Detroit has a GUN pointed at it's HEAD - Debt Crisis in 2024

BANG ! - Detroit has a pension problem -

Starting in 2024, Detroit officials project they will face annual payments
of at least $143 million after the city's bankruptcy debt-cutting plan
required just nominal payments of $20 million from 2016 to 2019
and no payments from 2020 through the 2023 fiscal year.

http://www.crainsdetroit.com/article...-pension-cliff

"Duggan is banking on is the tax base will continue to get bigger
and they'll continue to generate more revenue,"
said CEO of O'Keefe & Associates in Bloomfield Hills.
"When you get to 2024, he'll hopefully have enough cash
to pay the $143 million, because he doesn't have it now"

At the end of fiscal 2017,
the Police and Fire Retirement System was about 78 % funded

While this is a major concern, the quotes above imply that Duggan is simply hoping that an increase in the tax base will cover all of the obligation starting in 2024. The mayor and council are actually prudently allocating funds from the current budget surpluses towards this future obligation. While " the city's bankruptcy debt-cutting plan required just nominal payments of $20 million from 2016 to 2019 and no payments from 2020 through the 2023 fiscal year," the city is not only making the current $20 payments but is depositing substantial amounts into the Retiree Protection Fund to tap for future use.

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To prepare for the sudden spike in payments, the Duggan administration and City Council have created a savings fund with the goal of socking away $335 million in surpluses over eight years that will be used to gradually ease the city into making full pension payments again by 2033.
The Duggan administration's plan calls for gradual $5 million annual increases in general fund expenses for pensions, starting with $35 million this year and doubling by 2025. The remaining balance owed would come from the pension savings fund.

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For what it's worth.....police and fire personnel were exempted from social security if they paid into a municipal pension fund. Thus, Detroit police and fire retirees may not only lose their pensions, but they do not qualify for social security and medicare health coverage. But who gives a care?

Detroit should be run like a private corporation. No pensions, 67 yo retirement age, 401k retirement plans, immediate SS contributions, and most importantly, seize the welfare state that’s bankrupted us to begin with.

Hello Ray,
You are right about police and fire personnel being exempt. Most police and firefighters I knew, [[including myself) either worked second jobs or worked after retirement to get in enough quarters to receive some social security. It's not much!

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Originally Posted by SammyS

Detroit should be run like a private corporation. No pensions, 67 yo retirement age, 401k retirement plans, immediate SS contributions, and most importantly, seize the welfare state that’s bankrupted us to begin with.

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I'd rather see single-payer healthcare for all combined with cities paying pension contributions at the time the hours are worked. The unions can then manage and own the pension funds. Then if the city ever goes bankrupt there is no risk to the pension.

Or, optionally, we can increase their pay and switch them to a 401K system.

Detroit is NOT exactly stupendous at the moment.

The city remains deep in junk rating territory.
On Dec. 21, S&P Global Ratings upgraded the city’s issuer credit rating to B-plus.
Moody’s Investors Service upgraded Detroit to B1 from B2 in October.

And also :
The owners of the Detroit land occupied by the defunct Joe Louis Arena have sued the city, requesting two more years to develop the riverfront site.

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Originally Posted by O3H

At the end of fiscal 2017,
the Police and Fire Retirement System was about 78 % funded

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That is actually substantially above average, nationwide. The national average is 71%, while the state average is 64%. The more interesting question is the trendline--is the funding percentage increasing or decreasing. Nationwide, it is down 3.4% [[74.5 to 71.1). Statewide, it is up from 63.6% to 64%. Only 8 of 50 states showed a positive trendline.

I do not know what last year's funding percentage was. I do know that GASB 75 now requires municipalities, school districts, etc., to report the underfunding of their OPEB [[retiree healthcare is the largest). It will be interesting to see where that sits.

Slow that roll.....Detroit has serious problems

A recent "Truth in Accounting" report puts Detroit at #52 among 75
of the cities in America that are in the red, with 75 being the worst.
It’s also labeled as a “Sinkhole City” because it cannot pay its bills.

The city eliminated $8.3 billion of debt - which eliminated $5.7 billion
of retiree healthcare obligations and $1.3 billion of pension liabilities.

Detroit is forced to lease its regional water and sewer systems.

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Originally Posted by SammyS

Detroit should be run like a private corporation. No pensions, 67 yo retirement age, 401k retirement plans, immediate SS contributions, and most importantly, seize the welfare state that’s bankrupted us to begin with.

