Much has been made of the pensions versus art, Detroit creditors versus everyone in the city’s bankruptcy case. The sides are usually predictably drawn.
But this weekend, the Washington Post weighs in with an editorial picked up by newspapers around the country. It recounts, of course, a bit of how the city got to this situation, citing “mismanagement” on several levels. Then, the authors get to the municipal bond-related portion of the story:
Lenders have come to treat tax-backed municipal debt as nearly risk-free, and no doubt Detroit’s bankruptcy experience may cause some to reprice the risk of financing municipal governments, not only in Michigan but also around the country.
That future, WaPo writes, may not “be an entirely bad thing” if the effect is better managed municipalities. Then we get the discipline that seems to have been so badly missing for decades:
Surely banks that took fees to help Detroit fund its pensions with $1.4 billion in dodgy “certificates of participation”deserve to be taught a lesson.
We’ll see what kind of teacher Bankruptcy Judge Steven Rhodes is later this year.
On the National Public Radio program “Tell Me More,” Host Michel Martin spoke with Detroit Free Press columnist Rochelle Riley about the city’s bankruptcy. They tackled the Plan of Adjustment, the Disclosure Statement and what everything means for residents, pensioners and the city in general. “The biggest highlight of course, is there’s going to be a horrible pension cut…. This is something people are very, very upset about,” Riley said.
During the conversation, Riley said no one appears to be very happy with the plan, and it’s becoming a matter of choosing sides. “The art lovers are outraged that there’s still a possibility that the DIA is not safe because this deal is not a done deal yet,” she says. “Folks are still trying to figure out which side of things they’re on, art versus pensions. Doing this bankruptcy at all versus not doing it. There are still legal challenges to the bankruptcy itself and whether Detroit had to do this.”
Journalists and analysts around the country continue to dissect Detroit’s Plan of Adjustment and Disclosure Statement. Here is a collection of articles and posts about what some of the possible ramifications are on issues ranging from the city’s technology systems to pension fund disclosures to bond markets.
Reuters reports that Fitch Ratings finds the plan “hostile” for bond holders. “Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan.” Fitch sold the city $1.45 billion certificates of participation (COPS) for pension payments the 2005 and 2006, the subject of a city lawsuit filed last month.
Technology upgrades for police and better information systems for record keeping across city departments are part of the $150 million provision in Detroit’s Plan of Adjustment. The Detroit Free Press reports the investment could be returned threefold, as explained by Charles Moore, a city restructuring consultant with Conway MacKenzie. “This is better collection practices, improved pricing for fees, permits and licenses, and all of this is enabled by improved technology,” Moore says.
In its “Revenge of the 99 %” article, The Economist collects reactions from the bond markets to Detroit’s Plan of Adjustment and analyzes what it all means. But the author warns against too much sympathy for the bond insurers, who are looking at a mere 20 percent payout under the city’s Plan of Adjustment. “Another reason not to shed any tears for Detroit’s bondholders—despite their raw deal—is that it was their disastrous restructuring of the city’s pension debt in 2005 that became a key factor in driving the city to bankruptcy,” he writes.
Meanwhile, the Society of Actuaries, a professional association of risk experts, is calling for openness and transparency by Detroit’s pension funds, as reported by The New York Times DealB%k. The group argues for the release of the fair value of pension obligations and estimates of the annual cash outlays needed to cover them. “We think it would be a useful benchmark for plans to have,” said Robert W. Stein, the panel’s chairman, who is both an actuary and a certified public accountant. “We’re optimistic that the information would enable them to better appreciate the future and what it might bring.” Will Detroit’s pension funds change their course of resistance to such disclosure? And what are the implications of the release of such information?
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
The Detroit Free Press’s personal finance columnist, Susan Tompor, profiles several Detroit retirees and what the Plan of Adjustment’s proposed cuts to their pension payments mean to them. Firefighters. Landscape architects. Librarians. How much are their pension payments, and how will the cuts change their lives?
Now when the stress of the job should be long gone, about 24,000 city retirees are taking on a new kind of stress as they’re forced to deal with personal budget cuts. In Detroit, the average general system retiree’s benefit is less than $20,000 a year. For police and fire retirees, it’s about $34,000.
Emergency Manager Kevyn Orr’s initial proposal includes cuts of up to 10 percent for retired police and fire fighters, while retirees from other city departments would lose up to 34 percent. Tompor explains in detail what that means to several retirees, their families and their lives.
From pensioners and poverty to municipal bond markets and the mighty backlash, national and local media offered up some thought-provoking reading over the weekend after Detroit filed its Plan of Adjustment and Disclosure Statement Feb. 21.
Here are five readings we thought worth sharing:
Detroit residents who work outside the city limits could find themselves paying income tax they owe to the city under a measure Emergency Manager Kevyn Orr slipped into Friday’s filings. The Detroit News reports on what it would take at the state level to collect the estimated $140 million that’s missing from the city’s coffers.
Religion and Ethics Newsweekly weighed in focusing on the effects on pensioners and the role the religious community has (hasn’t?) played in the bankruptcy’s aftermath. “Detroit is a city where people desperately need hope.”
Bloomberg reported “The filing opens a new, potentially more contentious phase of the biggest U.S. municipal bankruptcy” in its article examining how the Plan of Adjustment relies on creditor settlements.
CNBC focused on bond insurers and the backlash to the Plan of Adjustment, finding “investors directly in the line of fire made clear Friday they were braced for a legal battle.”
The New York Times looked to post-Katrina New Orleans for lessons Detroit could learn from, writing “The scale of the two cities and the nature of their calamities differ, but Detroit can learn from New Orleans, where a fix that appeared rational to some experts and civic leaders was thrown aside for a way forward that has been slower and messier but politically more palatable and, many here believe, fairer.”