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untanglingwebs
El Supremo
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More than likely yes as the Governor and the EM will look for solutions in this decision.
I was at a meeting where Wantwaz Davis spoke. I was startled as he repeated a conversation council had with Darnell Earley about how the transition to returning the council would begin. I have to admit I thought I was hearing things as Flint still has a major deficit and projections are that by 2018 legacy costs would give us a second deficit over $19 million.
After a conversation with Jim Kiertzner, former TV 5 and TV 66 and now TV 7 in Detroit investigative reporter, I now worry if bankruptcy is in Flint's future. Kiertzner reminded me how the new law allows the council to petition to remove the Emergency Manager.
The decision of the bankruptcy judge on Tuesday will set the stage or what will happen to retirees. Creditors in Detroit are pushing to use the assets of the Detroit Institute of Arts, of which about half belong to the city, to pay their claims. How will the judge deal with the retirements?
This is important as the retirement costs are the basis of the future projected deficit. Will Flint face bankruptcy as other cities have.
Last edited by untanglingwebs on Sun Dec 01, 2013 8:36 pm; edited 1 time in total |
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Sun Dec 01, 2013 8:23 pm |
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untanglingwebs
El Supremo
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Susan Tompor: Detroit retirees facing cuts anxiously await bankruptcy eligibility decision
December 1, 2013 |
Detroit Free Press Personal Finance Columnist
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Stephen Henderson: Dig in to fix Detroit's problems and its image will handle itself
10 revealing exchanges: How Judge Rhodes is conducting Detroit's bankruptcy
Detroit bankruptcy judge's ruling: 6 different ways it could go
Tips for Detroit retirees
■ Take a ‘hunker down’ approach, said Leon LaBrecque, CEO of LJPR, a fee-only financial adviser in Troy. “We’ve suggested retirees should make a budget, and take into account the high probability of health insurance payments later. So we’re telling our retirees to put aside some monthly dollars for prospective future health care costs.”
The expectation is that City of Detroit retirees who are younger than 65 are likely to face significant out-of-pocket costs for health coverage at some point. “We think the under-65 retirees will get hit pretty hard,” LaBrecque said. “We suggest they should be looking at a significant cost to retiree health care until they are 65.”
■ Attend retiree group meetings. City of Detroit retiree associations are having meetings about the health care issues, pensions and the bankruptcy. The gatherings are good places to trade ideas and learn about potential cuts.
■ Don’t be a fatalist but don’t set yourself up for failure, either. No one knows what will happen in bankruptcy or negotiations. But many city retirees would be better off to plan for the likelihood that retirement benefits won’t be as sizable in the future. It’s better to have contingency savings.
■ Hold back for a while on taking on any big new expenses. Retirees could need to say ‘no’ more frequently when it comes offering extra support for adult children and their families.
■ If retired already, take into account your income-tax bill, too. If retirees collecting Social Security want to take on an extra job, they should understand that some of their Social Security benefits could end up being taxable if their total income climbs too high. See the Social Security website for a tax guide: www.ssa.gov/planners/taxes.htm.
What about Social Security?
Social Security checks aren’t part of the package for many retired Detroit firefighters and police officers and their surviving spouses. That’s because police and fire did not pay into the system, and the city did not pay into it, as well, for those employees.
That’s because of the way some public pensions can be handled under the Social Security system. Some older existing public pension system participants are exempt from the Social Security system. And thousands of Detroit police and firefighters on the job are not covered by Social Security for their City of Detroit pay, either.
Other City of Detroit retirees, such as those who worked in city offices or drove buses, are covered by Social Security.
Some retired police officers and firefighters could collect Social Security payments if, by chance, they were eligible through a spouse who paid into the Social Security system or if they worked somewhere else in another job under the Social Security system. But the complex system even has a way of significantly reducing those benefits in some ways with a special offset that takes into account the public pension payments.
After 38 years of working as a clerk at the main branch of the Detroit Public Library, Barbara Yokom retired in April 2012. A little more than a year later, Detroit filed for Chapter 9 relief and threw her health care coverage and a chunk of her pension into the great bankruptcy unknown.
Yokom, 60, jokes that things would be OK if she could get a financial break and declare her two cats, Magoo and Smoky, as dependents.
“I don’t think they’re going out to get jobs,” said Yokom, who is single. She expects that she would pay an extra $340 a month next year for similar health care coverage and faces possible cuts to her pension check.
City of Detroit retirees are discovering that the golden watch may have to be pawned, as Detroit deals with an $18-billion mountain of debt and projected liabilities.
Retirees are anxiously awaiting U.S. Bankruptcy Judge Steven Rhodes’ decision Tuesday on whether Detroit can move ahead with the nation’s largest municipal bankruptcy.
■ John Gallagher: Detroit's recipe for success calls for a bit of everything
■ How Detroit went broke: The answers may surprise you - and don't blame Coleman Young
■ Full coverage: Detroit’s financial crisis
“I just wish it was over,” said Gail Wilson Turner, 56, who retired from the Detroit Police Department in 2011. She was a deputy police chief over risk management and is now part of a nine-person retiree committee involved in the bankruptcy restructuring.
“It’s like being in a bad marriage,” she said. “You have to go to court every day and look that person in the face.”
