Orr to creditors: Detroit on 'brink of financial and operational ruin'

[corktownyuppie]

Taking money from current retirees pensions is like taking money from your 401k and saying you put too much into it and don't deserve it now.

Well this would be absolutely 100% true if the pension funds were fully funded. Orr is not proposing that he tap into anyone's pension funds to pay the bills, as far as I know. But unfortunately, pensions are underfunded. Depending on how conservatively you crunch the numbers, pension funds are somewhere between 65%-95% funded.

Orr is stating that the city is looking to shed the liability of having to cover that difference with current revenue. This isn't like taking money from your 401k. This is like hoping your 401k would cover your $2,000/mo. pension but really only has enough to cover $1,500. Where does the remaining $500 come?

Credit cards.

Orr is saying that we're done with credit cards. Therefore, you're still good for the $1500, and he's even willing to offer $50 from current revenue to help a little bit. But we can't afford to put $500/mo. on our credit cards just because we failed to save enough all these years.

Or, alternatively, maybe the pension trustees are right. Maybe we are 95% funded. In that case, you're talking about a $75 shortage....which isn't all that bad in the scheme of things.

Look, I don't have a problem with people concluding that this is bulls**t and that we will strike and take it all the way to bankruptcy court. My parents rely in part on a City of Detroit pension, and I've been talking with them about this day coming for years.

But I do have a problem when we're trying to solve complex problems and the basic fundamentals of how things work are not being understood by the masses. People are perceiving that "someone is taking our pensions away". That's not true. What is true is that we didn't save nearly enough to fund these pensions and that "someone is screwing us on their promise to fill the gap to cover the difference."

Now you might not like that, my parents don't like it either. That's not the issue. The issue is "how do we cover the gap" when it comprises 30-40% of every dollar that is coming in?

If you can answer that, then the city would be happy to write you the check. And the answer isn't "stop paying the banks" because as of yesterday, we've already announced that we're going to do that.

There isn't enough money. Now let's argue about how to split up the money we do have. But let no one think for a minute that someone is taking this money from us. The problem is that we've been lied to for 40 years... it was never there to begin with.

[mwilbert]

CAY certainly wouldn't have lasted as long as he did if he was anti-union. However, I don't think unions are the root cause of Detroit's problems.

I think this is a false choice. CAY wouldn't have had to be "anti-union" to negotiate reasonable contract provisions, and I suspect that given his credibility with labor, CAY would have been in an ideal position to get better contracts with the city's unions without suffering any significant political damage. I don't think he didn't do it because of union political influence. I think he didn't do it because it wasn't something he wanted to do nor something he thought was important.

Well, let's step back. Detroit's not hardly the only Michigan city that has teetered on bankruptcy. I think the better question to ask is why so many communities in Michigan have come into financial emergencies. Detroit is just the one that threatens to expose the flawed system since its a systemic threat.

Well, I suspect a lot of those cities were also mismanaged, but in addition Detroit had some financial advantages. It can levy an income tax. It has casino revenue. There is no question that the system of municipal finance in Michigan is broken and is getting worse, and that is a structural problem for Michigan cities, but it seems clear to me that isn't the entire explanation.

[Cliffy]

I can't believe people think that cutting some 75 year olds pension who is pulling in 13k a year is acceptable and somehow they will be ok. These people are barely making it now and you want to cut 20% or even more. Total bullshit.

[Wesley Mouch]

... There is no question that the system of municipal finance in Michigan is broken and is getting worse, and that is a structural problem for Michigan cities, but it seems clear to me that isn't the entire explanation.

Over the last few weeks, I've really noticed that often issues like municipal finance, but also school finances and other entitlements are framed in terms of 'funding'. To me, this is a fundamental difference in how I view things. I'm sure funding could be reworked, but I see the problem as increased costs. I don't argue for austerity because I think its the right financial choice. I argue for austerity because I want what money we spend on public good to accomplish public good.

