Plenty, says the attorney who is representing the official retirees’ committee in Detroit’s bankruptcy case. She’s heard the city’s side in court, in the media and in other discussions, and she’s got her own points to make publicly on behalf of the retirees.
She and Ryan Plecha, another lawyer for retirees, will be guests on The Craig Fahle Show between 9 and 11 a.m. Thursday. Tune it to 101.9 FM or online to hear them. They’ll also share some of the objections the pensioners are raising in their written objections to the bankruptcy judge.
Next Chapter Detroit spoke with Plecha the day the Plan of Adjustment was released, which was the same morning the 6th Circuit Court of Appeals agreed to hear the pensioners’ challenge to the city’s eligibility for bankruptcy. Listen to that interview here.
Neville also gave us a preview of some of her thoughts about the Detroit situation.
Here are a few:
* “They’re neglecting the health care completely,” she says of the media and the city representatives. “Basically the city paid about $160 million a year for health care for its retirees, and then cut that during the Chapter 9 to $30 million a year, and it’s planning future cuts under the plan. There really is not going to be a significant health care program for retirees post-plan.”
So that means as pensioners’ checks shrink, they’ll also need to pick up a greater share of their health care costs. But just how much, no one knows.
“Right now there’s very little in the plan to be able to describe what the health care benefits in the future will look like. It’s four or five sentences,” she says. “It hasn’t been negotiated at all.”
* Some of the retirees, including police and fire, are not eligible for Medicare.
“Some of them are really going to be hit terribly,” Neville says. For the pensioners who are: “Medicare is not adequate to cover all the costs of health care, and people have to buy supplementals and that is an out-of-pocket cost that the city is not willing to pick up.”
Not willing or can’t?
“Can’t is a relative word,” Neville says. “It’s a question of priorities.”
* The citys’ current plan cuts annual increases to pension payments that were similar to cost-of-living adjustments but not tied directly to inflation or another indicator, Neville says.
“For younger retirees, that loss is huge,” she says. “And it’s not being mentioned in any of the discussions.”
* How attorneys are going to explain to the pensioners what they’re voting on when all 176,000 creditors receive the informational packets and ballots. “You have to drop a lot of the bankruptcy code references. As if people are going to understand what that means?” she says. “All of those things are going to need to be explained in plain English.”
Neville and her team are working to determine what each pensioner is facing under the city’s proposed Plan of Adjustment, which is still partially based on the “grand bargain.” That’s the yet-to-be-finalized deal that brings in $350 million of state money, $100 million from the Detroit Institute of Arts and $365 million from the foundation community. The funds would be allow the city to retain the DIA collection instead of selling it to fund pension payments.
“Our intention is to calculate what people’s pensions are now, what their pension is likely to be in the future if the DIA money comes in and if there’s no excess allocation. We’re going to give them the numbers,” Neville says.
* The seriousness of the “swaps agreement” announced last week that if approved by the bankruptcy judge, would allow a “cramdown” of the city’s plan to all other creditors including pensioners.
The deal between the city and two investment banks drops the city’s obligation on interest rate swaps debt from $288 million to $85 million, according to court filings. Judge Steven Rhodes has rejected two previous agreements of $230 million and $165 million as too generous to the lenders, UBS AG and Merrill Lynch.
But if this deal is approved, that means the city has one class of creditors agreeing to its plan, which allows the plan to be “forced through” instead of being agreed upon by all groups of creditors, including pensioners.
Neville, who has represented creditors’ committees in dozens of bankruptcy cases, called the swaps deal “one of the most outrageous things” she’s ever seen.
Tweet us your questions for her using #DetNext.
Attorneys representing the city and the Official Committee of Retirees told Bankruptcy Judge Steven Rhodes today that they have reached an agreement about payment of an insurance policy for the committee’s attorneys. The policy will protect the lawyers from lawsuits resulting from their handling of the bankruptcy case.
Terms of the agreement were not disclosed during the short hearing, but a court filing from last month stated the policy would cost $602,250 with $250,000 to be held in escrow and refundable. “The Committee Members are concerned with their exposure to frivolous litigation and believe that procuring the Insurance Policy will ensure that the Committee remains functional and balanced,” attorneys for the committee wrote in a motion seeking payment from the city for the policy.
Rhodes last week was critical of the $602,250 request.
Attorneys today did not reveal terms of the agreement, but said a motion seeking Rhodes’s approval would be filed this week.
U.S. public pensions need more than investment windfall
It’s no secret that pension funding is a concern in municipalities and states around the country, but this Reuters piece, published in the Chicago Tribune, presents a bit of a balanced view about how dire (or not) the situation may be.
Indeed, there is evidence that the overall health of pension systems is brightening. A report released by the Federal Reserve last week said liquidity of pension funds has improved.
…many are still struggling with shortfalls. In some cases, they have worsened as state contributions fail to keep pace with what is needed to pay beneficiaries. … Roughly half of U.S. state pension plans have worrying gaps between what they have promised retirees and the funds on hand to pay benefits, according to most analyses.
