. Essentially, that because of the "Grand Bargain" including saving the artwork, they will do better than they would through a "normal" bankruptcy.... whatever 'normal' is, since all big banruptcies, even private companies, let alone governments, are wild and wooly negotiated political processes... with a judge as referee and ultimate arbitor.

I'm not sure how the Grand Bargain works with the secured creditors, who theoretically have the most leverage, but will get less per dollar than the unsecured creditor pension funds. But even the pension funds huff and puff that more could be squeezed if the art collection were [theoretically] broken up. But in terms of what is REALLY going on, they are pressuring for more of the Grand Bargain funds going to them [not really to selling the artwork, which would kill the Grand Bargain and cook their goose.... while the secured creditors mean it [somewhat more] about the breakup value of the collection. But even they are taken by the judge and observors with a grain of salt. Because art by grand masters is not what Russian billionaires prize these days. So it would be a crapshoot whether they could get more out of breakup [after all the vultures fees], than the Grand Bargain offers.

Clear?

Mon, 2014-04-21 19:15

#82

KenS

Long and short of it:

in bankruptcy law, ownership trumps.

So it doesnt matter how the DIA came by the art work. Even if it was just because it was the easiest way to do it: the City of Detroit [ultimately] own the artwork.

BUT, with bankruptcies, the devil is in the details. And the bigger the bankruptcy, the messier the application of the rules.

And even messier: the resolution.

So in the end, ownership does not simply trump everything else. Not even close.

Long established before this mess in Detroit: pension funds in practice are not really an unsecured creditor. Strictly speaking, they are, but they have countervailing rights that put them in practice above secured creditors. [But not such that they get everyting they were previously entitled to, and everybody else gets to divide up what is left.]

And publicly used institutions are not treated like any other asset. But that gets messy because artwork has over the decades got such ridiculous prices attached to it. So a publicly owned road is not treated as just an asset and turned into a toll road. A zoo is not sold to the highest bidder that thinks they can make money on it. But the artwork in a museum, thats a grey zone.

Obviously does not put it off limits, but it is also not just simply an asset going to be sold. I'm sure this is making a lot of lawyers rich.

It must be a new cottage industry across North America. You cant protect a museum by just suddenly moving it out of government ownership to a non-profit... but you can start moving it in that direction so that it immediately starts being harder for the vultures to get, and eventually is out of their reach. I'm sure it isnt simple though. Requiring layers and layers of legal obfuscation.

Mon, 2014-04-21 19:21

#83

Bacchus

Donated artwork tends to go back to the original owners in such occasions as well, making the overall value that much less.

Pretty much any donated work has a clause that says should the situation change, we get it back and it cant be sold

Mon, 2014-04-21 20:49

#84

abnormal

KenS wrote:
The Art INSTITUTE has always been 'owned' by the City. [We're talking strictly property here.]

Absolutely correct.

Quote:
And as far as property goes, the City owns the artwork... therefore the asset is available for the creditors to go after.

Perhaps. But it's not clear to me just how much of that art is "owned" by the Institute and how much is "on loan" (permanent or otherwise). If it's on loan it does not belong to the institute or the city so it's not available to the liquidator.

Mon, 2014-04-21 21:59

#85

KenS

I dont get the feeling that much DIA artwork is owned conditionally. It never comes up.

For me, it was always just there. I never paid any attention to where it came from. [Mind you, I did not grow up here, and did not explicitly 'live here' for long. Have pretty minimal identification with Michigan or Detroit. I like the fact that others do.]

A lot of it was purchased through broad subscriptions. Detroit in the glory days had a HUGE and prosperous middle class. And the Rembrandts and the Brueghels were donated before they were 'priceless,' and were simply gifted. Closer to contemporary times the City did put funds directly into art purchases, those are I believe the only works that have anything that could be called an appraisal.

If some significant amount of the ownership was conditional, it would have come up by now.... because any work out of reach of the bankruptcy would be part of the public discussion.

Mon, 2014-04-21 22:35

#86

Bacchus

It wouldnt come up until they actually decided to put the art for sale. The agreeements for donations/loans are usually confidential as to the terms. I would think anywhere from 30-60% would be loaned/donated/shared etc

However it is usually listed with the info about each piece in the museum so anyone could prob look and see which is and which isnt actually owned by them

Mon, 2014-04-21 22:40

#87

Bacchus

A sampling of the works shown on their website show a majority of them as donations not purchases

And if the City of Detroit bought it, it is listed as City of Detroit purchase as opposed to some of the many foundations involved that also purchase stuff

Tue, 2014-04-22 00:21

#88

quizzical

what a tangled mess but i do have better understanding thank you.

Sat, 2014-05-03 14:21

#89

abnormal

Now it seems CalPERS is trying to get in on the debate:

http://ai-cio.com/channel/REGULATION%2C_LEGAL/CalPERS__Detroit_Ruling_Th...

Quote:
The largest pension fund in the US has weighed in on the Detroit bankruptcy ruling with a legal filing that claims the move threatens the country’s entire public pension system.

