EM better for Pension Holders, but pros and cons for Chapter 9 as well...

**corktownyuppie** · March-19-13, 08:43 PM

Best even-handed analysis of EM vs. Chapter 9 that I've seen so far.

http://www.mlive.com/news/detroit/in..._river_default

Now on the pension side, the Michigan Constitution protects pensions. An EM can't take that away. In theory, a federal court can say, “This pension is not protected.”Bridge: So if I'm worried about my pension, I'm probably more in favor of an EM.
A: Right. That’s why you might use Chapter 9 as more of a bargaining tool [[in reaching municipal crisis solutions).

**nain rouge** · March-19-13, 08:49 PM

Whenever I've talked about reducing or eliminating some pensions I've been pilloried.

**corktownyuppie** · March-19-13, 08:52 PM

Originally Posted by nain rouge

Whenever I've talked about reducing or eliminating some pensions I've been pilloried.

Yes, well solving our structural debt problem is not gonna be a popularity contest, Monsiuer Rouge

**Wesley Mouch** · March-19-13, 09:15 PM

Originally Posted by nain rouge

Whenever I've talked about reducing or eliminating some pensions I've been pilloried.

Ignore knee-jerk reactions. They're usually not well through through.

I think the middle ground here is to modify egregious pensions. If you are making more than $50,000 in your retirement, you're fair game in my book. If we hit those pensions and not smaller pensions, it would be most fair.

**MommaDrizzly** · March-19-13, 11:14 PM

As long as the bondholders get hit as well as the pensioners, I'd be happy.

**Wesley Mouch** · March-20-13, 01:41 AM

Originally Posted by MommaDrizzly

As long as the bondholders get hit as well as the pensioners, I'd be happy.

I'm down with that -- pain should be spread evenly -- except that more pain should be applied to those who have taken advantage of the situation. So a pensioner who has 'spiked' their pension is fair game. And so is a bondholder who loaned Detroit money knowing what a complete mess it was. Fair is fair.

**Hermod** · March-20-13, 04:42 AM

Originally Posted by Wesley Mouch

I'm down with that -- pain should be spread evenly -- except that more pain should be applied to those who have taken advantage of the situation. So a pensioner who has 'spiked' their pension is fair game. And so is a bondholder who loaned Detroit money knowing what a complete mess it was. Fair is fair.

Of course the bondholders are not the same guys who loaned the money. The bondholders are the guys who bought the bonds from the underwriters based on their "safety level" and yield. The eeeeevullll banks do not hold most local and state bonds. The bonds are now owned by pension funds, insurance company reserves, and individuals.

**downtownguy** · March-20-13, 10:04 AM

Originally Posted by corktownyuppie

Best even-handed analysis of EM vs. Chapter 9 that I've seen so far.

http://www.mlive.com/news/detroit/in..._river_default

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Agree that this is far better than any analysis I've seen in the two Detroit dailies, but I wish it went into more detail. I don't know if it's the writer's style, or if it was edited too much, but I'm confused by this paragraph in particular:

Bridge: What can emergency managers do on the pension and retiree benefits front for Detroit, compared with how this would be addressed under Chapter 9?

A: Well, an EM can certainly reject and modify contracts, especially with retiree health care. They can modify the costs and make the retirees go onto different plans, but there are some lawsuits pending. That's the question – whether the EM can legally do that. The U.S. Constitution says that bankruptcy [[in government) is reserved for Congress, so there is some argument that what's being done in Michigan is unconstitutional. The city of Flint is being sued for this very thing, changing retiree health care. The problem is that you wait years for court cases to proceed and then you find out that you lose, whereas with bankruptcy, the court already has power to do some things. Now on the pension side, the Michigan Constitution protects pensions. An EM can't take that away. In theory, a federal court can say, “This pension is not protected.”

Am I reading this wrong? Doesn't he say the US Constitution prohibits [["is reserved for Congress") municipal bankruptcies? Yet, he and others continually refer to smaller municipalities that have gone through it.

Nonetheless, I'm happy to get some info from a supposed expert. And it is good to see the pros and cons of each approach. I googled the guy and found a somewhat more extensive article written by him in The Huffington Post here.

**pete** · March-20-13, 11:17 AM

Originally Posted by downtownguy

Am I reading this wrong? Doesn't he say the US Constitution prohibits [["is reserved for Congress") municipal bankruptcies? Yet, he and others continually refer to smaller municipalities that have gone through it.

I believe what he is saying is that municipal bankruptcies can only be handled at the federal level, i.e. federal court, and this is the argument against the constitutionality of an EM. An EM is acting like a federal bankruptcy judge and is thus unconstitutional.

I have no idea if that argument would stand up or not. In the Michigan courts it certainly wouldn't, but at the federal level, who knows.

