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.
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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%.
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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]
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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.