When it comes to pensions, the numbers are one thing. But the names attached to the pension checks are another. Retirees face personal choices and challenges ahead as the city works through the big-figure budget woes.
Yokom’s preliminary shopping for health care coverage produced the extra $340-a-month figure if she wanted the same kind of premium health care coverage she receives now. That takes into account a proposed city stipend and a federal tax credit that she’d qualify to receive. The city plans after Feb. 28 to replace health care benefits for retirees younger than 65 with a stipend of $125 a month to buy coverage.
Emergency manager Kevyn Orr’s team says the city has more than $5.7 billion in retiree medical costs to tackle.
Yokom said she always realized that health care coverage was at risk, given what she’s seen happen to autoworkers and others.
Her financial picture already includes a $582 monthly mortgage on her home in Redford Township and an $1,800 pension after taxes and other deductions. She’s only paying about $72 a month now for health care coverage.Unlike some other employees, she will receive Social Security.
But no one expected any of their pension checks to ever be at the risk. And city retirees and their associations are adamant that pensions are untouchable under state law. Orr has said that he does not believe Michigan’s Constitution protects vested retirement benefits from a city that cannot afford them.
Jumping ship
The estimated pension shortfall for two pension plans, Detroit’s General Retirement and Police and Fire Retirement systems, is at $3.5 billion, according to Orr’s number. The city’s independent pension boards dispute that figure and put it closer to the two plans being underfunded by about $644 million.
Even in light of the bankruptcy, many people do not want to delay their retirement.
For the fiscal year from July 1, 2012, through June 30, 2013, the city saw 687 workers retire and begin collecting pensions from the general retirement plan. During that same time, 349 police and fire employees retired and began taking a pension from the police and fire system.
Since July 1, the city saw 139 workers retire and begin collecting pensions from the general plan. And 56 workers from police and fire retired so far since July 1, according to the pension plan’s latest numbers in November.
Currently, there are 12,214 retired workers, surviving spouses and beneficiaries receiving pensions from the general city fund. There are 9,316 retired police and fire employees receiving pensions from the police and fire plan.
“We’re seeing a lot of people who want out,” said Daniel Thomas, a financial planner who estimates that he has about 300 clients who retired from the city or still work for the city.
Orr spokesman Bill Nowling said the human resource office indicated that the city’s retiree rate so far this year seems high compared to previous years.
“It is safe to say some people eligible to retire are doing so given the uncertainty of the bankruptcy process,” Nowling said. “I know some city workers think they can ‘lock in’ benefits by retiring now, but there are no guarantees.”
Christal Park, 59, retired in September from the city just two months after the July 18 bankruptcy filing. But she said it was more a matter of being ready to retire after 30 years with the Department of Transportation. She started as a bus driver and retired as an assistant manager for scheduling. Her pension is about $3,200 a month before taxes and deductions.
“Thirty years is a long time, and it was just time for me to go,” said Park, who lives in Detroit with her husband, Thomas, 79, also a City of Detroit retiree. Her husband retired about 18 years ago.
Two months into retirement, Park said the bankruptcy situation is a concern but she doesn’t want to worry too much in advance.
“Outside of me not going to work, things haven’t changed that much for me.”
Crunching the numbers
Daniel Thomas, president of Thomas Financial Group in Troy, said he’s seeing City of Detroit workers still planning to retire, but they’re running numbers carefully.
“The one-two punch is the health care and the potential reduction on the pension,” Thomas said.
For those younger than 65, the emergency manager’s plan calls for offering $125 a month to buy coverage through the state’s new health insurance exchange. Retirees younger than 65 who were disabled on the job would receive $200 a month.
Older retirees covered under Medicare would stay under Medicare and need to pay for additional coverage on their own. The plan also calls for offering Medicare-eligible retirees Medicare Advantage coverage at no charge through Blue Cross Blue Shield of Michigan.
Initially, the plan called for cutting off health care coverage at the end of the year. But the Affordable Care Act online glitches and other negotiations came into play. And in early November, Orr’s office announced an agreement to extend current health care coverage for retired city workers through Feb. 28.
Groups representing thousands of Detroit retirees are preparing for negotiations they hope will lead to better health care benefits than the plan that’s been announced.
Greg Trozak, vice president of the Retired Detroit Police and Fire Fighters Association, said the burden for health care coverage under what’s proposed so far could be quite significant for some retired couples younger than 65.
Many who researched plans were shocked to find plans that would cost more than $1,000 a month for a husband and wife, Trozak said.
Trozak said he and his wife found that they’d have to pay nearly $1,500 a month. They do not qualify for tax credits.
As for older retirees, Trozak said the city’s proposed Medicare Advantage coverage is not nearly as extensive as what’s being offered now.
A drive to act now
Many retirees admit they could see the writing on the wall when it came to the city’s finances.
“Our budget was being cut significantly every year. Projects had to be suspended,” said Patrice Fields, 56, who retired in June 2012 after 28 and a half years with the city, most recently as a manager for information technology.
Fields and some city employees have been motivated to retire in the past few years to obtain what benefits were available at the time.
One attractive benefit for many older employees is a lump sum that can be paid at retirement for unused sick days. The rules depend on the union contract.
For Patrice Fields, the lump sum amounted to about $80,000.
