Looking at the pension deal

[BankruptcyGuy]

From what I've been able to piece together from various news sources, I have some questions about what the city is presenting:

Are they really re-allocating $100 million in grant money from the US government for blight removal to fund pensions? How exactly does that not run afoul of the law?

Did the City's required contributions to the fund change, or, in great political fashion, did the City simply allow the funds to increase their expected rate of return, in order to reduce cuts today [[meaning that if the return targets are not met, cuts will be reduced further in later years)?

Did the City's contribution to health care go up or down? When GM and Chrysler set up VEBAs, they funded them with large [[billions) stock contributions? With what are these healthcare VEBAs being funded?

If anyone can point me to the actual term sheet or press release on the deal to enlighten me, I'd appreciate it.

[Richard]

NSP funds may be used for activities which include, but are not limited to:

• Establish financing mechanisms for purchase and redevelopment of foreclosed homes and residential properties;
• Purchase and rehabilitate homes and residential properties abandoned or foreclosed;
• Establish land banks for foreclosed homes;
• Demolish blighted structures;
• Redevelop demolished or vacant properties

"but are not limited to" Loophole?

http://portal.hud.gov/hudportal/HUD?...eighborhoodspg

Obama, Michigan in talks to free up $100M to aid Detroit pension deal


http://www.battlecreekenquirer.com/a...nclick_check=1

Which translates into how does one exploit the loophole or how does one provide a ailout without actually calling it by name.Keeping in mind the list of cities next in line to experience this.

Politics in motion.

One interesting thing was Hantz group had applied for a chunk of the funds solo but then turned operations over to the city.

I think this all is going to be smoke and mirrors until it is done,or it is in everybody's best interest not to know the details kinda like,do not worry we have this,trust us.

[DetroitPlanner]

There are no VEBAs for Detroit Employees as I understand it. My parents are retired employees and there medical plan has not changed much in terms of out of pocket cost per month, but the co-pays are going up as is the overall deductible.

[corktownyuppie]

It's clear that over the last 6 days, the leverage has shifted toward the city against all of its creditors. Once the swaps settlement was approved, the threat of a cram-down became imminent. In that regard, I can't imagine that the city gave that many [[if any) concessions in mediation over the last 4 days.

Which makes me wonder...what deal was being floated back and forth up in mediation up until last week? I can't imagine it was the 25% cut...Is this is a situation where the 25% cut is a threat in a cram-down, but while we're in mediation, we will offer a 5% cut with no COLAs?

Because man, if that was the city's offer behind-the-scenes-this whole time, that was a pretty sweet deal, not sure I understand why it took so long to accept. Perhaps the precedent it set?

[jt1]

Because man, if that was the city's offer behind-the-scenes-this whole time, that was a pretty sweet deal, not sure I understand why it took so long to accept. Perhaps the precedent it set?

Which makes me wonder - how much debt and liabilities is the city really shedding?

I'm not seeing where all the savings are adding up to make a large dent in the 12Billion in debt and liabilities [[taking out the 6B that is tied to DWSD).

Are we paying hundreds of millions in attorney fees to save....hundreds of millions?

[Wesley Mouch]

Which makes me wonder - how much debt and liabilities is the city really shedding?

I'm not seeing where all the savings are adding up to make a large dent in the 12Billion in debt and liabilities [[taking out the 6B that is tied to DWSD).

Are we paying hundreds of millions in attorney fees to save....hundreds of millions?

Well -- yes. We had the chance to avoid lawyers fees. We choose fight and resist and business as usual. Council, Unions, Administration, Retirees, Residents. Every one of them.

So now we're stuck with lawyers fees.

And if we don't stop fighting we'll pay the fees, but not get the cash. That's the only worse alternative.

[Smirnoff]

From what I've been able to piece together from various news sources, I have some questions about what the city is presenting:

Are they really re-allocating $100 million in grant money from the US government for blight removal to fund pensions? How exactly does that not run afoul of the law?