Yes, there are many problems, but a big one is our spending problem. Kevin Orr could have stopped our spending years ago. And the result would have been more police officers, better wages, funded pensions, and happiness. Instead, we spent on new buildings we don't need, additional office staff we don't need, programs we don't need -- not to mention corruption, graft, theft. Why do we need a new police station. When in tough times, you just get some trailers and get to work. Build monuments when things are great [[1950s here, 1990s rest of world.) Until we have spending under control, no amount of funding will help. More money just goes to Ficanos who pay his friends and family program consulting salaries in addition to their 13th retirement paycheck while being guarded by dozens of officers about to retire at age 36 with until-recently tax-free pensions so they can get another county / city job or two so they can have a $400,000 annual pension at future taxpayer expense. [[Exaggeration intentional -- hoping to point out that we do have a spending problem -- not so much as a 'funding' problem.)

[Ray1936]

I can't believe people think that cutting some 75 year olds pension who is pulling in 13k a year is acceptable and somehow they will be ok. These people are barely making it now and you want to cut 20% or even more. Total bullshit.

Thanks, Cliffy. And, as an additional thought, most police and fire employees are not eligible for social security and/or medicare, as they do not contribute to those funds during their employment. Some who took SS paying positions after retirement only receive dribblings from SS due to a matter called pension offset. My old partner up in Traverse City gets $80 a month from SS as an example. Gets him a couple tanks of gas a month, anyway.

If I lose my pension, my best option is to reverse mortgage my home, which is free and clear. That should take me into my 80s, anyway.

[corktownyuppie]

Thanks, Cliffy. And, as an additional thought, most police and fire employees are not eligible for social security and/or medicare, as they do not contribute to those funds during their employment. Some who took SS paying positions after retirement only receive dribblings from SS due to a matter called pension offset. My old partner up in Traverse City gets $80 a month from SS as an example. Gets him a couple tanks of gas a month, anyway.

If I lose my pension, my best option is to reverse mortgage my home, which is free and clear. That should take me into my 80s, anyway.

No one will be losing their pension. The pension funds are unraidable. According to the trustees of the Police and Fire Retirement Services, funding is at 95% of what they need to stay solvent.

Now the bigger question is whether the trustees of PFRS are being truthful in their analysis.

[313WX]

I can't believe people think that cutting some 75 year olds pension who is pulling in 13k a year is acceptable and somehow they will be ok. These people are barely making it now and you want to cut 20% or even more. Total bullshit.

At the same time, 30 minute emergency response times, children having to walk down blocks filled with vacant/derelict homes to get to school and half the streetlights being out on any given night and to think the taxpayers of Detroit should have to accept these things any longer is also total bullshit.

Besides, as Orr said, if he cuts services or raises taxes any further, there won't be any taxpayers remaining in the city to sign those pension checks.

[Cincinnati_Kid]

No one will be losing their pension. The pension funds are unraidable. According to the trustees of the Police and Fire Retirement Services, funding is at 95% of what they need to stay solvent.

Now the bigger question is whether the trustees of PFRS are being truthful in their analysis.

Pensions are protected under the state constitution but if Detroit files bankruptcy, and the case goes to Supreme Court, the question will be if Federal laws trump State laws which I believe they do. Should be a interesting next couple of weeks.

[313WX]

Pensions are protected under the state constitution but if Detroit files bankruptcy, and the case goes to Supreme Court, the question will be if Federal laws trump State laws which I believe they do. Should be a interesting next couple of weeks.

All of that is true.

However, the goal is to convince these folks to accept cuts to their pensions for the better good of all stakeholders in the city of Detroit [[from the senior citizen living on the lower east side on a block with nothing but vacant homes and no streetlighting to the retiree receiving the 27K pension in West Bloomfield to the suburbanites who enjoy visiting the DIA for recreation).

Essentially, in a suited up way, Orr is begging on hands and knees to the creditors to accept these cuts. He can't force them to do so, unlike a bankruptcy judge.

[Ray1936]

For those interested, my monthly pension check is $1,948 and change. That's what I'm living on. I guess I can go back to work if someone at 7-11 is hiring 77 - yr olds.

[Cliffy]

At the same time, 30 minute emergency response times, children having to walk down blocks filled with vacant/derelict homes to get to school and half the streetlights being out on any given night and to think the taxpayers of Detroit should have to accept these things any longer is also total bullshit.

Besides, as Orr said, if he cuts services or raises taxes any further, there won't be any taxpayers remaining in the city to sign those pension checks.

So the answer to this is to undercut senior citizens and have them thrown onto the streets because they can't afford rent. Seriously wondering if people think through the fact that a 75 year old who is on a fixed income and barely getting by will be ok if they take a big pension cut. Like they can just get a job and everything will be fine.