**coracle** · March-20-13, 11:28 AM

Originally Posted by MommaDrizzly

As long as the bondholders get hit as well as the pensioners, I'd be happy.

Now that's a great idea. Where can I buy me some Bonds?

**Johnnny5** · March-20-13, 11:31 AM

There's still the issue of the city owned works at the DIA. If this leads to bankruptcy I can't see how Detroit would be able to renege on their pension liabilities without putting these works at risk.

**Honky Tonk** · March-20-13, 11:35 AM

CTY & DTG, Thanx for the excellent info.

**corktownyuppie** · March-20-13, 12:05 PM

Originally Posted by Johnnny5

There's still the issue of the city owned works at the DIA. If this leads to bankruptcy I can't see how Detroit would be able to renege on their pension liabilities without putting these works at risk.

The DIA art is on the table as well.

**Novine** · March-20-13, 09:39 PM

"The DIA art is on the table as well."

Why? There's little chance that Detroit would be unable to pay its existing bond obligations. Some people seem to be imposing their view of bankruptcy from the viewpoint of the corporate world on the city. But the city has the ability to continue to bring in revenue in a way that a failed company can not. Detroit's major bond obligations are already covered, either through payments from customers of the water and sewer system or from the dedicated bond millages. What remains can be met by the revenues that the city's guaranteed to receive either through its millages or constitutional revenue sharing. Not enough? That likely would result in more cuts to services but it's not as if the city has to have a fire sale of assets to meet its bond obligations.

**Honky Tonk** · March-20-13, 09:45 PM

Originally Posted by Novine

"The DIA art is on the table as well."

Why? There's little chance that Detroit would be unable to pay its existing bond obligations. Some people seem to be imposing their view of bankruptcy from the viewpoint of the corporate world on the city. But the city has the ability to continue to bring in revenue in a way that a failed company can not. Detroit's major bond obligations are already covered, either through payments from customers of the water and sewer system or from the dedicated bond millages. What remains can be met by the revenues that the city's guaranteed to receive either through its millages or constitutional revenue sharing. Not enough? That likely would result in more cuts to services but it's not as if the city has to have a fire sale of assets to meet its bond obligations.

If they kill the art and the DIA, Detroit's done for a lot of people. You'll just end up taking the chew-chew to Ilitch's Sport City.

**corktownyuppie** · March-20-13, 10:53 PM

Originally Posted by Honky Tonk

If they kill the art and the DIA, Detroit's done for a lot of people. You'll just end up taking the chew-chew to Ilitch's Sport City.

Whoa, whoa, whoa. Just cuz I said that the art is on the table doesn't mean that it'll get sold. Most likely it could be used to collateralize loans.

Which, of course, means that if the loans don't get paid, lenders can foreclose on the art.

**Cincinnati_Kid** · March-20-13, 10:57 PM

Originally Posted by Wesley Mouch

Ignore knee-jerk reactions. They're usually not well through through.

I think the middle ground here is to modify egregious pensions. If you are making more than $50,000 in your retirement, you're fair game in my book. If we hit those pensions and not smaller pensions, it would be most fair.

Right. Like the retired sheriff who Ficano wants to hire to be his personal valet at 55k a year, and he's already getting pension that's 105k. These pensions are outrageous, and a slap in the face for people that had to retire with half as much.

**DTFellow** · March-20-13, 10:59 PM

Wait. Wait. Wait! Is Corktownyuppie actually Mark White? Coaccession?

**corktownyuppie** · March-20-13, 11:07 PM

Originally Posted by DTFellow

Wait. Wait. Wait! Is Corktownyuppie actually Mark White? Coaccession?

lol. Guilty.

So let me explain how I'm going securitize billions of dollars of artwork and allow YOU, the investor, to make a profit while providing much of the needed liquidity to restructure and save the city!

http://coaccession.blogspot.com/

"Make some money. Save the city."
CTY for City Council

p.s. I'm obviously joking.

**Honky Tonk** · March-21-13, 03:52 AM

Originally Posted by corktownyuppie

Whoa, whoa, whoa. Just cuz I said that the art is on the table doesn't mean that it'll get sold. Most likely it could be used to collateralize loans.

Which, of course, means that if the loans don't get paid, lenders can foreclose on the art.

Got Asian buyers all lined up do you CTY? Nothing like a tidy little "finders fee", is there?

**313WX** · March-21-13, 07:45 AM

Now see, the last few posts [[albeit in jest) make a perfect case for bankruptcy.

Instead of Detroit having to risk its assets as collateral in restructuring its debt [[which a judge can't force it to), it can instead force the banks to stop collecting its debt payments and accept its terms and conditions through a court order while it gets its fiscal house in order without disrupting services.