For Yokom, the unused sick days amounted to about $25,000.
Yokom is thankful she was a good saver. But she took a job for a few hours a week stocking books at a store for a little extra money.
Fields and her husband, Brian Fields, also 56, live in a modest home in northwest Detroit they’ve had since 1991 and where they raised one daughter. They both feel they’ll be OK, too, but they’re upset about the bankruptcy process and threat to benefits.
Brian Fields retired in January as a police sergeant. He spent 27 years on the force and was not covered by Social Security for his work in the city. His health care coverage would be reduced under the plan. He’s not covered by Medicare.
Patrice Fields, like others who worked in city offices or drove buses, is covered by Social Security. She receives about $2,450 before taxes for her city pension and says she knows that’s better than average.
Four months after she retired, though, she had a medical emergency and dealt with kidney failure. She’s now covered by Medicare because of kidney disease.
Brian Fields decided to retire after his wife was diagnosed with kidney disease. She has dialysis three times a week, and he drives her.
“I couldn’t see myself working once Pat got sick,” he said.
“I didn’t want to be at work and be informed she died because I wasn’t there.”
Patrice Fields said: “I call him my helicopter husband.”
For many City of Detroit retirees, it is not an easy time
Fields said her neighborhood has its lights and city services. But she’s seen streetlights that aren’t working as she drives along Outer Drive. She spots boarded-up homes in once-nice neighborhoods. As a city taxpayer, she knows that services need to improve and money is needed for the city to rebuild. She understands that it’s not sustainable for the city to keep going with the model it has when it comes to retirement. But what about the older retirees, she wonders?
“You really have more pensioners than active employees. What do you do? We’re the low-hanging fruit, that is for sure.”
Contact Susan Tompor: 313-222-8876 or stompor@freepress.com |
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Sun Dec 01, 2013 8:26 pm |
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untanglingwebs
El Supremo
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Forbes
MIcheline Maynard, Contributor
I look at all the ways we get around
n The Move | 12/03/2013 @ 11:49AM |4,925 views
Detroit Is Eligible For Bankruptcy, And City Pensions Are At Risk
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Detroit’s bankruptcy filing is officially approved. (Photo credit: Wikipedia)
Federal Judge Steven W. Rhodes gave the go-ahead Tuesday to Detroit’s historic bankruptcy filing, and dashed the hopes of city employees and retirees who hoped state law would protect their pensions.
Judge Rhodes ruled that Detroit’s pensions would be treated the same as any other contract in bankruptcy, meaning that benefits could be cut. But the judge, who has been hearing arguments in the case since July, warned Emergency Manager Kevyn Orr that he would not automatically rubber stamp a restructuring plan that shreds benefits.
Instead, Rhodes said that any pension cuts had to be viewed in the bigger context of the bankruptcy case, which was filed in July. It is the largest municipal case in U.S. history.
Opponents to pension cuts have argued that the Michigan Constitution, revised in 1963, protected employee pensions, and thus they could not be cut in the bankruptcy case.
But Rhodes noted that the constitution classified pensions as “contractual obligations,” and that federal bankruptcy law had clearly established that contracts could be abrogated in bankruptcy.
Rhodes, speaking for more than 90 minutes before a downtown courtroom, said Detroit “was, and is, insolvent.” The judge dismissed objections by creditors that the city had no other plan but to seek bankruptcy protection.
“Was the bankruptcy filing a forgone conclusion? Yes, it was. Of course it was,” Rhodes said, adding that the city probably should have sought bankruptcy protection years ago.
In a statement after the ruling, Orr, who was appointed by Michigan Gov. Rick Snyder last March, said the city’s restructuring efforts would move speedily. “Time is of the essence and we will continue to move forward as quickly and efficiently as possible,” Orr said, according to the Detroit News.
Attorneys for the city have said they planned to submit a draft restructuring plan by March 1. Orr’s tenure expires at the end of 2014, and he has said repeatedly he wants to wrap up the case before his term is over.
Rhodes gave creditors and the city’s 48 unions a small victory, ruling that the city did not negotiate with them in “good faith.” But given the sheer size of the Detroit case, which has more than 100,000 individual creditors, negotiations on concessions were “impracticable,” Rhodes said in a summation of his 140 ruling.
The judge said he would not decide Tuesday on the size of the city’s unfunded pension liability, which has been estimated at between $3.5 billion and $8 billion. The city’s debts are estimated at $18 billion.
Rhodes said the city had an obligation to resolve the bankruptcy case quickly, in order to ease the suffering of its 700,000 residents. Detroit, he said, was in a “service insolvency”, unable to provide citizens with basics like working streetlights and swift police response time.
“It is indeed a momentous day. We have a finding that this proud and once prosperous city is unable to pay its debts,” Rhodes concluded. But the bankruptcy case is “an opportunity for a fresh start.”
Sharon L. Levine, a noted bankruptcy attorney representing members of the American Federation of State County and Municipal Workers (AFSCME), said the ruling was “a huge loss” for the people of Detroit, and would appeal to the Sixth Circuit Court of Appeals in Cincinnati. “We’re going to do everything out there that we can do,” Levine told reporters.
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Levine said the union made what it believed were the correct arguments to protect pension benefits. “The judge expressed his own concern that what was happening would be particularly harmful to retirees,” she said.
