Beatdown of COD Pensioners Commences

[313WX]

Detroit's broke and sacrifices have to be made, as not everyone's going to be paid what they feel they're owed. While it would be nice to just sock it all to the banks, the fact is...

1. Their debt is secured.

2. Pensions/Health Cre make up a larger share of the city's debt [[besides the DWSD debt) than the loan/interest payments to these banks.

Let's get one thing clear. No one wants to cut Grandma and Grandpa's retirement benefits. But frankly, if I had to choose between ensuring a retiree in some paid-off McMansion out in West Bloomfield receives their full pension and health insurance or making sure...

*Detroit school kids are able to ride clean, safe, reliable buses to/from school on well-lit, blight-free streets

*Detroit senior citizens are able to safely walk to their neighborhood establishments or do yard work without getting robbed/assaulted.

*Detroit citizens receive a 5-10 minute response time from the police/ambulance/fire when there's an emergency.

I will stand on the side of the latter.

If the retirees should be fighting anyone, it should be the State of Michigan, not the city of Detroit. Obviously the city can't afford it, but it's the state that's trying to relieve its obligation through the bankruptcy proceeding.

[MikeyinBrooklyn]

313, I agree with just about everything you posted above, except the last paragraph. The 9 million and change residents of this state who did not elect decades of corrupt and incompetent leaders should not have any obligation to pay the debts for those that did. With self-determination comes responsibility. Even with a bankruptcy [[if approved), we have well earned the lean years ahead. The suburbs and the rest of the state did not dig this hole.

[313WX]

313, I agree with just about everything you posted above, except the last paragraph. The 9 million and change residents of this state who did not elect decades of corrupt and incompetent leaders should not have any obligation to pay the debts for those that did. With self-determination comes responsibility. Even with a bankruptcy [[if approved), we have well earned the lean years ahead. The suburbs and the rest of the state did not dig this hole.

I understand why the State of Michigan and the suburbs may FEEL they shouldn't "bail out" Detroit, in a manner of speaking. But this will all be fought out and decided in the bankruptcy proceeding [[if approved).

It does say clearly in the constitution that the state guarantees all accrued pension benefits [[not health care benefits of course), which would include COD pensions since it's a creature of the state. The State of Michigan is betting that Federal law will trump the state's constitution, and thus the pensions can be cut. If Judge Rhodes, or any judge this issue is presented in front of, decides that the state should honor its guarantee in the constitution and inherit Detroit's obligations [[even if not inherit them outright, but just send an actual check to the city to cover the obligations), then the state has no choice but to do so.

[MikeyinBrooklyn]

If the state were forced to pay the city's pension bills, I would do so in legislation dissolving the city's government outright. I would have a state appointed city manager in perpetuity. No sense sending good money after bad.

Although, the US Constitution makes clear that federal law does trump state law where they are in conflict; US Bankruptcy law would need to be deemed unconstitutional in order for the judge to allow the state constitution to be followed over federal bankruptcy law.

[Locke09]

Although, the US Constitution makes clear that federal law does trump state law where they are in conflict; US Bankruptcy law would need to be deemed unconstitutional in order for the judge to allow the state constitution to be followed over federal bankruptcy law.

Municipal bankruptcy law is not written to trample upon state's rights. That's why Chapter 9 bankruptcy law does not allow the judge to determine what Detroit's plan is. The judge can only approve or reject the plan that is submitted. The plan has to be rejected if it requires the city to do something that is not "lawful". The argument will be that cutting a pension in Michigan is not lawful for the city and therefore cannot be part of any approved plan.

Now if the judge says, but now that you are in bankruptcy, it is lawful, then the retirees will say, "We argued that you should keep Detroit out of bankruptcy or mandate that Detroit can only enter bankruptcy if it doesn't put pensions on the line, so that the city wouldn't be in a position to violate the Constitution. You decided that now was not the time for that argument and it should be raised once Detroit is in bankruptcy [[this assumes of course that the judge is not going to accept those arguments now and is going to let the city go into bankruptcy)"

In other words, if the court uses that federal law vs. State Constitution argument once it allows Detroit to enter bankruptcy, then the judge will have intentionally or unintentionally put the retirees in a Catch-22 situation. You can't argue that point because it hasn't happened yet. Later, you can't argue that point because it's too late. I can't see a judge wanting to do that.

So, I see the pensions being unharmed unless someone can argue that the State Constitution never really intended to protect pensions in municipalities that are in financial trouble.

Just my layperson's opinion.

[Gistok]

"Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city's pensioners, 16 cents on the dollar. There are about 23,500 city retirees."

You do of course realize that this is only for the unfunded portion of the pensions?

According to the Police/Fire Pension Systems, they're 96% funded, and the General Retirement System is 77% funded.

So yes that would impact the General Retirement Fund much more than the Police/Firemen... and not include the medical/dental/optical... but it's not JUST a 16% payout as your initial post seems to imply...

[Wesley Mouch]

I understand why the State of Michigan and the suburbs may FEEL they shouldn't "bail out" Detroit, in a manner of speaking. But this will all be fought out and decided in the bankruptcy proceeding [[if approved).

It does say clearly in the constitution that the state guarantees all accrued pension benefits [[not health care benefits of course), which would include COD pensions since it's a creature of the state. The State of Michigan is betting that Federal law will trump the state's constitution, and thus the pensions can be cut. If Judge Rhodes, or any judge this issue is presented in front of, decides that the state should honor its guarantee in the constitution and inherit Detroit's obligations [[even if not inherit them outright, but just send an actual check to the city to cover the obligations), then the state has no choice but to do so.

We've beaten this issue to death. The state constitution does say accrued pension benefits are protected. And federal law says those who don't have the cash can have an orderly reorganization. So its just a legal question of which conflicting law takes precedence.

With no benefit of legal knowledge, I side with the ability to reasonably adjust pensions. Why should a particular Michigan statute take precedence of bankruptcy? If you allow that kind of power to usurp the money of others with utter disregard for your own failings, you create a tremendous moral hazard.

There's no reason why pensioners should be 100% protected. I hope the end result here is 90% or more protection. Most pensioners deserve protection. But not absolute protection for everyone.

Oh, and 313WX's post wins my best of the week. They have it right.

Let's get one thing clear. No one wants to cut Grandma and Grandpa's retirement benefits. But frankly, if I had to choose between ensuring a retiree in some paid-off McMansion out in West Bloomfield receives their full pension and health insurance or making sure...

*Detroit school kids are able to ride clean, safe, reliable buses to/from school on well-lit, blight-free streets....[[and ...)

Glad someone else has pointed out adjusting pensions might increase fairness. We all want to protect pensions for those truly in need -- but not every pensioner is truly in need. I'd like to see some pensioners get their pensions cut so others could get 110% of what they are owed.

[Hermod]

While it would be nice to just sock it all to the banks, the fact is...

That very few of the bonds are held by the "eeeeeeevullllllllllll banks". Most of the bonds are held in other pension fund portfolios, insurance company reserves for claims, retirement annuities for individuals, and by investors as a part of the fixed income portion of their holdings. The banks just process the bonds and act as trustees.