Detroit goes bankrupt

Other than size, Detroit's bankruptcy is hardly unique.  Nor is the upcoming cut in pensions and healthcare benefits.  Speaking from memory, there have been about 60 municipal bankruptcies since 1950 and 15-20 since 2010.  And that doesn't include those places that have simply stopped cutting pension checks because they have no money.

Back to Detroit - two unions have filed suit to block the bankruptcy because the state constitution prohibits reducing pensions.  

To date, Central Falls, RI is among the most notable of "whacked pensions". Other municipalities in RI have also altered pensions for current employees if not current pensioners.

http://www.reuters.com/article/2012/09/04/us-usa-rhodeisland-centralfall...

Chicago is next??

There's an open question whether city pensions can be adversely affected by this. The Michigan Constitution prohibits the reduction of public pensions. But bankruptcy is governed exclusively by federal law. One Michigan judge has already held that the bankruptcy filing is illegal as related to pensions.

http://www.freep.com/article/20130719/NEWS06/307190075/detroit-bankruptcy-ingham-county-rosemarie-aquilina-pension

Detroit is run by a dictator appointed in defiance of a referendum. In one of the most astounding slaps in the face to the electorate, the Michigan government passed a new law replacing the one struck down by the referendum very quickly after and made it referendum-proof...

NDPP wrote:

Detroitification: The Stockton Bankruptcy Lie

https://realitybloger.wordpress.com/2013/04/07/the-stockton-bankruptcy-lie/

"An introduction to financial terrorism..."

I actually tried to read this - that's a couple of hours of my life I'll never get back.

I was at a dinner party an heard that plagerizing hack, Margaret Wente, blamed it on corrupt municipal government and unions. Had to bite my tongue on the fact that anyone would reference Wente as being knowledgeable of the situation, any situation to be honest.

I did here some Baptist preacher from Detroit interviewed on CBC and he thought that it was criminal that the banks, who hold Detroit's debts, refused to write it off to some great extent given that the federal government bailed them out at taxpayer's expense when they were in trouble. I say he has a very valid point.

Oh on a final point, I am sick and tired of workers and/or unions being blamed for economic woes.

Well, the whole issue is if you entered into a contractual agreement and couldn't fulfill it, what would you do next? it's pretty clear that bankruptcy is next up.

It's good to remember, as this is going on, the truly exciting thing that is happening in Detroit. As the city has collapsed it has turned out of necessity into a centre for urban agriculture.

http://www.freep.com/article/20130520/NEWS01/305200021/urban-gardening-d...

http://detroitagriculture.net/

NDPP wrote:

The Scourging of Detroit  -  by Jane Slaughter

http://www.counterpunch.org/2013/07/23/the-scourging-of-detroit/

From the link:

Quote:

A recent law in Rhode Island specifies that in a city bankruptcy, bondholders must be paid first, before pensioners.

Asked if the Michigan legislature could pass a similar law ...

Except that it's not a "recent" law - it's federal bankruptcy law and has been the case for decades.

As for the bondholders, they're not going to be paid out in full.  Unsecured creditors are looking at receiving something in the order of ten to twenty cents on the dollar.  

BTW, I posted this link earlier but more on the Rhode Island situation:

http://www.reuters.com/article/2012/09/04/us-usa-rhodeisland-centralfall...

[url=https://www.youtube.com/watch?v=lMx__6Zc3S0]They're shutting Detroit down, while the boss man takes his bonus pay and jets on out of town[/url]

[url=http://www.cbc.ca/sports/hockey/nhl/story/2013/07/24/sp-nhl-detroit-red-... Wings arena project gets go-ahead despite Detroit bankruptcy[/url]

Quote:

A state board on Wednesday unanimously gave the go-ahead for a new Red Wings hockey arena in downtown Detroit to be paid for in part with tax dollars as the broke city works through bankruptcy proceedings.

Detroit's bankruptcy is another example of the problems inherent to the U.S.'s class and racial divide. As it turns out, metropolitan Detroit is actually well off. The artificial municipal political divisions along class and racial lines within greater Detroit is the basis of the problem for the city of Detroit. The problems experienced by the city of Detroit seem to mostly be caused by the rich suburban municipalities there that don't want to share for the greater good.

Detroit, and the Bankruptcy of America's Social Contract

Quote:

But there's a more basic story here, and it's being replicated across America: Americans are segregating by income more than ever before. Forty years ago, most cities (including Detroit) had a mixture of wealthy, middle-class, and poor residents. Now, each income group tends to lives separately, in its own city -- with its own tax bases and philanthropies that support, at one extreme, excellent schools, resplendent parks, rapid-response security, efficient transportation, and other first-rate services; or, at the opposite extreme, terrible schools, dilapidated parks, high crime, and third-rate services.

...