[Cliffy]

For those interested, my monthly pension check is $1,948 and change. That's what I'm living on. I guess I can go back to work if someone at 7-11 is hiring 77 - yr olds.

Ray, these people in here want you to die so you aren't collecting anything. Its the new elite mantra in this country. Nobody can retire and the elites want it that way so they can work you until death. They don't think its right peasants get to retire or have health care. $8 hour and no benefits and you have to beg for the job is the new economy.

[Cincinnati_Kid]

Ray, these people in here want you to die so you aren't collecting anything. Its the new elite mantra in this country. Nobody can retire and the elites want it that way so they can work you until death. They don't think its right peasants get to retire or have health care. $8 hour and no benefits and you have to beg for the job is the new economy.

+1 You are so correct.

[Jimaz]

Magnanimity and noblesse oblige have vanished from this world.

Why?

[JAYCR]

Anyone else think that 500 mil of the 1.25 B is a giant allocation for demolition?

[Packman41]

Corktownyuppie has laid out some facts,

… “What is true is that we didn't save nearly enough to fund these pensions and that "someone is screwing us on their promise to fill the gap to cover the difference."

…”The problem is that we've been lied to for 40 years... it was never there to begin with.”…”Now the bigger question is whether the trustees of PFRS are being truthful in their analysis.’

Ray1936, unfortunately CTY has hit the nail on the head. You were lied to. And I feel bad for you.

There is no way the PFRS is 95% funded. The two Detroit newspapers have been writing investigative reports on the lousy investments and criminality for the past ten years. The pension fund attorney that was supposed to watch out for you has been indicted by the FBI. Some politicians that sat on your pension board have gone to jail. And more people are on their way to jail. These are not good signs.

I would like to think that you would be treated fairly by your union. They should have a sliding scale. For guys at your age there should be no haircuts. For younger guys, well they have time to make it up and they would get a shave.

Again, you were lied to in the past. So the question is; now that the EM report has exposed this, will they stop lying to you now?

[Honky Tonk]

Corktownyuppie has laid out some facts,

… “What is true is that we didn't save nearly enough to fund these pensions and that "someone is screwing us on their promise to fill the gap to cover the difference."

…”The problem is that we've been lied to for 40 years... it was never there to begin with.”…”Now the bigger question is whether the trustees of PFRS are being truthful in their analysis.’

Ray1936, unfortunately CTY has hit the nail on the head. You were lied to. And I feel bad for you.

There is no way the PFRS is 95% funded. The two Detroit newspapers have been writing investigative reports on the lousy investments and criminality for the past ten years. The pension fund attorney that was supposed to watch out for you has been indicted by the FBI. Some politicians that sat on your pension board have gone to jail. And more people are on their way to jail. These are not good signs.

I would like to think that you would be treated fairly by your union. They should have a sliding scale. For guys at your age there should be no haircuts. For younger guys, well they have time to make it up and they would get a shave.

Again, you were lied to in the past. So the question is; now that the EM report has exposed this, will they stop lying to you now?

They lied to cover their own ass and make it look like they were actually doing their job. Tell-tale signs began seeping out during the Kilpatrick administration. I hope they came up with a recovery game plan on their last $22k jaunt to Hawaii.

[mwilbert]

Over the last few weeks, I've really noticed that often issues like municipal finance, but also school finances and other entitlements are framed in terms of 'funding'. To me, this is a fundamental difference in how I view things. I'm sure funding could be reworked, but I see the problem as increased costs. I don't argue for austerity because I think its the right financial choice. I argue for austerity because I want what money we spend on public good to accomplish public good.

Yes, there are many problems, but a big one is our spending problem. Kevin Orr could have stopped our spending years ago. And the result would have been more police officers, better wages, funded pensions, and happiness. Instead, we spent on new buildings we don't need, additional office staff we don't need, programs we don't need -- not to mention corruption, graft, theft. Why do we need a new police station. When in tough times, you just get some trailers and get to work. Build monuments when things are great [[1950s here, 1990s rest of world.) Until we have spending under control, no amount of funding will help. More money just goes to Ficanos who pay his friends and family program consulting salaries in addition to their 13th retirement paycheck while being guarded by dozens of officers about to retire at age 36 with until-recently tax-free pensions so they can get another county / city job or two so they can have a $400,000 annual pension at future taxpayer expense. [[Exaggeration intentional -- hoping to point out that we do have a spending problem -- not so much as a 'funding' problem.)