Did the City's required contributions to the fund change, or, in great political fashion, did the City simply allow the funds to increase their expected rate of return, in order to reduce cuts today [[meaning that if the return targets are not met, cuts will be reduced further in later years)?

Did the City's contribution to health care go up or down? When GM and Chrysler set up VEBAs, they funded them with large [[billions) stock contributions? With what are these healthcare VEBAs being funded?

If anyone can point me to the actual term sheet or press release on the deal to enlighten me, I'd appreciate it.

April 28th is when the "fine print" will be mailed to all affected to vote upon. City is getting out from "administering" benefits for retirees, they will be contributing cash [[significant reduction) to the VEBA.....it will be nothing like the UAW totally funded VEBA's.

[Eber Brock Ward]

April 28th is when the "fine print" will be mailed to all affected to vote upon. City is getting out from "administering" benefits for retirees, they will be contributing cash [[significant reduction) to the VEBA.....it will be nothing like the UAW totally funded VEBA's.

Yeah, but the city can't fund with stock.

So how will it be funded and how much will the city have to kick in. It's not a good outcome for the city if it goes from "administering but having to pay" to just "having to pay."

[Smirnoff]

Yeah, but the city can't fund with stock.

So how will it be funded and how much will the city have to kick in. It's not a good outcome for the city if it goes from "administering but having to pay" to just "having to pay."

City has numerous ways; water, taxes, art, parking, tunnel, zoo, airport, tickets, fines, bonds, property, etc.

[BankruptcyGuy]

City has numerous ways; water, taxes, art, parking, tunnel, zoo, airport, tickets, fines, bonds, property, etc.

I have heard nothing in the plans that indicate that asset sales are pending.

I doubt, but could be wrong, that these assets could simply be transferred to the funds [[to be sold later) as part of the plan.

What would really interest me is knowing what the City's overall contributions to the funds were in the first plan and the revised plan. If they are the same number, then the pensioners are either being misled now about the health of their funds or were misled in the first draft. If the City is contributing a much larger number, where are those funds coming from?

[corktownyuppie]

What would really interest me is knowing what the City's overall contributions to the funds were in the first plan and the revised plan. If they are the same number, then the pensioners are either being misled now about the health of their funds or were misled in the first draft. If the City is contributing a much larger number, where are those funds coming from?

This is one of the fundamental problems in the system, IMHO. The purpose of bankruptcy is to reduce/minimize the city's liabilities.

But when we talk about the pensions, they are framed from the perspective of "what will the pensioners get" instead of "what will the city be able to give".

I digress.

I believe that the pension fund has been the beneficiary of a raging bull market within the equity and private equity markets. Consequently, they are working with a starting balance that is 15-20% higher right now than at the time of bankruptcy filing. Quite clearly, that could be enough to fill a gigantic gap.

Another concession is that Orr agreed to use a 6.75% assumed rate of return rather than 6.5% that he proposed; and that helped bridge the gap even more.

So it's plausible that all of the above could take place without affecting the city contribution to pensioners.

The elimination of the COLA is a major concession from the unions. It doesn't get the headlines, because reducing someone's COLA has a graduated impact over time in comparison to "This pensioner is only receiving half his pension check starting in July". Despite the fact the impact is essentially the same.

Lastly, some of this might be part of the "dark arts of bankruptcy", in that Orr and his team can make arguments to offer the lowest plausible settlement in the plan of adjustment in order to create leverage for creditors to settle and get on board with the plan, right? As I mentioned above, I have no idea what offer was being floated back and forth in mediation, but when threatened with a cramdown and a 25% pension cut, that certainly makes a 5% cut and COLA elimination seem like a gift.

Compare that to a pre-bankruptcy scenario from 12 months ago....if Mayor Bing went to the unions and asked them to voluntarily drop health care coverage, eliminate the COLA, and drop the benefit by 5%, I'm sure we can all imagine how that conversation will go.

The key for the city going forward is whether or not the impact to our cashflow is positive enough to execute a turnaround. And even though that's supposed to be Orr's prime concern, it probably falls secondary to exiting bankruptcy on time.