Detroit is a devastatingly poor, mostly black, increasingly abandoned island in the midst of a sea of comparative affluence that's mostly white. Its suburbs are among the richest in the nation. Oakland County, for example, is the fourth wealthiest county in the United States, of counties with a million or more residents. Greater Detroit -- which includes the suburbs -- is among the nation's top five financial centers, the top four centers of high-technology employment, and the second-biggest source of engineering and architectural talent.

I didnt know that was coming. But its not a surprise. The only people who use the Tunnel is people going to or coming from the core. While the core that is not abandoned has more or less stopped shrinking in size... it's less and less important to people crossing the border.

This particular bankruptcy will have very little effect except to the few who directly work for the Tunnel.

A couple of articles worth reading:

http://www.tinyurl.com/lqhmo9p

Quote:

[b]The Unsteady States of America[/b]

[i]It is not just Detroit. American cities and states must promise less or face disaster[/i]

WHEN Greece ran into financial trouble three years ago, the problem soon spread. Many observers were mystified. How could such a little country set off a continental crisis? The Greeks were stereotyped as a nation of tax-dodgers who had been living high on borrowed money for years. The Portuguese, Italians and Spanish insisted that their finances were fundamentally sound. The Germans wondered what it had to do with them at all. But the contagion was powerful, and Europe’s economy has yet to recover.

America seems in a similar state of denial about Detroit filing for bankruptcy (see article). Many people think Motown is such an exceptional case that it holds few lessons for other places. What was once the country’s fourth-most-populous city grew rich thanks largely to a single industry. General Motors, Ford and Chrysler once made nearly all the cars sold in America; now, thanks to competition from foreign brands built in non-union states, they sell less than half. Detroit’s population has fallen by 60% since 1950. The murder rate is 11 times the national average. The previous mayor is in prison. Shrubs, weeds and raccoons have reclaimed empty neighbourhoods. The debts racked up when Detroit was big and rich are unpayable now that it is smaller and poor.

Other states and cities should pay heed, not because they might end up like Detroit next year, but because the city is a flashing warning light on America’s fiscal dashboard. Though some of its woes are unique, a crucial one is not. Many other state and city governments across America have made impossible-to-keep promises to do with pensions and health care. Detroit shows what can happen when leaders put off reforming the public sector for too long.

etc ...

CNN had an article looking at the pensions of civil workers in Detroit (I cant find the article now) and showed that the pensions were modest (18k to 30k depending on salary position, years etc) and that it was far far less than that of pensions in LA or NYC.

Which seemed to be a threat of sorts for those cities pensioned workers

Not the article I read but damn close

Interesting article (actually about Detroit but the non-Detroit exerpts are worth considering as well)

Quote:

Unfunded retiree health care costs loom larger than ever for localities across the country, and the health law’s guarantee of federal subsidies to help people with modest incomes afford coverage has made the new insurance markets tantalizing for local governments. A study issued this year by the Pew Charitable Trusts found 61 of the nation’s major cities wrestling with $126 billion in retiree health costs, all but 6 percent of that unfunded.

“The Affordable Care Act does change the possibilities here dramatically,” said Neil Bomberg, a program director at the National League of Cities. “It offers a very high-quality, potentially very affordable way to get people into health care without the burden falling back onto the city and town.”

But if large numbers of localities follow that course, it could amount to a significant cost shift to the federal government. Authors of the health care law expected at least some shifting of retirees into the new insurance exchanges, said Timothy S. Jost, a law professor at Washington and Lee University who closely follows the law. “But if a lot of them do, especially big state and local programs,” he said, “that’s going to be a huge cost for the United States government, and it’s mandatory spending.”

Many cities are also wrestling with unfunded pension programs for retirees. But health care has become an easier target for cuts, in part because of generally stronger legal protections for pensions. Still, changes to retiree health care are playing out in courtrooms. The suit Mr. Underwood joined, filed last week in Chicago, claims that the health care benefits were also protected.

The Chicago plan, announced in May, would phase some of the city’s 11,800 retirees and their family members not eligible for Medicare out of city coverage by 2017. While some may seek insurance through new employers or through their spouses’ workplaces, others will probably be shifted to the insurance exchanges. Much of the plan for the next few years is in flux, but the changes are expected to contribute to a larger effort to save Chicago $155 million to $175 million a year in retiree health care costs by 2017.

“With the implementation of the Affordable Care Act, our retirees will have more options to meet their health care needs,” said Sarah Hamilton, a spokeswoman for Mayor Rahm Emanuel, adding that most of the city’s retirees over 65 were already covered by Medicare. “We will ensure that they have all the information needed to navigate the options available going forward, while saving vital taxpayer dollars.”

http://www.nytimes.com/2013/07/29/us/detroit-looks-to-health-law-to-ease...

Typical race to the bottom and schock doctrine tripe from the anti-union Detroit Free Press: The city also missed opportunities to rightsize retirement benefits.