Visibly upset by the ruling, Levine said she disagreed with Judge Rhodes that it was impractical to negotiate with all the creditors. She said more could have been done before the case was filed to involve creditors in finding solutions.
Levine said she believed the case could wind up with the U.S. Supreme Court, because of its magnitude. But in his ruling, Rhodes noted that the court first upheld the constitutionality of Chapter 9 bankruptcy in 1937, and has continued to do so in subsequent challenges.
The author is a Forbes contributor. The opinions expressed are those of the writer. |
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Tue Dec 03, 2013 4:25 pm |
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untanglingwebs
El Supremo
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Ashley Woods
Huffington Post
Detroit Bankruptcy Ruling By Judge Steven Rhodes Gives City Chapter 9 Protection
Posted: 12/03/2013 11:37 am EST | Updated: 12/03/2013 12:14 pm EST
DETROIT -- The largest city in American history to file for bankruptcy protection is officially bankrupt.
U.S. Bankruptcy Judge Steven Rhodes ruled Tuesday that Detroit is eligible for Chapter 9 bankruptcy protection, allowing city officials to negotiate in court with bondholders, pension funds, unions and other stakeholders. Many say that bankruptcy is the only way the city can attempt to settle its debts, which have been estimated as high as $18 billion.
"The city cannot legally increase its tax revenues nor can it further reduce its expenses without further endangering health and safety," Rhodes said as he announced the ruling. Rhodes added that retiree pensions are also on the table for cuts, despite passionate arguments delivered by pension and union representatives in court.
In his ruling, Rhodes said the city had met most of the strict criteria detailed under the federal Chapter 9 bankruptcy law: the city is insolvent (unable to pay its debts and owing more than it can collect); the bankruptcy filing itself was constitutional; the city is in "service delivery insolvency" (meaning that it cannot afford to provide for the health and welfare of residents); and Detroit officials desire to adjust the municipality's debts and effect a plan of adjustment.
But one crucial component was establishing that city officials negotiated in good faith with its creditors before filing for bankruptcy. Rhodes said that the city did not negotiate in good faith on June 14, when it met with union leaders and other stakeholders, one month before filing for bankruptcy. The filing, and particularly Detroit's attempt to negotiate with creditors, has been hotly contested by unions and other debtors in court since the trial began in October.
Rhodes scolded city officials for offering only a vague plan that would give pensioners and other stakeholders pennies on the dollar for their debt and waiting only a month to hear counterproposals. Yet Rhodes ruled -- remarking that union and pension officials admitted at trial that pension cuts would not have been binding for its members -- that the sheer number of creditors and complexity rendered negotiations "impractical, impossible really."
Bankruptcy protection limits the legal actions the city's 100,000 creditors can take to collect money owed to them. Detroit Emergency Manager Kevyn Orr and other key city leaders will move to submit a plan to pay off whatever debts it can and move forward from bankruptcy. The plan of adjustment will undoubtedly call for concessions from all of Detroit's creditors, provide a list of assets that can be sold to raise funds, and lay out a plan for reinvesting in essential city services.
Despite the state of Michigan's constitutional guarantee of public pensions, Rhodes said Detroit pensioners cannot legally be treated differently than other creditors. Pension cuts for retirees and city employees could be part of the final plan of adjustment. Pensioners on average receive $20,000 a year or less. But the disputed amount of pension debt that the city actually owes will be decided in the future, Rhodes said.
Detroit "could have and should have filed for bankruptcy long before it did, perhaps even years before," Rhodes said. "Certainly the court must conclude that the bankruptcy filing was a foregone conclusion," he added, "at least in 2013."
“Time is of the essence and we will continue to move forward as quickly and efficiently as possible," Kevyn Orr said in a statement sent to The Huffington Post. "We plan to submit a Plan of Adjustment in the coming weeks, file a Disclosure Statement early next year and work to exit Chapter 9 protection by the end of September. We hope all parties will work together to help us develop a realistic restructuring plan that improves the financial condition of Detroit and the lives of its 700,000 citizens.”
Detroit Mayor Dave Bing said at a press conference following Rhodes' announcement that bankruptcy protection could help Detroit deal with issues that were "20 or 30 years in the making."
"It gives us a chance to move forward with a clean slate and make good decisions that will improve the quality of life for Detroit's citizens," Bing said.
Had Rhodes found the city ineligible for bankruptcy protection, Detroit would likely have been sued by thousands of creditors in court for failing to pay its debts. In the Associated Press, Orr said that if Detroit didn't meet Chapter 9 requirements, it would be an "Armageddon-like scenario" for the city, which has lost more than a million residents since 1950.
The city's credit rating was downgraded to "D" by Fitch Ratings in September after they stopped paying on $600 million of general obligation debt. Detroit also received a pledge for a $350 million loan through Barclay's to pay off its pension swaps debts, with the balance being invested in city services, according to the Detroit Free Press.
Rhodes also ruled that Detroit's emergency manager is legal and doesn't violate the Home Rule act, another loss for opponents to the bankruptcy and the strong powers granted to state-appointed Orr, a former bankruptcy attorney for the Jones Day firm who represented Chrylser during the automaker's restructuring.
