It’s an ambitious and unprecedented plan: $365 million from private foundations, $100 million raised from the Detroit Institute of Arts, $350 million from the state of Michigan, paid over two decades in $17.5 million annual appropriations. The funding is included in Detroit Emergency Manager Kevyn Orr’s proposed Plan of Adjustment, filed with the bankruptcy court last month, and seeks to ensure some funding for pensions so that the museum’s collection isn’t sold to pay retirees.
The $815 million deal is called “the grand bargain” and, as The Detroit News columnist Daniel Howes writes today,
It would cushion a harsh blow to city pensioners even as it would protect the DIA’s envied collection from the predations of creditors.
One of the deal’s architects is Chief U.S. District Judge Gerald Rosen who is acting as mediator in the bankruptcy case.
But it’s far from a done deal, and as the city’s bankruptcy case progresses, Orr is needing to secure terms of the deal, Howes writes. So is Gov. Snyder, who first proposed the state contribution in his budget presentation to the legislature’s Joint Appropriations Committee in February but has largely gone silent, at least publicly, on the plan.
Howes says the deal needs to be getting done in Lansing before bankruptcy proceedings get much further:
Put another way: any meaningful threat to the DIA fund and whether it can be used to bolster city pensions emanates from the state capitol, not bookish foundation heads or timorous board members unnerved by unhappy financial heavyweights in New York or the confrontation of a bankruptcy process unspooling with predictable rancor and litigation.
Judge Rosen’s audacious gambit to tie a DIA rescue to a public-private plan to bolster city pensions is still very much alive. But it won’t last in perpetuity because it can’t — a fact the city’s unions, pension funds and retirees ignore at their peril.
The deadline is about a month away for mailing the 32,000 ballots to pensioners and eligible employees so they can vote on the city’s proposed Plan of Adjustment, and preparations are fully underway, The Detroit News reports.
The voting process must be clear and explain what impact cuts will have on pensions and health care benefits, U.S. Bankruptcy Judge Steven Rhodes has warned city attorneys.
That means each voter will get an explanation of what the Plan’s proposed pension and health care cuts means to them. The voter packages will include letters, ballots, return envelopes and a CD-ROM of the full plan. Ballots are due back to the court by June 30. Bill Nowling, a spokesman for Emergency Manager Kevyn Orr, told the News the proposed procedure and ballot, which the city and attorneys for pensioners have been discussing for weeks, will be filed in bankruptcy court this week.
While the retirees and vested employees are among the 170,000 creditors who have a vote on the plan, if they don’t approve it, it doesn’t mean the parties go back to the table.
If retirees and other creditors vote against the debt-cutting plan, Detroit could force cuts on creditors under a process known as a cramdown. Under bankruptcy law, if one class of impaired creditors supports the debt-cutting plan, Detroit can impose cuts on others and get the plan confirmed by Rhodes. The city’s plan, however, must be fair and equitable and not discriminate.
The city currently has a deal with two investment banks, which would allow the “cramdown” to occur with other classes. The city’s current offer has general employees taking a 26 percent cut to pension payments and police and firefighters 4 percent. Those offers fall to 34 and 10 percent, Orr has said, if the groups don’t accept soon.
Detroit News columnist Nolan Finley wrote over the weekend that retirees should take Orr’s offer:
Detroit’s retirees are playing Russian roulette. They’re the key puzzle piece in settling the city’s bankruptcy. If they take the deal on the table, the process can wrap up rather neatly, and they’ll have much more in their pockets than was initially predicted. If they reject it on the delusional hope something will happen to hold them harmless from the city’s insolvency, they risk ending up with less cash. And getting the city out from under both bankruptcy and emergency management will become more complex.
The bankruptcy trial is currently scheduled for July.
Actuaries are projecting drops in the funded levels of Detroit’s two pension plans, declines they say are due, in part, to the city not contributing millions of owed dollars last year, The Detroit News reports.
During a presentation this week, the actuaries for the Detroit Police and Fire Retirement System said the fund’s 96 percent funding level is expected to fall to 89 percent as of June 30, 2013. Meanwhile, the General Retirement System expects its funded level to be 70 percent for last year, a drop from the 78 percent the fund previously had, the News reports.
The preliminary draft (for the Police and Fire Retirement System), which reflects the funding decline, factors in $71 million in unpaid contributions from the city in 2013. The fund is also operating under the assumption that Detroit will not pay another $63 million it owes by the close of the current fiscal year on June 30.
Spokeswoman Tina Bassett told the newspaper that “the GRS is owed $36 million in payments from the city from last year. It is expected to be owed $80.6 million for 2014,” the News writes.