For instance, when the State of Michigan switched from pensions to 401(k)-style plans in 1997, Detroit failed to follow suit. More on the anti-union paper.

http://inthesetimes.com/working/entry/13274/bad_news_for_labor_new_detroit_newspaper_strike_book_underscores_a_broken_s/

All they have to do is pretend it's Bank of America, Wells Fargo or AIG.

You mean like the banks?  Chrysler and GM?  And New York City in the 1970s?

We've finally got a ruling from the judge about Detroit's eligibility to declare Chapter 9 Bankruptcy:

Quote:

[b]Detroit eligible for Chapter 9 bankruptcy, judge rules[/b]

Detroit is eligible to shed billions in debt in the largest public bankruptcy in U.S. history, a judge said today in a long-awaited decision that now shifts the case toward how the city will accomplish that task.

Judge Steven Rhodes turned down objections from unions, pension funds and retirees, which, like other creditors, could lose under any plan to solve $18 billion (all figures US)  in long-term liabilities.

• WATCH MOBILE: Detroit bankruptcy ruling LIVE

But that plan isn't on the judge's desk yet. The issue for Rhodes, who presided over a nine-day trial, was whether Detroit met specific conditions under federal law to stay in bankruptcy court and turn its finances around after years of mismanagement, chronic population loss and collapse of the middle class.

[i]snip ...[/i]

Rhodes' decision is a critical milestone. He said pensions, like any contract, can be cut, adding that a provision in the Michigan Constitution protecting public pensions isn't a bulletproof shield in a bankruptcy.

The city says pension funds are short by $3.5 billion. Anxious retirees drawing less than $20,000 a year have appeared in court and put an anguished face on the case. Despite his finding, Rhodes cautioned everyone that he won't automatically approve pension cuts that could be part of Detroit's eventual plan to get out of bankruptcy.

There are other wrinkles.

[i]etc ...[/i]

http://www.cbc.ca/news/canada/windsor/detroit-eligible-for-chapter-9-bankruptcy-judge-rules-1.2448789

A bunch of items on the pension cuts proposal

http://money.cnn.com/2014/02/21/retirement/detroit-pensions/

Quote:

Thousands of retired and current Detroit workers face pension cuts as deep as 34%, and some say they aren't sure how they'll make ends meet if the plan announced Friday is approved.

"They have worried me from the day they started this mess. You sit on pins and needles all the time," said 69-year-old Donald Smith, who retired in 2005 after decades of work as a civilian detention officer and other general city jobs.

For Smith, the cuts could mean a loss of around $300 a month from his $889 in monthly pension benefits, even as he already struggles to pay for rent, groceries and medical bills. Between his pension and Social Security, Smith currently lives on less than $23,000 a year.

"If they go and cut that, how am I going to live off of that?" he said, "I can't live on what I get now."

At the same time, retirees could face increased medical bills due to proposed deep cuts to their retiree healthcare benefits.

http://www.detroitnews.com/article/20140221/METRO01/302210081/Detroit-pension-funds-can-file-direct-appeal-bankruptcy

Quote:

The city’s pension funds and others were granted permission Friday morning to file a direct appeal of the city’s bankruptcy eligibility.

The 6th U.S. Circuit Court of Appeals granted permission ahead of the city’s filing of a plan to shed debt and emerge from bankruptcy court.

The city’s pension funds appealed an earlier ruling from U.S. Bankruptcy Judge Steven Rhodes that concluded Detroit is eligible for Chapter 9 bankruptcy relief. He also ruled that pensions can be cut despite protections included in the state constitution.

The appeals court, however, refused to grant an expedited appeal, and a timetable for consideration is uncertain.

http://www.detroitnews.com/article/20140221/METRO01/302210081#ixzz2uByT9...

http://www.freep.com/article/20140223/NEWS06/302230050/detroit-bankruptc...

Quote:

LANSING — One of the key elements of the proposed plan of adjustment to resolve the Detroit bankruptcy, made public Friday, is the so-called grand bargain designed to protect Detroit pensioners and the artwork of the Detroit Institute of Arts.

But a separate — and perhaps no less grand — bargain may be required in Lansing to get the Legislature to sign off on a $350-million state commitment over 20 years that is one of the cornerstones of the deal.

....
The bad news is that the strings some lawmakers want to tie to the money in return for their support are already many and varied: Some lawmakers want a regional water authority in Detroit, others want to make the DIA a statewide institution, some want the management of the city’s pension boards to change, while still others want to make sure local governments other than Detroit share equally in any Lansing largesse.

 

 

ygtbk wrote:

So, after many years of pensions being the "soft option" in labour negotiations (vs. a raise in the current hourly rate), we discover that future dollars eventually become present dollars.

Amazing that none of the negotiators ever figured that out. [img]http://oi60.tinypic.com/5x65qu.jpg[/img]

Or maybe they did.  Pension accounting is enough to give anyone a headache but one of the [i]amusing[/i] things is that it generally takes years for things to finally start impacting income statements and balance sheets in a big way.  By that time the people on both sides of the table that actually negotiated those benefits are long gone.