But the legal battles still aren't over in the Motor City. The AFSCME, the city's largest employee union, filed an appeal of Rhodes' decision immediately after it was announced, the Detroit News reported.
Last week, a coalition made up of Detroit's largest employee union, several bondholders and a European bank filed a motion in court asking Judge Rhodes to appoint a committee to conduct an evaluation of the market value of the city-owned art collection at the Detroit Institute of Arts (DIA). The collection, which could be valued in the billions, could be ruled a sellable asset by Rhodes, the Detroit Free Press reported.
The DIA released a statement Tuesday that said the art collection, built by charitable donations and held in the public trust, has survived municipal fiscal crises before, including the Great Depression.
"The DIA remains hopeful that the Emergency Manager will recognize the City's fiduciary duty to protect the museum art collection for future generations and that he will abide by the Michigan Attorney General's opinion that the City holds the art collection in trust and cannot use it to satisfy City obligations," the statement read. The DIA statement also said the art museum would "take action" if the collection is further threatened.
A report released in November by the liberal think tank Demos eviscerated the city's leaders for poor financial decisions and suggested that Detroit's long term debt was being exaggerated. The pension funds have also disputed Orr's numbers; they say the two pension funds (one servicing workers, and one for police and firefighters) are only $644 million underfunded, rather than Orr's claim of $3.5 billion.
“To say the pension fund killed the city, it’s like if you were stabbed, strangled and blown up, did you die from the strangling?” Senior Fellow Wallace Turbeville said during a media call Nov. 20.
David Allen is a 50-year old retired Detroit firefighter who lost the use of his legs during a spinal injury sustained on the job in Detroit. He was quoted in a statement objecting to any possible cut of his pension.
“I worked hard for Detroit for 20 years, played by the rules, and already made significant sacrifices – taking pay cut after pay cut,” he said. “In return for risking my life to serve my community, the city promised to take care of my family – but instead the city is retiring us into poverty."
Mayor-elect Mike Duggan, who will take office in 2014, issued a statement calling the filing "a day in Detroit's history that none of us wanted to see." He said he was ready to work on the plan of adjustment phase to create a blueprint for the city's future.
"I'm going to do everything I can to advocate on behalf of Detroit's future in this process," he said. "We need to make sure the retirees are treated fairly on the pensions they earned and we need to make certain we come out of bankruptcy in a way we can afford to provide the quality of city services the people of Detroit deserve."
Also on HuffPost: |
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Tue Dec 03, 2013 4:55 pm |
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untanglingwebs
El Supremo
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Judge: Detroit eligible for Chapter 9 bankruptcy
Posted: Dec 03, 2013 11:51 AM EST
Updated: Dec 03, 2013 11:58 AM EST
Unions and city retirees protest, appealing after bankruptcy ruling
DETROIT (AP) -
Detroit is eligible to shed billions in debt in the largest public bankruptcy in U.S. history, a judge said Tuesday 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 in long-term liabilities.
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.
The city has argued that it needs bankruptcy protection for the sake of beleaguered residents suffering from poor services such as slow to nonexistent police response, darkened streetlights and erratic garbage pickup -- a concern mentioned by the judge during the trial.
"This once proud and prosperous city can't pay its debts. It's insolvent. It's eligible for bankruptcy," Rhodes said in announcing his decision. "At the same time, it also has an opportunity for a fresh start."
Before the July filing, nearly 40 cents of every dollar collected by Detroit was used to pay debt, a figure that could rise to 65 cents without relief through bankruptcy, according to the city.
"The status quo is unacceptable," emergency manager Kevyn Orr testified.
Rhodes said Tuesday that Detroit has a proud history.
"The city of Detroit was once a hard-working, diverse, vital city, the home of the automobile industry, proud of its nickname the Motor City," he said. But he then recited a laundry list of Detroit's warts: double-digit unemployment, "catastrophic" debt deals, thousands of vacant homes, dilapidated public safety vehicles and waves of population loss.
Detroit no longer has the resources to provide critical services, the judge said, adding: "The city needs help."
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. Art possibly worth billions at the Detroit Institute of Arts could be part of a solution for creditors, as well as the sale of a water department that serves much of southeastern Michigan. Orr offered just pennies on every dollar owed during meetings with creditors before bankruptcy.
Behind closed doors, mediators, led by another judge, have been meeting with Orr's team and creditors for weeks to explore possible settlements.
Much of the trial, which ended Nov. 8, focused on whether Orr's team had "good-faith" negotiations with creditors before the filing, a key step for a local government to be eligible for Chapter 9. Orr said four weeks were plenty, but unions and pension funds said there never were serious across-the-table talks.
"The governor took more time to interview the consultants to help the city with restructuring than they took to negotiate the restructuring itself. That's absurd," attorney Sharon Levine, representing AFSCME, said at trial.
An appeal of Rhodes' decision is a certainty. Opponents want to go directly to a federal appeals court in Cincinnati, bypassing the usual procedure of having a U.S. District Court judge hear the case.
Orr, a bankruptcy expert, was appointed in March under a Michigan law that allows a governor to send a manager to distressed cities, townships or school districts. A manager has extraordinary powers to reshape local finances without interference from elected officials. But by July, Orr and Gov. Rick Snyder decided bankruptcy was Detroit's best option.