I don't think you understand what I mean. It is clear that some cities have a spending problem, and I am all in favor of trying to fix those problems [[although we might not agree on what constitutes a problem--I sure we agree on not having inappropriately large pensions paid out to people at an early age) but just because there is a spending problem doesn't mean there isn't a revenue problem. It seems clear to me that there is a structural revenue problem because of the limitations that have been placed on property taxes.

The only way municipalities can keep their revenue flows even with the regular increase in costs is by using the extra money that comes in from new development, so once a town is built out, they are running a race that they are pretty much certain to lose eventually. Maybe some municipalities can cut enough [[waste or not) in the short term to keep their budgets in balance, and maybe some have enough unused taxing capacity to do it, but in the longer term unless changes are made to the finance model they are screwed.

[corktownyuppie]

....but just because there is a spending problem doesn't mean there isn't a revenue problem. It seems clear to me that there is a structural revenue problem because of the limitations that have been placed on property taxes.

We can agree that there is a structural revenue problem, but the next logical step is determining ways that those problems can be solved.

We can increase property tax revenues by:

[[1) Increasing building, because more residents equal more homes, equal more taxes.

[[2) We can increase the value of our property and thereby increase our property tax...property values are generally linked to the income level of its residents. So we can either attract higher-income residents or we can increase the income of our residents. We can also improve our services in order to make the cost/benefit equation regarding property taxes more attractive.

The financing model is [[generally) not screwed. What is screwed is the idea of making promises today for costs that will be paid from money generated 30 years from now. Notice that I didn't say "paid 30 years from now"; I'm arguing against costs paid from money that won't be generated until 30 years from now.

In a healthy property tax model, properties are either stagnant to rising, and services are comparable and competitive with neighboring communities. Right now we have falling properties, the worst services in all of Michigan, the highest taxes, and the highest legacy costs [[pension/medical costs that were promised 30 years ago but unfunded).

None of this is a surprise....Many neighboring counties started fixing these exact same problems with this 10-15 years ago. We chose not to do it and are paying steeply.

[Hermod]

The only way municipalities can keep their revenue flows even with the regular increase in costs is by using the extra money that comes in from new development, so once a town is built out, they are running a race that they are pretty much certain to lose eventually. Maybe some municipalities can cut enough [[waste or not) in the short term to keep their budgets in balance, and maybe some have enough unused taxing capacity to do it, but in the longer term unless changes are made to the finance model they are screwed.

No, it wasn't just growth that failed. The localities also operated on the principle that housing prices [[and the resulting ad valorum property taxes) would continue to increase forever. The mortgage industry made the same assumption. Unfortunately, in 2006, the music stopped and not everyone could find a chair.

[jba]

So exactly what part of this is in the best interest of the citizens. Detroit [[and many other municipal governments) have been run by the inmates. This is why I'm not a fan of labor unions.

Protect workers against abuse. Sure. Fight for wages. Fair enough.

But transfers solely on seniority? What world do these unions live in? I sure hope this is in the union contract, because if its just city policy, then management deserves to be fired as well.

Its pretty radical, but allowing management to manage things might actually help. I'm sure there are many incompetent managers too. Well, what do you expect when you limit management power. What competent person wants to try and manage when their hands are tied by Union rules.

I didn't know it was that bad. I'm furious that our city leaders agreed to these kind of terms. And why is this a secret? How could this not have been taken out of the last union agreements? What planet do the people who sign these agreements come from? Wow, our municipal governance system is
embarrassing.

I believe I heard from a firefighter that the Union had nothing to do with this decision. Transferring workers was solely put into affect by Mayor Kilpatrick and the CC under the right of the City to establish hiring and staffing procedures. I believe that did this when they contemplated laying off city workers in departments like the DPW and Water. What they did was to bi-pass filling vacancies in the Fire Department by transferring over people from these departments to fill vacancies. This resulted in putting older, unfit, people on the department. Many who were a hazard to the working environment. Hate to say this but some were old, obese, lazy and useless to perform the duties. Luckily many dropped out. Point is that the Det Fire Department Union should take no blame for this outrage.