The city has said it stopped paying into the funds because it could no longer afford to do so.in Pensions
Pledged as part of the “grand bargain” that would allow the city to retain the Detroit Institute of Arts collection and better fund pension liabilities, the $350 million from the state has gone largely undiscussed since Gov. Rick Snyder included it in his 2014-2015 budget proposal in February.
The funds would be paid in $17.5 million installments over 20 years, the governor proposed, and would need legislative approval as part of a budget. And now, Snyder tells the Detroit Free Press, if that doesn’t come by May, it could not come at all.
…if the Legislature breaks for the summer without acting on the funding question, “that would make it extremely difficult, period,” Snyder told the Free Press.
Technically, the legislature could do a “Detroit deal” as a standalone bill, but usually that is much more difficult to get through. With legislators largely from out-state, widespread support for the deal seem unlikely at best. In addition, legislators might be waiting to see what concessions, if any, pensioners agree too.
“I’m really looking to them to take the point on this in terms of saying, can they come to some agreement?” Snyder said. “If there’s an agreement, then it would be a much better process to get through the legislative process.”
Clearly, the bankruptcy has lot of moving parts.
It’s never too early to forecast a legacy, and in today’s Detroit News, guest columnist Paul Alexander boldly predicts Detroit Emergency Manager Kevyn Orr is paving a path toward litigation.
…perhaps Orr’s legacy will be a plan that, instead of solving Detroit’s financial problems, will land the city in court fighting lawsuits for years to come.
Pensioners losing income and health care, the Detroit Institute of Arts if the collection is sold, bondholders who held general obligation bonds that the EM reclassified from secured to unsecured…Alexander finds all have good reason to pursue litigation because of how Orr’s Plan of Adjustment proposes to treat them.
Some have started the conversation:
Union officials have promised a lawsuit over pension and health benefit reductions. Lawyers for bondholders and their insurers have promised lawsuits as well. Indeed, one insurer filed a lawsuit earlier this week.
Detroit’s bankruptcy has been historic for any number of reasons. Perhaps its legacy of litigation will be added to that list.
Revenue-sharing arguments heat up
A $6.2 billion “fiscal crisis”. That’s what a group of mayors and the Michigan Municipal League say the state created for local governments by reducing revenue sharing during the last several years, as reported by The Detroit News.
The Michigan Municipal League’s new estimates of lost sales tax revenue from 2003-13 included $732 million for bankrupt Detroit, $46 million for Warren and nearly $21 million for Troy. Officials also argued that, even allowing for years of fiscal shenanigans, Detroit might have avoided bankruptcy.
As Gov. Rick Snyder’s proposed budget includes provisions for contingent increases to some municipalities, the News piece presents what could play out this year — and how some municipal leaders view the options.
Readers of the Wall Street Journal gained some insight about Detroit’s bus situation. In a piece that highlighted the low rate of car ownership, the financial constraints related to the city’s bankruptcy and Mayor Mike Duggan’s early efforts to improve the system, the WSJ found:
…the burden falls to the city’s Transportation Department and its fleet of 460 buses. The aging behemoths ply 36 routes daily, with about 6,000 stops, and a workforce of nearly 1,200. During the past four years, the city has hired two private management firms to try to turn around its operations. But poor use of federal grants, below-average bus fares and high absenteeism among drivers has led to lower revenue, subpar service and higher costs, according to the city’s disclosure statement filed last month in bankruptcy court.
Will Emergency Manager Kevyn Orr manage to increase fares and obtain more federal funds to hire mechanics and drivers?
A recent poll suggests a majority of Michigan voters favor the proposal to provide $350 million in state funds over 20 years as part of Detroit’s post-bankruptcy finance plan. As reported by MLive.com, the poll was conducted in early March by a Grand Rapids-based public relations firm that has done pro bono work for the city’s emergency manager.
The poll, commissioned by public relations firm Lambert, Edwards & Associates and conducted by Denno Research, surveyed 600 likely voters around the state on March 8 and March 9 with a 4-percent margin of error. When asked if they would support the state aid proposal for the purpose of keeping pensions from taking more than a 34-percent cut, 61 percent of respondents said yes, 25 percent said no and 14 were undecided, according to results released Friday. When asked if they’d support spending the money for the purpose of protecting the Detroit Institute of Arts collection, 53 percent said yes, 30 percent opposed the idea and 17 percent were undecided.
The $350 million is part of the “grand bargain,” a deal to ensure DIA artwork is not sold and pensions are funded. Other components of the plan include $100 million from the museum and $365 million from foundations.
Back in February, the Sixth Circuit Court of Appeals agreed to hear a set of challenges from employee unions and pensioners to Detroit’s eligibility to file for bankruptcy. This week, the city is asking the court to consolidate them and allow more time of the city’s response.