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if you really want to run it like a business would you want the Mayor to make 271 times what the average city worker does? As would a CEO? The conservative mantra of shoveling money upwards while stripping everyone else’s pay and benefits is not a blueprint for a healthy society. If anything should be seized, I’d look at the 1%

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Originally Posted by SammyS

Detroit should be run like a private corporation. No pensions, 67 yo retirement age, 401k retirement plans, immediate SS contributions, and most importantly, seize the welfare state that’s bankrupted us to begin with.

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How do you run Detroit like a corporation when the State government dictates exactly what they can and cannot do to raise revenue?

Private corporations do not function that way at all. They are in charge of creating services, products or intellectual property and keeping there wears fluid and relevant to changing market demands.

The State of Michigan is exactly the opposite. They do the same thing forever directly into the face of failure.

As long as the State is so awful doing their job, Detroit and other challenged communities in Michigan will pay the price for it.

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Originally Posted by DetroiterOnTheWestCoast

if you really want to run it like a business would you want the Mayor to make 271 times what the average city worker does? As would a CEO? The conservative mantra of shoveling money upwards while stripping everyone else’s pay and benefits is not a blueprint for a healthy society. If anything should be seized, I’d look at the 1%

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So long as the free market dictates salaries, then why not. And let’s stop bashing the 1%. It’s precisely them we need to incentivize and encourage to live, spend and invest in Detroit. Surely we can learn a thing or two from the past 50 years.

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Originally Posted by 48307

The unions can then manage and own the pension funds. Then if the city ever goes bankrupt there is no risk to the pension.

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The unions aren't that much better at running pension programs than the city or state governments:

http://www.nydailynews.com/news/nati...icle-1.2985531

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Originally Posted by JBMcB

The unions aren't that much better at running pension programs than the city or state governments:

http://www.nydailynews.com/news/nati...icle-1.2985531

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Yes, but that's not our problem. You give the money to the unions, and however they chose to manage it is how it's managed. It puts the destiny of the workers in the workers hands.

Or, they can do it like I have to, and save money in a 401K so you can retire one day. If universal healthcare becomes a thing, I will be able to retire much earlier than I am currently planning.

Hey change my title back - it has a problem NOW, TODAY, TOMORROW.

Perhaps Detroit is the perfect place for P3
[[public private partnerships)

When private businesses are taking the risks
and putting their profits on the line,
funding is more likely to get allocated
to high-return projects and completed
in the most efficient manner

The P3 approach, i.e. design-build contracting approach,
guarantees the construction price and project completion schedule.
P3 projects typically experience capital cost savings
of 15 to 20 percent compared to traditional government contracting.
A Brookings Institution study noted “Many advantages of PPP
stem from the fact that they bundle construction, operations,
and maintenance in a single contract.
This provides incentives to minimize life-cycle costs”

MDOT is using a P3 for the I-75 project in Oakland County. Private companies will be funding the construction and paid back over a long stretch of time. There's even a part of the project area where the construction company will be responsible for maintaining the pavement after the project is complete.

Many cities and local governments in Michigan face the problem of underfunded pensions. And OPEB is highly underfunded in many or
most Michigan cities. How will the candidates for governor discuss this important issue and how will they resolve the problem. Bankruptcy will give local governments the option to not pay pensions but that is not a desirable process. It is difficult to see many groups of pensioners agree to take less but those in Detroit did since they faced the possibility of much bigger cuts from the bankruptcy court.

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Originally Posted by SammyS

Detroit should be run like a private corporation. No pensions, 67 yo retirement age, 401k retirement plans, immediate SS contributions, and most importantly, seize the welfare state that’s bankrupted us to begin with.

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No intended disrespect for my elders, but I don't want to depend on men/women in their mid 60's showing up when I call 911. There's a damn good reason that police officers and firefighters get to retire earlier than most.

Not to mention DPD is having a hard enough time as it is attracting and keeping police officers. Further cuts to their retirement and working until they are 66? Good luck getting anyone to sign up for that.

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Originally Posted by SammyS

So long as the free market dictates salaries, then why not. And let’s stop bashing the 1%. It’s precisely them we need to incentivize and encourage to live, spend and invest in Detroit. Surely we can learn a thing or two from the past 50 years.

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No, we wouldn't want to hurt the 1%'s feelings. They might decide to further the difference between their salary and ours.