Detroit, a manufacturing hub that offered good-paying, blue-collar jobs, peaked at 1.8 million residents in 1950 but has lost more than a million since then. Tax revenue in a city that is larger in square miles than Manhattan, Boston and San Francisco combined can't reliably cover pensions, retiree health insurance and buckets of debt sold to keep the budget afloat.
Donors have written checks for new police cars and ambulances. A new agency has been created to revive tens of thousands of streetlights that are dim or simply broken after years of vandalism and mismanagement.
While downtown and Midtown are experiencing a rebirth, even apartments with few vacancies, many traditional neighborhoods are scarred with blight and burned-out bungalows.
Besides financial challenges, Detroit has an unflattering reputation as a dangerous place. In early November, five people were killed in two unrelated shootings just a few days apart. Police Chief James Craig, who arrived last summer, said he was almost carjacked in an unmarked car.
The case occurs at a time of a historic political transition. Former hospital executive Mike Duggan takes over as mayor in January, the third mayor since Kwame Kilpatrick quit in a scandal in 2008 and the first white mayor in largely black Detroit since the 1970s.
Orr, the emergency manager, is in charge at least through next fall, although he's expected to give Duggan more of a role at city hall than the current mayor, Dave Bing, who has little influence in daily operations.
Read more: http://www.myfoxdetroit.com/story/24123097/detroit#ixzz2mVGc0LYv |
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Wed Dec 04, 2013 6:23 am |
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untanglingwebs
El Supremo
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NEW YORK TIMES
Detroit Ruling on Bankruptcy Lifts Pension Protection
"The Ruins of Detroit," a five-year project by Yves Marchand and Romain Meffre was published as a book in 2010. Michigan Central Station (2007).
By MONICA DAVEY, BILL VLASIC and MARY WILLIAMS WALSH
Published: December 3, 2013 658 Comments
DETROIT — In a ruling that could reverberate far beyond Detroit, a federal judge held on Tuesday that this battered city could formally enter bankruptcy and asserted that Detroit’s obligation to pay pensions in full was not untouchable.
The judge, Steven W. Rhodes, dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in Chicago, Los Angeles, Philadelphia and many other American cities where the rising cost of pensions has been crowding out spending for public schools, police departments and other services.
The judge made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.
James E. Spiotto, a lawyer with the firm Chapman & Cutler in Chicago who specializes in municipal bankruptcy and was not involved in the case, said: “No bankruptcy court had ruled that before. It will be instructive.”
For people in Detroit, the birthplace of the Motown sound and of the American auto industry, Judge Rhodes’s decision that the city qualified for bankruptcy amounted to one more miserable, if expected, assessment of its woeful circumstances. The city has lost hundreds of thousands of residents, the judge said, only a third of its ambulances function, and its Police Department closes less than 9 percent of cases.
“This once proud and prosperous city can’t pay its debts,” said the judge, who sits in United States Bankruptcy Court for the Eastern District of Michigan. “It’s insolvent. It’s eligible for bankruptcy. But it also has an opportunity for a fresh start.”
Appeals were expected to be filed quickly. At least one union filed a notice of appeal on Tuesday, and other unions and pension fund representatives said they were considering contesting the outcome as well. But the ruling also allows Kevyn D. Orr, an emergency manager assigned in March by the state to oversee Detroit’s finances, to proceed swiftly with a formal plan for starting over — a proposal to pay off only a portion of its $18 billion in debts and to restore essential services, like streetlights, to tolerable levels.
Mr. Orr said he intended to file the formal blueprint, known as a “plan of adjustment,” by the first week of 2014. That plan could include efforts to spin off city departments to outside entities, to sell city assets and to reinvest in failing city services. Mr. Orr has said his goal is to bring Detroit, the nation’s largest city ever to find itself in bankruptcy, out of the court process by next fall.
“We have some heavy work ahead of us,” Mr. Orr said Tuesday.
Around Detroit, leaders sounded somber but mildly hopeful tones. Mayor-elect Mike Duggan said that Tuesday was a day no one wanted to see, but that the city now needed to move forward. And Dave Bing, the departing mayor, whose tenure in office has been consumed by the financial distress, said it was inevitable that Detroit would ultimately be found insolvent. “We are now starting from Square 1,” he said.
Municipal workers and retirees said they were shaken by the developments, and unsure what to expect. Any cut to pensions, many said, would be crushing.
“The impact of this is going to be catastrophic on families like mine on fixed income,” said Brendan Milewski, 34, a Detroit firefighter who was seriously injured in an arson in 2010 and said he received a pension of $2,800 a month from the city. “Retirees are going to be put out of house and home. They’re not going to be able to afford a car, food or medicine.”
Bruce Babiarz, a spokesman for the Detroit Police and Fire Retirement System, was blunt in his assessment. “This is one of the strongest protected pension obligations in the country here in Michigan,” he said. “If this ruling is upheld, this is the canary in a coal mine for protected pension benefits across the country. They’re gone.”
Since July, Mr. Orr, with approval from Gov. Rick Snyder, a Republican, has sought bankruptcy protection, and most here agree that the city’s situation is dire: Annual operating deficits since 2008, a pattern of new borrowing to pay for old borrowing, miserably diminished city services, and the earmarking of about 38 percent of tax revenues for debt service. A city that was once the nation’s fourth largest has dropped to 18th, losing more than half of its population since 1950. The city was once home to 1.8 million people but now has closer to 700,000.