The California Public Employees' Retirement System (CalPERS)—acting as amicus curiae, or “friend of the court”—set out its concerns about the US city’s bankruptcy ruling given by a court judge. It also requested that the court reverse its judgements or at least remove certain aspects of the decision.

In CalPERS’ legal opinion, “the court improperly issued an advisory opinion on a constitutional question of the highest order,” despite counsel for the US and Detroit both arguing it was not appropriate to do so. It added that federal courts lacked the power to make such a move, which permitted Detroit to impair current employee and retiree pensions as it moved through the bankruptcy process.

“In essence, the bankruptcy court decided a constitutional question, not because it was unavoidable, but because it believed that putting the issue behind it would facilitate negotiations and administration of the case,” the document said.

In CalPERS’ view, “that decision should have waited for another day”.

The decision could open floodgates for other courts to agree that filing for bankruptcy protection under Chapter 9 would allow other states and municipalities to impair public pensions, CalPERS worried.
......
“While the pensions systems here are municipal run and created by the Detroit City Charter, the CalPERS system is created by state law and is run by an arm of the State of California. Thus, impacts on the CalPERS system have a state-wide, not only local, effect… Accordingly, if this court determines that it was proper for the bankruptcy court to reach this issue and affirms the court, amicus requests that this court issue a narrow holding, taking into account the differences between state-run pension plans and municipal-run pension plans, given the different role states and municipalities play in our constitutional plan.”

http://www.businessweek.com/news/2014-05-01/calpers-says-detroit-bankrup...

Quote:
U.S. Bankruptcy Judge Steven Rhodes ruled last year that Detroit was entitled to creditor protection under Chapter 9 of the U.S. Bankruptcy Code and could try to alter the terms of workers’ pensions. The decision, which would let a bankrupt municipality fail to meet its pension obligations in spite of state prohibitions, was “wrong on several levels,” Calpers said.

Of course there are a few things that actually threaten the actuarial soundness of the system.

Not making full contributions.

Investing in insane assets so that you can try to reach target yield.

Boosting benefits when the fund is flush, and always ratcheting benefits upward.

Perhaps Calpers is familiar with these things.

Mon, 2014-05-12 09:28

#90

abnormal

Quote:
[b]Detroit retirees, workers get ready to vote on pension cuts[/b]

More than 32,000 past and present Detroit city workers face potentially lifestyle-altering decisions starting next week when a packet arrives in the mail.

Inside will be a ballot — and their chance to help determine the fate of retirement benefits they once believed to be guaranteed for life.

Starting Monday, Michigan’s largest city will begin soliciting support from 67,000 creditors spread out across the globe for its plan to shed billions in debt. Special emphasis will be placed on past and present employees, the largest classes of creditors in Detroit’s historic bankruptcy. A majority of retirees must approve the settlement.

For nearly 12,400 retired and active police officers and firefighters, the impact to their pensions will be initially minimal, with basic benefits remaining intact while an annual “escalator” increase is being halved to less than the rate of inflation.

But the outlook is much more uncertain for 19,990 active and retired city employees who spent most of their working years picking up trash, driving city buses or performing clerical jobs at City Hall.

All members of the General Retirement System will be hit with a 4.5 percent base reduction in their lifetime pensions if the majority vote in favor of the city’s debt-cutting plan. But thousands face additional reductions to their monthly checks or separate retirement savings accounts. They also face complete elimination of cost-of-living increases, in part because their pension fund is in worse fiscal shape than police and fire fund.

The city’s so-called “plain language” documents for retirees contain a handful of scenarios about how the pension cuts could impact current and former workers, but even a city spokesman acknowledges they’re an imperfect attempt to describe benefit changes for retirees who range in age from their late 40s to their 90s.

[i]etc ...[/i]

http://www.detroitnews.com/article/20140509/METRO01/305090023

Mon, 2014-05-12 11:30

#91

josh

Like being asked to approve a 40 year sentence for something you did not do instead of a 50 year sentence. The cuts are bad enough, but this just adds insult to injury.

Mon, 2014-05-12 13:37

#92

abnormal

To be honest I don't think it's enough and fully expect to see this thing hit the wall (again) somewhere down the road.

Mon, 2014-05-12 15:13

#93

josh

There's a very simple solution. Detroit changes its name to Kiev and then the federal government will bail it out.

Mon, 2014-05-12 18:03

#94

abnormal

josh wrote:
There's a very simple solution. Detroit changes its name to Kiev and then the federal government will bail it out.

Right. And when I stop laughing ...

Mon, 2014-05-12 18:05

#95

abnormal

Fact is, the actuarial boards are full of speculation as to whether or not the company that signed off on this has enough E&O coverage to protect them when (not if, when) the stuff hits the fan.

Mon, 2014-05-12 20:58

#96

mersh

Popping back in just to say that I think Josh is emphasizing that Detroit needs a political solution. Unfortunately, the political solution (particularly in the US right now) is to extend the assault on labour, social service provision & pensions through the city itself. Conservatives have been planning for this for years. I like to think of it as an urban policy version of Thatcher's "there is no society" moment -- there is no city, only free-thinking individuals who occupy space in proximity to each other.