The tide has definitely turned

Detroit Board of Education, the transformational 1977 case in which the justices upheld mandatory dues for public-employee unions. ... a famously aggressive, and powerful, union ~ in a blue state where public-sector labor costs, especially for pensions, have created a seemingly permanent financial crisis

Happening now

ON FEB. 26, the Supreme Court hears arguments in the most important labor case of the 21st century to date, Janus v. AFSCME. At issue are rules in 22 states requiring public employees to pay “agency fees” to cover the collective-bargaining costs of unions that represent them, even if the employees are not members of the union

https://www.supremecourt.gov/oral_ar...bruary2018.pdf

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Originally Posted by O3H

Detroit is forced to lease its regional water and sewer systems.

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Unless I misunderstand what you've written, I think you've got it backward. The GLWA leases the water and sewer systems FROM the City of Detroit. For that, the City of Detroit gets an annual payment of $50 million a year.

At risk of sounding like the peanut gallery, also check out:
there is no longer a 7% guaranteed return annuity benefit
for the City of Detroit employees, that program pays out
no more than 2% or so and some of the money previously
paid in before the bankruptcy was clawed back if I remember
correctly; GLWA employees are no longer a part of that program;
and numerous persons that would have been working for
the City are now working for such firms as Advance Disposal
and the firm that bought Rizzo.

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Originally Posted by archfan

No, we wouldn't want to hurt the 1%'s feelings. They might decide to further the difference between their salary and ours.

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It’s very simple. Would you prefer to appease locals through welfare or incentivize newcomers for thier investment? 50 years of socialist leaning mismanagement has chased good money away.

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Originally Posted by SammyS

It’s very simple. Would you prefer to appease locals through welfare or incentivize newcomers for thier investment? 50 years of socialist leaning mismanagement has chased good money away.

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We can incentivize newcomers without kissing the hem of their custom suit jacket.

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Originally Posted by SammyS

It’s very simple. Would you prefer to appease locals through welfare or incentivize newcomers for thier investment? 50 years of socialist leaning mismanagement has chased good money away.

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LOL. Must have missed this 50-year period of "socialist leaning mismanagement".

The "good money" is in places like NYC and SF, which are, of course, far more "socialist leaning" than Metro Detroit.

It’ll be The State/Suburbs having the gun pointed at it’s HEAD and Detroit will be doing the pointing.

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Originally Posted by Ray1936

For what it's worth.....police and fire personnel were exempted from social security if they paid into a municipal pension fund. Thus, Detroit police and fire retirees may not only lose their pensions, but they do not qualify for social security and medicare health coverage. But who gives a care?

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Am I correct that DPD did not contribute to SS because their plan was designed to be better, and the officers preferred a separate, stronger plan?

Basically it's theft

https://pbs.twimg.com/media/DYH6L29U0AI8FsN.jpg:large

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Originally Posted by Wesley Mouch

Am I correct that DPD did not contribute to SS because their plan was designed to be better, and the officers preferred a separate, stronger plan?

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City just mandated it in the 1930's when Social Security was established by FDR. The Police and Fire pension fund was already in place for decades; and the SS bill permitted state and municipal employees the right to maintain their own pensions and forgo payment into SS. Kind like the egg was there before the chicken. Both employee and the city paid 5% of their salaries into the pension fund. At that time it was much more expensive than contributing to social security. Not so much today.

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Originally Posted by Ray1936

City just mandated it in the 1930's when Social Security was established by FDR. The Police and Fire pension fund was already in place for decades; and the SS bill permitted state and municipal employees the right to maintain their own pensions and forgo payment into SS. Kind like the egg was there before the chicken. Both employee and the city paid 5% of their salaries into the pension fund. At that time it was much more expensive than contributing to social security. Not so much today.

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Thanks, Ray. Its hard to think of SS as a new-fangled think, but in some ways it is.

City-run pensions are a little like fox-run henhouses. Bad idea. SS can't really steal money -- but smaller unions and municipalities can. Maybe not literally steal, but they might 'loan' or 'invest' pension funds in 'creative' ways that are more fox-like than chicken-centric.

This is not directly related to the pension funding issue, but its nice to see that the city used some of its surplus to pay other debt down early, thereby saving future interest expense.

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The city of Detroit on Wednesday used $54.4 million in surplus funds to pay off bonds issued when the city exited bankruptcy in 2014 to settle debts with bond insurers on pension-related debt.
Detroit's move to pay off the remaining principal and interest owed on $88 million in 12-year Financial Recovery Bonds will save the city $11.7 million in interest over eight years, said John Hill, chief financial officer for Detroit.

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http://www.crainsdetroit.com/article...-8-years-early