[313WX]

So the answer to this is to undercut senior citizens and have them thrown onto the streets because they can't afford rent. Seriously wondering if people think through the fact that a 75 year old who is on a fixed income and barely getting by will be ok if they take a big pension cut. Like they can just get a job and everything will be fine.

The fact of the matter is, sacrifices will have to be made by everyone to save this city, unless you just want to admit that Detroit's FUBAR give up on it. Either way, having half of the budget go to legacy costs in a city where half of the citizens are illiterate, the unemployment rate is at least 20%, the poverty rate is at least 35%, the high school dropout rate is at least 50%, the homicide rate is the highest in the country, and half of the streetlights are out on any given night is unsustainable.

[corktownyuppie]

The fact of the matter is, sacrifices will have to be made by everyone to save this city, unless you just want to admit that Detroit's FUBAR give up on it. Either way, having half of the budget go to legacy costs in a city where half of the citizens are illiterate, the unemployment rate is at least 20%, the poverty rate is at least 35%, the high school dropout rate is at least 50%, the homicide rate is the highest in the country, and half of the streetlights are out on any given night is unsustainable.

Yes. There's a dynamic that is ever present. It sounds like this:

"This financial problem isn't my/the union's/the mayor's/the city council's/fill-in-the-blank's fault, so why should we be punished?"

This question is becoming irrelevant. While it may matter to me personally that innocent bystanders not have to pay the price, the reality is that from a public policy perspective, there is no escaping the reality that we will all be punished for it.

People are not listening to what Orr is saying when he is telling them that their bond payment/health care benefits/pension/etc will get cut. Orr's argument -- and I agree with him -- is that you will either agree to the cuts by negotiation, or you will receive the cuts in bankruptcy, or you will receive the cuts because the city will run out of money.

"You're either getting 10 cents from me, 8-10 cents in court, 0-5 cents if we do nothing."

All of these promises that were made to you are funded by residents. If there are no residents, there are no promises. That may not have been your problem before, but it's definitely your problem now.

It kills me that some people think that the idea is to raise taxes to cover the shortfall. Really? That's like opening a lemonade stand and saying that if we raise the price from 25 cents per cup to $25 per cup, we can multiply our revenue by 100! At some point if taxes are too high and services are too low, people just move out. We hit that point 20 years ago, and it's only been getting worse.

Now can someone explain to me why pension holders are surprised by this?? For at least 10 years people [[and not the crazy whackjob Fox News people...I mean reasonable middle-of-the-road democrats, too) have been ringing alarm bells on the pensions.

My father's retirement annuity through the city was guaranteed to make 8% returns on your contributions. WTF? Was I the only one asking how the City is guaranteeing 8% when CD Rates were at 2% and Treasury bonds were at 4%

Orr will not touch your pension funds. But he's saying that the City can't afford to make up for its shortfall. Now whose fault is that? His? How about the people that caused the shortfall? How about it doesn't matter because there's no money?

/rantoverbutsrslywtfwhydontpeopleunderstandthis

[Zacha341]

I just watched LetitRip and it was mentioned that part of the possible pension scalping will be a roll-off of the healthcare portion to Medicare and Obamacare [[the Affordable care act)... which ain't sounding so good now that some will be forced this direction.

Especially when it was orginally thought they could keep their 'private' health care options. Hmmmn....

[Wesley Mouch]

...However, funny to see all the union hate here. The answer to people making more money than you are is not to knock those people down, but rather to rise yourself up.

Wise point. I don't hate unions, I just dislike rigged games. You can fund the wealth of others with your money. Taxpayer money needs to be spent wisely. And that doesn't seem to have been the case.

Was there some mismanagement? Sure. But to pretend like the state wasn't part and parcel of causing the issues is just false. The infamous "handshake deal" with Engler, the cutting of revenue all throughout the 90's and 00's, and most recently the elimination of the PPT which will hit 12% of Detroit revenue next year, the capture of millage funds by suburban communities [[Yes I know Detroit captured some too). People don't like "us v. them" but don't often recognize that there is an impetus behind it.

So this is just a revenue problem? Everything's just fine otherwise? You're OK with seniority determining who does what job, not their capabilities or job performance? You're OK with paying for retirement 10 or 15 years before
65?