Tue, 2014-05-13 08:27

#97

abnormal

mersh wrote:
... Detroit needs a political solution.

So what "political solution" should be implemented? Fact one - the city has no money (and regardless of who is to blame that fact isn't about to change). Fact two - the state doesn't have the wherewithal to bail out the city either. Fact three - the feds won't do anything simply because that would set a precedent and every other municipality in the country would line up expecting the same [too lazy to dig up the list but there have been a number of municipal insolvencies so far (Detroit is simply the biggest to date) and that doesn't count those municipalities that have simply stopped sending out checks because they had no money.

Wed, 2014-05-14 12:38

#98

abnormal

Number of objections filed:

http://www.mlive.com/news/detroit/index.ssf/2014/05/federal_government_f...

http://cnews.canoe.ca/CNEWS/World/2014/05/13/21667201.html

so it's going to be a while before we see how this plays out. Meanwhile:

http://www.nytimes.com/2014/05/13/us/detroit-pension-ballot-poses-tough-...

Quote:
Detroit dropped tens of thousands of ballots in the mail on Monday, initiating a crucial stage in the city’s bankruptcy case that allows retirees, employees and bondholders to cast votes on a painful debt-shedding plan.

The vote, to be conducted over two months, amounts to a gamble for many of the city’s 32,000 pension recipients: Support proposed cuts to their checks, or leave it up to a federal bankruptcy judge and risk losing more.

“I’m just sitting here waiting,” said Michael Wells, a retired librarian and chairman of the retiree unit of a union local, who expected his ballot to arrive this week. He has not decided whether to accept the pension cuts and drop his lawsuit contending the move violates the State Constitution.

....
Detroit officials have announced a series of tentative agreements with groups that represent city employees, retirees and pension funds in recent weeks, though contentious negotiations continue over remaining issues. Steven W. Rhodes, the federal bankruptcy judge handling the case, will ultimately determine the city’s path to reducing its estimated $18 billion debt after a trial scheduled for this summer.

But support from Detroit’s more than 100,000 creditors would do more than bolster the city’s hope to exit bankruptcy court by mid-October. In the balance is a fragile deal involving $816 million in possible outside funding from charitable foundations and state coffers, which officials warn will disappear without the support of pension recipients. Michigan lawmakers are expected to consider legislation concerning the state’s financial support in the coming weeks.

The ballots, accompanied by a CD-ROM with hundreds of pages of legal documents and a printed “plain language” section to explain them, will present two uncomfortable options for retirees. A yes vote would amount to a 4.5 percent cut for most retiree pensions and the elimination of cost-of-living increases. A no vote could lead to pension losses of up to 27 percent. Former police officers and firefighters, who have their own pension system, would see no losses to their monthly checks either way but would risk losing annual increases if they opposed the plan.

Rejection of the pension terms by retirees could take the outside money off the table, the ballots say. Results of the voting will be filed with the court before July 21.

Wed, 2014-05-14 12:50

#99

josh

abnormal wrote:

mersh wrote:
... Detroit needs a political solution.

Fact three - the feds won't do anything simply because that would set a precedent and every other municipality in the country would line up expecting the same [too lazy to dig up the list but there have been a number of municipal insolvencies so far (Detroit is simply the biggest to date) and that doesn't count those municipalities that have simply stopped sending out checks because they had no money.

That's not a fact, it is an assertion. They're not worried about setting a precedent. The federal government won't do anything because the Republicans don't want to do anything. Detroit is black, union and Democratic. Everything they loathe. But they have no problem voting to send money to Ukraine, which is in bad economic shape.

Plus they're big believers in the shock doctrine. So they actually are happy that Detroit filed for bankruptcy. This is totally political.

Wed, 2014-05-14 13:35

#100

ygtbk

@josh:

You are kind of skipping the starting point for any reasoning that would follow: if Detroit makes promises it can't keep, does it follow that the U.S. Federal government is on the hook for the shortfall, or could it be someone else?

Wouldn't the answers to "who is on the hook?" more likely be:

a) Nobody - same as if I made promises I couldn't keep and then went bankrupt - it's a problem for my creditors;

b) The State of Michigan - under the theory that a municipality exists under state law.

I'm inclined to go with a), although you might be able to make a case for b).

Wed, 2014-05-14 13:58

#101

josh

ygtbk wrote:

@josh:

You are kind of skipping the starting point for any reasoning that would follow: if Detroit makes promises it can't keep, does it follow that the U.S. Federal government is on the hook for the shortfall, or could it be someone else?

Wouldn't the answers to "who is on the hook?" more likely be:

a) Nobody - same as if I made promises I couldn't keep and then went bankrupt - it's a problem for my creditors;

b) The State of Michigan - under the theory that a municipality exists under state law.

I'm inclined to go with a), although you might be able to make a case for b).

So you're comparing yourself to a large municipality?

The federal government has bailed out large companies, financial and manufacturer. It's called "too big to fail."

And the state is forking over some money. But nowhere nearly enough.

Detroit goes bankrupt

Pages