But you know who has the most to lose if we don't do this right the first time? I'd say Judge Rhodes. He's made it crystal clear that he will not approve a settlement that will result in us coming back to do Chapter 9 a second time.

My questions are these:

[[1) Will the bankruptcy improve our balance sheet and cashflow enough to make some real structural changes needed?

[[2) Will the state legislature screw this up and block the Grand Bargain?

[[3) Will Rhodes rule that the settlements are both equitable while making sure that the experts he chooses believe that we are properly poised to recover?

[[4) And will the political protections be in place to make sure that the financial controls are in place to set us up for sound financial practices?

We will see.....

[erikd]

City has numerous ways; water, taxes, art, parking, tunnel, zoo, airport, tickets, fines, bonds, property, etc.

The city doesn't have any way to meet its underfunded retiree obligations. None of your suggestions will come close to solving the problem.

1. Water- The water department is separate from the general fund and can not be used to shore up general city debts. Even if it were possible to transfer assets or revenues from the water department into retiree benefit funding, it is unlikely that the water department has any assets or funding to spare, given that the water and sewer infrastructure is crumbling and there is no way that the current system can be maintained without large rate increases.

2. Taxes- The city already charges the highest property and income taxes in the state, and provides terrible services in return. Asserting that Detroiters, who already pay the highest tax rates in the state, should be taxed at even higher rates, is insane.

3. Art- The concept of selling off the DIA art collection to pay off debt is such an unrealistic, short-sighted, and unfeasible idea, I could write a book about it. The DIA is funded by a regional arts tax that is not just a bunch of money that the city can simply divert to pay for retiree benefits. The same goes for much of the DIA art collection. These are donated works of art that have restrictions. The DIA art donors gave their property to the museum for the expressed purpose of it being held in trust and accessible to the public. If they wanted their donations to be liquidated and used to fund city debts and general obligations, then they would have just cut a check or gave their art to the city for auction. While the city may technically "own" the DIA, the DIA collection and operations are funded regionally, with conditions that the donations and taxes be used solely for the DIA, and not general city debts and obligations.

4. Parking- The Detroit municipal parking department, which controls our city garages and parking meters, is a money loser. Contrary to popular belief, the function of the municipal parking department is not to make money, but rather to regulate and insure the availability of parking in the high demand areas in the commercial districts of the city. From a purely short-term cash flow perspective, the city would be better off if they ripped out all the parking meters and eliminated the parking department altogether. This would save the city a bunch of money and hassle, but the result would be that the residents and workers in the commercial districts would just keep their cars there all the time, and there would be no street parking for the customers and clients who come into the commercial districts to patronize the businesses.

5. The Tunnel- The tunnel provides a steady revenue stream for the city's general fund. This money is already being used to help fund retiree benefits, pension payments, and city services. Selling off the city's ownership of the tunnel for a one-time debt payment for the pension fund or other creditors would only put a small dent in the city's current debt, but it would also rob the city of a much-needed stable source of annual revenue.

6. The zoo- The zoo is another example of a cultural asset that does not generate revenue. The city of Detroit subsidized the zoo with annual payments until just a few years ago. As it stands now, the city no longer funds the zoo with tax dollars, and the assertion that the city should try to sell off animals or sell of the property to a developer just to [[maybe) make a few million bucks is absurd. The zoo is not a moneymaker, it is not an extremely valuable asset that can be liquidated for any significant amount of money, but its destruction would be a detriment to the city and region.

7. The airport- City airport is a grossly underutilized asset that would benefit the city and region greatly if it was expanded and fully capitalized. I don't see a scenario where the city could just sell off the airport to some private developer and make a bunch of money on the transaction, but there is a big opportunity here to invest in the expansion and upgrade of the airport to facilitate long-term growth and investment. There is no money to be sucked out of the airport to fund debts and retirees at this point, but if the right strategy and investment were to happen, city airport could be a very strong asset to drive future growth and revenues.