However the pension funding situations play out across the country during the next few years, it’s clear that Detroit is setting precedent. Emergency Manager Kevyn Orr’s Plan of Adjustment calls for changes in the governance and administration of city employee plans. It remains to be seen to what extent those will be negotiated or whether they will be part of a forced settlement in the bankruptcy case.
After hearing from attorneys objecting to the first scheduled Detroit bankruptcy case timeline as too compressed, Judge Steven Rhodes extended the deadlines for filings and objections in the case. The hearing for the city’s Plan of Adjustment is to start July 16 with additional dates available into August.
Here’s the Amended Scheduling Plan Judge Rhodes issued.
The deadline for voting on the plan is June 30. About 173,000 parties are eligible to vote on the plan in dozens of creditor categories including pensioners and bondholders.
The city filed its proposed Plan of Adjustment and Disclosure Statement Feb. 21. Attorneys have said they will amend it. Meanwhile, negotiations and mediation sessions continue between the city and various creditors.
$85 million to be paid of $288 million currently owed. That’s the latest agreement (posted below) reached between attorneys for the city of Detroit and two investment banks over the interest rate swaps debt related to the city’s pensions funds.
Bankruptcy Judge Steven Rhodes in the last few months has twice rejected agreements of $230 million and $165 million, sending attorneys back to the mediation room. They emerged on Monday, proverbially, and the city filed a motion asking that Rhodes approve the latest arrangement with UBS AG and Bank of America Merrill Lynch. The deal also includes the banks forgoing casino tax revenues that the city had pledged as collateral in 2009 to avoid defaulting on pension debt payments.
The $85 million is not quite 30 cents on the dollar of the current $288 million obligation.
With Detroit’s debt reportedly totaling $18 billion, the city has millions of dollars in debt restructuring remaining to resolve. But the UBS-Bank of America deal is significant. First, it frees up for the city about $15 million in monthly casino taxes that had been tied to the pension interest swap deal. Second, it sets a benchmark for other negotiations — and eventual settlements — with the city’s other 100,000-plus creditors.
Here’s a roundup of news stories about the deal:
Detroit Free Press: Detroit reaches deal…millions saved by taxpayers
Detroit News: New debt deal could save Detroit $201 million
Pennsylvania’s state system, as well as nearly half of its municipalities, faces pension problems that could force tax increases or bankruptcy, reports the Pennsylvania Independent newspaper.
Meanwhile, “Chicago faces ominous financial woes, particularly when it comes to its government worker pension debt, but the city has the wherewithal to weather the financial storm that Detroit could not,” the Chicago Tribune writes.
New Jersey Gov. Chris Christie cited Detroit in warning a town hall audience about his state’s pension underfunding.
The Detroit Free Press had a slew of stories over the weekend related to the city’s bankruptcy. Here’s the most essential reading:
It’s been widely reported that Detroit’s bankruptcy has highlighted flaws in its pension financing and administration, and that’s drawn attention to how public worker pension systems operate. In a look at proposed reforms, their promises and their drawbacks, John Gallagher writes:
Some maintain government pension funds will stay healthy as long as the stock market remains high. Others believe America faces a genuine crisis in which millions of retired teachers, cops, clerks and other government pensioners face cuts to their monthly checks. Just last week, the nonprofit Society of Actuaries released a report by a panel of experts that said the total amount of unfunded liabilities in public pension plans in the U.S. amounts to nearly $1 trillion. Other experts peg the underfunding at three or four times that.
Kevyn Orr spoke with Detroit Free Press writers, telling them he’s frustrated the city’s pensioners haven’t accepted his plan that cuts 26 percent from retired general workers’ payments and 10 percent from police and fire retirees.
The offer is fair, he said, and delaying could jeopardize creation of an $815-million rescue fund meant to boost pensions and protect Detroit Institute of Arts masterpieces from being auctioned to pay off creditors.
Meanwhile, as debate continues about whether (or how) gains made in the downtown and Midtown areas could spread to neighborhoods, the new hockey arena complex is moving ahead with $261 million in public funds. Editorial Page Editor Stephen Henderson weighs in and explains how the structure and management of the arena deal contradicts much of the broader discussion about the city’s future:
Detroit is lost, it seems, when it comes to translating big wins in the city’s core into benefits for most of the people who live here, and we need both city and state government to step it up when it comes to balancing the swell of good fortune that’s overtaking parts of the city.
Under terms of the new stadium deal, Detroit loses the $7 million the team pays the city from percentages of ticket and suite sales, food and beverage concessions, souvenir sales and parking. The deal is raising other questions, the Free Press reports:
Publicly and privately, some residents and elected officials have questioned whether negotiators should have gotten more in the deal for state taxpayers — who are footing much of the construction costs — as well as more financial sweeteners for the City of Detroit, even though its contribution was limited to land for the arena site.