In a motion filed Tuesday, attorneys for the city said:
Administrative consolidation is appropriate here. While there are nominally seven different appeals pending before this Court, each challenges the same underlying Bankruptcy Court order. The filings in each appeal are relevant to the others. There is no reason for the Court to manage separate dockets or for the parties to have to file identical materials in each, as this motion itself demonstrates.
Meanwhile, lawyers for the retirees are again asking the Court of Appeals to expedite the case, given the ambitious schedule for bankruptcy proceedings in the Detroit court. The Sixth Circuit accepted the appeal (and declined to expedite it) on Feb. 21, the same day the city filed its Plan of Adjustment. The retirees’ attorneys write:
Since then, however, circumstances in the bankruptcy court have materially changed that now warrant setting oral argument in these appeals for the Court’s June session. …
If the former and current employees are successful, they could halt or impair the city’s bankruptcy case, which is currently scheduled for a final hearing July.
Here is the city’s Appeal Consolidation Request.
Here is the Retirees’ Request to Expedite Appeal.
Bill Nowling, spokesman for Emergency Manager Kevyn Orr, told Next Chapter the city would “let our court pleadings speak on this matter.”
But Ryan Plecha, an attorney representing retirees, said this:
The Retiree Association Parties (along with other appellants, including the Retiree Committee and Retirement Systems) have filed motions to expedite the appellate process. This is an ironic reversal of roles, from the parties usual positions on expedition. Not only is the City trying to delay the proceedings, but the City is also trying to squeeze all of the appellants into one brief or briefs with severe and unjustified page restrictions. This is in exact contradiction to the unique roles played by each the in the eligibility trial, which was conducted with minimal duplication. Justice cannot allow the City’s attempt to homogenize the appellate process. In essence, the City is trying to delay the appellate process as much as possible to steam roll through plan confirmation process and essentially strip retires of their appellate rights and in turn drastically reduce retiree pensions and benefits.
Objections are currently getting accepted by Federal Bankruptcy Judge Steven Rhodes to Detroit Emergency Manager Kevyn Orr’s Plan of Adjustment. While highly-paid lawyers make formal filings in legalese, many of the city’s elderly pensioners are taking the time to compose hand-written letters to Rhodes.
Here is a sampling of what’s been filed so far:
Retired Detroit Water and Sewerage Employee Robert Cox pleads with the judge to keep in mind the rising costs of basic necessities and that the proposed 34 percent reduction in his benefits would cause financial hardships for him and his family.
Retiree David White is an octogenarian who worked for Detroit for a quarter of a century. His wife is also a retiree from the city. He explains to Rhodes that he and his wife did not cause the bankruptcy and at his age starting over is impossible. Therefore cutting their benefits would “be traumatic and devastating.”
Mattie Johnson, of Detroit, worked for the city for more than three decades. Johnson tells the court that the proposed reduction in benefits would become a shell game. If the pension is reduced, Johnson says she would have to seek other public benefits such as food stamps.
Elouis Abram tells the judge that between the loss of the pensioners’ health care plan and the proposed 34 percent benefit reduction, he does not know where to turn. Abram itemizes how much more he now has to pay for health care for his multiple medical conditions. Abram says he can’t believe how poorly senior citizens have been treated.
Retiree Joyce Johnson-Jones asks Rhodes for “mercy” when it comes to cutting retiree benefits. She attributes the loss of her house to previous cuts made by Mayors Kwame Kilpatrick and Dave Bing.
The 75-year-old Frances Teague tells the court that cuts to her pension would be devastating to her and her mentally challenged husband who suffers from dementia. She points out that many people make career choices based on benefits to be received later in life.
Objection letters pulled from here: http://www.kccllc.net/detroit/document/list/3666?nh=1
The Moratorium NOW! Coalition, a group originally formed to stop foreclosures, evictions and utility shutoffs in Detroit, is stepping in to help people who object to the city’s proposed Plan of Adjustment and Disclosure Statement and want to share their opinions and insight with Bankruptcy Judge Steven Rhodes.
The meeting starts at 7 p.m., Monday, March 17 and will take place at 5920 Second Ave., Detroit. The event is also being promoted by Detroiters Resisting Emergency Management, a coalition of organizations that have consistently objected to the state’s emergency manager law and the Detroit bankruptcy and developed the “People’s Plan for Restructuring Toward a Sustainable Detroit.”
At the workshop, the groups will share their readable instructions and a form that can be used to file an objection with the court. Monday’s workshop will further explain the process to formally object. The deadline for such filings for retirees is June 30.