8. Tickets and fines- The city issues plenty of tickets and fines right now. I would certainly like to see stronger ticketing and enforcement of blight and properties that don't meet code, but any increase of ticketing that is actually followed up with enforcement is not likely to result in a significantly increased revenue stream for the city, if it were to result in any kind of increase at all. This is another example of a "source of revenue" that costs more money to collect than it actually brings in.

The point of tickets and fines is not to be a revenue generator for the city. The whole point of issuing tickets and fines for code violations and misdemeanors is not because it is a moneymaker for the government, but rather to discourage people from doing negative actions [[or not doing positive actions), that are detrimental to the community. If issuing tickets and fines paved the way to government solvency, Detroit would be rolling in the dough.

The reason why that isn't happing is because it costs more to issue and collect tickets and fines than what is charged. Just think about how much money it costs to issue and prosecute a simple blight or code violation. If somebody doesn't mow their lawn or leaves a broke-down car on their property, there has to be a complaint filed, then a cop or other city employee has to go out and write a ticket. Then there has to be a court hearing, and then the enforcement of the small fine that the judge orders, if the judge finds the defendant guilty at all, which would require a cop or city worker to show up in court to prove.

How much money does it cost the city to ticket and enforce a simple minor blight violation? A few hundred dollars? Maybe a thousand dollars? For a $100 blight ticket? Even if we doubled the cost of tickets and fines, it still wouldn't be profitable for the city.

9. Bonds- This may be the most ignorant and moronic suggestions on the whole list. The city is literally bankrupt and simply doesn't have enough money to pay its debts, and you think that issuing bonds [[borrowing more money) is a solution to the problem? I don't even know how to respond to an idea that is so profoundly stupid.

10. Property- As I stated earlier, Detroit has the highest property taxes in the state, and one of the highest property taxes in the entire country. The USA Today ranked Detroit #9 in their list of cities with the highest tax burdens in America. Do you really think that increasing the outrageous taxes in Detroit is really the answer?

http://www.usatoday.com/story/money/...rates/5513981/

[Hermod]

The city doesn't have any way to meet its underfunded retiree obligations. None of your suggestions will come close to solving the problem.

1. Water- The water department is separate from the general fund and can not be used to shore up general city debts. Even if it were possible to transfer assets or revenues from the water department into retiree benefit funding, it is unlikely that the water department has any assets or funding to spare, given that the water and sewer infrastructure is crumbling and there is no way that the current system can be maintained without large rate increases.

2. Taxes- The city already charges the highest property and income taxes in the state, and provides terrible services in return. Asserting that Detroiters, who already pay the highest tax rates in the state, should be taxed at even higher rates, is insane.

3. Art- The concept of selling off the DIA art collection to pay off debt is such an unrealistic, short-sighted, and unfeasible idea, I could write a book about it. The DIA is funded by a regional arts tax that is not just a bunch of money that the city can simply divert to pay for retiree benefits. The same goes for much of the DIA art collection. These are donated works of art that have restrictions. The DIA art donors gave their property to the museum for the expressed purpose of it being held in trust and accessible to the public. If they wanted their donations to be liquidated and used to fund city debts and general obligations, then they would have just cut a check or gave their art to the city for auction. While the city may technically "own" the DIA, the DIA collection and operations are funded regionally, with conditions that the donations and taxes be used solely for the DIA, and not general city debts and obligations.

4. Parking- The Detroit municipal parking department, which controls our city garages and parking meters, is a money loser. Contrary to popular belief, the function of the municipal parking department is not to make money, but rather to regulate and insure the availability of parking in the high demand areas in the commercial districts of the city. From a purely short-term cash flow perspective, the city would be better off if they ripped out all the parking meters and eliminated the parking department altogether. This would save the city a bunch of money and hassle, but the result would be that the residents and workers in the commercial districts would just keep their cars there all the time, and there would be no street parking for the customers and clients who come into the commercial districts to patronize the businesses.

5. The Tunnel- The tunnel provides a steady revenue stream for the city's general fund. This money is already being used to help fund retiree benefits, pension payments, and city services. Selling off the city's ownership of the tunnel for a one-time debt payment for the pension fund or other creditors would only put a small dent in the city's current debt, but it would also rob the city of a much-needed stable source of annual revenue.

