Pensions could be at stake in Detroit bankruptcy filing

The city of Detroit’s emergency manager, Kevyn Orr, and Michigan Gov. Rick Snyder (R) approved a bankruptcy filing for the city last week. Since then, retired city employees have been taking steps to defend their pensions:

Groups representing the 20,000 retirees reliant on city pensions successfully petitioned a county court to effectively freeze the bankruptcy process.

Now, city and state officials, who say the court ruling will not affect their plans, are asking a federal judge to hold hearings early this week to validate the bankruptcy and move forward with a strategy for Detroit to discharge much of its estimated $19 billion debt.

Orr has promised that retired city workers, police officers and firefighters will not see pensions or health benefits reduced for at least six months. But on Sunday, he said those retirement benefits will have to be cut down the road.

“There are going to be some adjustments,” Orr said on “Fox News Sunday.” “. . . We don’t have a choice.”

“This is a question of necessity,” he added.

But the prospect of cuts has sent a deep wave of fear over Detroit’s retirees, who like many in the city are skeptical of Orr, a corporate lawyer who previously worked in the District, and Snyder, a Republican unpopular in this deeply Democratic city.

“It’s been a nightmare for all of us,” said Shirley Lightsey, president of the Detroit Retired City Employees Association. “We don’t have that many people with pensions big enough for anything to be taken away from them.”

Of Detroit’s overall debt, about half — $9.2 billion — represents pension and health benefits that the city has promised retirees but that it now says it does not have enough money to fully pay. The lion’s share of the remaining debt is owed to bondholders.

Zachary Goldfarb

A Michigan judge has ruled that the city of Detroit's bankruptcy filing violates the state constitution. Detroit is the largest municipality in the United States to declare bankruptcy.

Appearing on NBC’s “Meet the Press” on Sunday, Snyder blamed Detroit’s government for the city’s continued financial troubles:

Michigan Gov. Rick Snyder (R) on Sunday defended the decision to allow Detroit to file for bankruptcy and said the city’s government remains the “last major obstacle” to improvement.

“This has been kicking the can down the road for 60 years,” Snyder said on NBC’s “Meet the Press.” “My perspective on that: Enough is enough. I think there needs to be more accountability in government.”

Snyder had said in 2011 that he did not consider bankruptcy an option for the financially-strapped Motor City. But he said Sunday that the city and the state had run out of options in trying to avoid that scenario.

“I believe it’s the right thing to do now, because the focus needs to be dealing with this debt question, but even more importantly, the citizens of Detroit deserve better services.”

With its financial troubles, Detroit has experienced a long list of service issues, including 9-1-1 response times that run longer than 50 minutes and 40 percent of its street lights not functioning. Snyder said the bankruptcy option gives the city its best chance to end the decline.

“This is an opportunity to stabilize Detroit,” the governor said. “Even more importantly longer term, I’m very bullish about the growth opportunities of Detroit.”

Josh Hicks

Detroit’s decline has a long history. In a guest column, Marilyn Salenger recalls the race riots of 1967 and their lasting effect on the city’s economy:

The term “white flight” has become less common in recent years because its huge waves appeared to have stopped as tensions eased. Younger generations may not even know the meaning of the term. But those who lived during that era remember the phrase well. It harks to the tumultuous period of riots, fights for civil rights and not-so-civil disobedience, when white people living in racially diverse communities began to sell or walk away from their homes. Their moves were often born out of fear and sometimes outright racial prejudices they watched their cities fall apart. As white people left their neighborhoods, minorities moved in. The words I remember hearing as a young woman to describe this societal phenomenon were, “The neighborhood has changed.” The implication was that the area had gone from white to black.

While the suburbs began to draw people out of our cities in the 1950s, Detroit’s neighborhoods and their demographics changed drastically and quickly after the 1967 riots. White residents fled by the thousands, affecting municipal infrastructures, tax bases and jobs. It set the stage for similar urban race-related exoduses around the country. . . .

White flight took hold and left a lasting imprint. The strength and importance of diversely populated business and housing centers declined. Racial divide has created too many broken-down ghost towns, devoid of the quality of life they once had. Some held on for a while but could not withstand the devastating economic conditions of recent years.

It’s not just the economic issues of Detroit’s bankruptcy that need to serve as a lesson but also the impact of dysfunctional urban race relations. The real challenge now for the once-great city of Detroit is to view its fallen stature as a great opportunity to rebuild communities by creating new and positive examples of recovery. Detroit has an opportunity to revisit the racial problems of the past and to build a strong foundation of fiscal responsibility as well as business and civic partnerships that cross the racial boundaries that have become one of the city’s most destructive elements.

Marilyn Salenger

For past coverage of Detroit’s bankruptcy, continue reading here.

Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.

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