Protesters outside the courthouse in Detroit. “This once proud and prosperous city cannot pay its debt,” Judge Steven W. Rhodes said.
Judge Rhodes rejected arguments by unions and other opponents that the bankruptcy filing was the result of secret and unconstitutional decisions made by Mr. Snyder and others. He agreed with opponents of the bankruptcy that the city had failed to make “good faith” attempts to negotiate with creditors, but said that such negotiations had been “impracticable.”
In perhaps the most contested portion of the case, the judge made it clear that federal bankruptcy law trumps the state law when it comes to protections for public employees’ pensions, making the pensions of 23,000 retirees fair game for the city to include in its plan of adjustment. But while the judge said pensions could not be treated differently from other unsecured debt, he said the court would be careful before approving any cuts in monthly payments to retirees.
That seemed to be of little comfort to union leaders, who denounced the ruling as illegal and immoral.
Lee Saunders, the president of the American Federation of State, County and Municipal Employees, said the ruling, in essence, put a “bull’s eye” on the backs of municipal workers and retirees by saying pensions are vulnerable. “It sets a bad precedent for cities that are under economic distress to look at doing the easy thing: to attack the workers and attack the retirees,” Mr. Saunders said.
Experts said the decision seemed unlikely to prompt a rush of bankruptcy filings by cities, but was likely to give cities more leverage over pensions in negotiations before bankruptcies. Detroit has included $3.5 billion in unfunded pension liabilities in its larger mound of debt, and city lawyers say it can simply no longer afford its pension plan.
For his part, Mr. Orr said he had a difficult reality to present to retirees. “There’s not enough money to address the situation no matter what we do,” he said. “That is clear.” At another point, he said of the pension question, “We’re trying to be very thoughtful, measured and humane about what we have to do.”
Monica Davey and Bill Vlasic reported from Detroit, and Mary Williams Walsh from New York. Steven Yaccino contributed reporting from Chicago.
A version of this article appears in print on December 4, 2013, on page A1 of the New York edition with the headline: Detroit Ruling Lifts A Shield on Pensions.
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NYTimes.com |
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Wed Dec 04, 2013 6:35 am |
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untanglingwebs
El Supremo
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"The judge, Steven W. Rhodes, dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in Chicago, Los Angeles, Philadelphia and many other American cities where the rising cost of pensions has been crowding out spending for public schools, police departments and other services.
The judge made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said." |
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Wed Dec 04, 2013 6:49 am |
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untanglingwebs
El Supremo
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From the City o Flint website on the 2014 budget and projected budgets up to 2018/
At the end of fiscal year 2012, (June 30, 2012), the City’s General Fund faced an
accumulated deficit of more than $19.1 million. The initial projections for the fiscal year 2013 budget (which began July 1, 2012), indicated a gap between revenues and expenses of more than $20 million, and as the budget preparation proceeded, it was clear that the actual gap was much larger. The consequences were hard decisions made to reduce the workforce by 20%, reduce employee compensation by2O% of wages, alter retiree health care, and both request and impose significant tax and fde increases on residents and businesses totaling nearly $20 million. |
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Wed Dec 04, 2013 6:55 am |
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untanglingwebs
El Supremo
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Five Year
Financial Projections and Challenges
City of Flint, FY14-FY18
Year 1 of the five year financial projection starts with a balanced FY14 budget, made
possible in large part by continuation of several major grants supporting police, fire, and the update of the City’s Master Plan, as well as the cost reduction strategies related to employee compensation which were implemented in Fy13. These, plus continued effort to restructure work processes and to reduce the size of the workforce make it possible to provide services in FY14 at generally the same level as FY13. It also reflects the initial steps necessary to begin to eliminate the accumulated $19.1 million deficit. However, it affords little ability to improve services, reduce taxes or fees, or to address the monumental amount of unmet capital improvement needs.
Years 2—5 show the continuing challenge of the City’s structural deficit, with property tax revenues continuing to fall through FY15, and then stabilizing but with no growth until FYI 8. At the same time however, legacy and compensation costs are projected to increase by 5% per year, and major grant sources will disappear. The City will be faced with a significant challenge of attempting to choose between reductions in public safety and other reductions; however, finding other reductions may not be possible, given the minimal level of resources available. Again, without additional new significant levels of revenue, there is little ability to improve services or address continually increasing capital improvement needs.
Core General Fund revenues and millage proceeds are projected to remain substantially unchanged at $58 million from FY14 to FY18. Taking into account current grant levels supporting general city services, however, revenues are projected to drop from $66.1 million in FY14 to $58 million in FY18. If the services and service delivery mechanisms supported by the FY14 revenues were left untouched through FY18, it is projected that the gap between revenues and expenses would be more than $19 million by FY18. That
gap amount would be even greater if some reductions (such as fire operations with the end of the SAFER grant) were not already incorporated into projections. This gap
coincidentally is virtually the same amount as the $19.1 accumulated General Fund
deficit as of June 30, 2012.