6. The zoo- The zoo is another example of a cultural asset that does not generate revenue. The city of Detroit subsidized the zoo with annual payments until just a few years ago. As it stands now, the city no longer funds the zoo with tax dollars, and the assertion that the city should try to sell off animals or sell of the property to a developer just to [[maybe) make a few million bucks is absurd. The zoo is not a moneymaker, it is not an extremely valuable asset that can be liquidated for any significant amount of money, but its destruction would be a detriment to the city and region.

7. The airport- City airport is a grossly underutilized asset that would benefit the city and region greatly if it was expanded and fully capitalized. I don't see a scenario where the city could just sell off the airport to some private developer and make a bunch of money on the transaction, but there is a big opportunity here to invest in the expansion and upgrade of the airport to facilitate long-term growth and investment. There is no money to be sucked out of the airport to fund debts and retirees at this point, but if the right strategy and investment were to happen, city airport could be a very strong asset to drive future growth and revenues.

8. Tickets and fines- The city issues plenty of tickets and fines right now. I would certainly like to see stronger ticketing and enforcement of blight and properties that don't meet code, but any increase of ticketing that is actually followed up with enforcement is not likely to result in a significantly increased revenue stream for the city, if it were to result in any kind of increase at all. This is another example of a "source of revenue" that costs more money to collect than it actually brings in.

The point of tickets and fines is not to be a revenue generator for the city. The whole point of issuing tickets and fines for code violations and misdemeanors is not because it is a moneymaker for the government, but rather to discourage people from doing negative actions [[or not doing positive actions), that are detrimental to the community. If issuing tickets and fines paved the way to government solvency, Detroit would be rolling in the dough.

The reason why that isn't happing is because it costs more to issue and collect tickets and fines than what is charged. Just think about how much money it costs to issue and prosecute a simple blight or code violation. If somebody doesn't mow their lawn or leaves a broke-down car on their property, there has to be a complaint filed, then a cop or other city employee has to go out and write a ticket. Then there has to be a court hearing, and then the enforcement of the small fine that the judge orders, if the judge finds the defendant guilty at all, which would require a cop or city worker to show up in court to prove.

How much money does it cost the city to ticket and enforce a simple minor blight violation? A few hundred dollars? Maybe a thousand dollars? For a $100 blight ticket? Even if we doubled the cost of tickets and fines, it still wouldn't be profitable for the city.

9. Bonds- This may be the most ignorant and moronic suggestions on the whole list. The city is literally bankrupt and simply doesn't have enough money to pay its debts, and you think that issuing bonds [[borrowing more money) is a solution to the problem? I don't even know how to respond to an idea that is so profoundly stupid.

10. Property- As I stated earlier, Detroit has the highest property taxes in the state, and one of the highest property taxes in the entire country. The USA Today ranked Detroit #9 in their list of cities with the highest tax burdens in America. Do you really think that increasing the outrageous taxes in Detroit is really the answer?

http://www.usatoday.com/story/money/...rates/5513981/

Erik: Nothing is impossible to the man who does not have to do it himself.

[SDCC]

City has numerous ways; water, taxes, art, parking, tunnel, zoo, airport, tickets, fines, bonds, property, etc.

I believe this article supports your statement...
http://money.cnn.com/2014/04/16/news...ons/index.html

[Gistok]

Sorry but I don't see anything in that news article to support Smirnoff's "let's sell the assets" statement.

The DIA and Zoo will not be sold off.. nor should they be...

As for other city "assets"... the tunnel and airport don't appear to be on the auction block either... As for the tunnel it is a revenue generator... and should remain as such. And all of the other taxes fines and revenue streams... they have to take care of much more than just pension obligations...

[rb336]

Were the original unfunded pension numbers a sham?

http://www.demos.org/publication/detroit-bankruptcy

http://www.demos.org/blog/4/16/14/fi...oit-bankruptcy