Balancing city expenditures with projected revenues will be an ongoing challenge for the next several years. While FY14 is balanced, there is a projected $9.1 million gap between revenues and expenditures for the FY15 budget, which begins July 1, 2014. This large gap is due primarily to the anticipated loss of some major grant sources, including SAFER (which provides finding for 39 fire fighters); Master Planning (which provides resources for the revision of the City’s Master Plan) state support for operation of the City’s Lock-Up; and the Mott Foundation grant which has supported the cost of several police officers. While solutions to closing this gap have not yet been formulated, work to do so will begin once the FY14 budget is finalized.
Revenue and expense projections for FY16, FY17, and FY18 all show gaps which must be closed. Current projections for each of these years range between $2.4 and $3.6 million, and again will pose a significant challenge. The continuation of these gaps reinforces the fact that the City of Flint, like most municipalities in the state, faces a structural gap. With ongoing ekpense increases in the conduct of business, including legacy costs, on one side, and flat revenues with little opportunity for growth on the other, there will be a continuing challenge to manage the City’s business in a financially solvent manner while still providing even the most basic of city services. It is becoming even more imperative that serious consideration be given to providing a more realistic funding mechanism for municipalities. In the City of Flint, state legislative approval to allow consideration of an increase in the income tax (as has been done for other municipalities) is an option that could address the city’s plight in a substantial way.
These financial challenges show that it will be difficult for the City to maintain its police and fire departments at current levels. Were it not for the voter approved 6 mill increase in property taxes, as well as continuation of the Neighborhood Police millage, consideration of current levels would be impossible to consider. As it is, it is projected that with the end of the SAFER grant in FY15, staffing for the Fire Department will be reduced from 94 to 75, allowing for the operation of 3 stations. And while staffing for the Police Department may stay close to its current 150 level for a few years, it will likely reduce to 140 in FY18. And that scenario is only possible with continued COPS grant funding.
It will also be challenging to allocate City funds for Planning and Zoning as the grant
funding for these activities ends in FY15. Without dedicated staff to pursue
implementation of the soon to be adopted Master Plan and updated Zoning Ordinance, development goals of the City cannot be effectively pursued.
With current federal funding for community development and code enforcement
significantly reducing over the next few years, city efforts to make even marginal
progress in addressing blight and becoming more aggressive in enforcing building and safety codes is in jeopardy. If progress is to continue, it will be necessary that other sources of funding be found.
Finally, it will become increasingly difficult to address priority areas such as those
mentioned above by further reducing or eliminating other areas of City services.
Restructuring the city’s workforce and compensation structures have been done and are ongoing, and city support of areas such as parks and recreation and human services have been reduced. These have resulted in efficiencies and a balanced budget for FY13 and FY14, and there are more decisions to be made. However, there may become a time when no further reductions of the magnitude necessary to balance budgets can be achieved. |
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Wed Dec 04, 2013 7:11 am |
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untanglingwebs
El Supremo
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| With legacy costs contributing to an even greater deficit, the Detroit ruling places Flint pensions at risk. The state can restore Flint to the elected officials, but the federal money has already been spent on downtown and the principal area that is 2 miles from downtown. The projected deficits can possibly thrown lint into bankruptcy and Flint pensions will be at an even greater risk. |
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Wed Dec 04, 2013 7:15 am |
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Crowfeeder
F L I N T O I D
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| I thought municipal pensions were mostly funded (90% or so),no ? Monies already invested in equities,bonds,ect...What was the pension board doing while this risk was accumulating ? Was there any oversight for these pension boards ?
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Wed Dec 04, 2013 8:37 am |
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untanglingwebs
El Supremo
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Flint officials react to Detroit bankruptcy decision
by Brittany Shannon
Posted: 12.04.2013 at 6:55 PM
Brittany Shannon
Brittany will anchor NBC25 news on the weekends and serve as a reporter
In Flint, 10% of the city's budget goes to employee pensions.
Michigan law is no longer protecting employee pensions.
This, after a federal judge confirmed Detroit is $18 billion in debt and bankruptcy is the only way to move forward.
Federal Judge Steven Rhodes' historic decision not only moves forward with Chapter 9 bankruptcy, it states that Detroit employee pensions would be cut.
A promised paycheck many thought would be protected under state law is now on the chopping block.
"According to the emergency manager, half or more of Detroit's debts are tied up in pensions," said Chris Douglas, UM Flint economics professor.
A federal ruling moves forward with Chapter 9 bankruptcy and threatens Detroit employee pensions.
"That's a contract that can be broken in bankruptcy much like any other contract," said Douglas.
For other struggling cities, Michigan law's inability to protect this "promised paycheck" is unnerving.
"To any city that has potential problems on the horizon, Flint included, if the city files Chapter 9 bankruptcy, pensions are on the chopping block just like anything else," said Douglas.
In Flint, 10% of the city's budget goes to employee pensions.
City officials say legacy costs are the biggest ticket item.
A benefit employees will continue to enjoy for now.
"To be able to get cut deeper with your pensions is something that's impossible to plan for. I mean this was supposed to be a guaranteed benefit," said Flint Firefighters Union Representative, Mark Kovach.
But for thousands of past and present Detroit employees it's now a reality.
"Probably a substantial cut in their pensions maybe ten cents on the dollar," said Douglas.
Officials hope to have a debt restructuring plan presented by early March. |
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Wed Dec 04, 2013 11:24 pm |
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