A new report from Great Lakes Economic Consulting says new 401(k) style plans may be cheaper for municipal and state governments. But it says it’s not fair to compare the plans to traditional pensions, which provide better protections for both workers and employers. Michigan Public Radio Network Reporter Jake Neher has this report.
Jennifer White, host of All Things Considered, speaks with Michigan State University Economist Eric Scorsone about the challenges facing the city of Detroit and the key systemic issues that the city must address. He emphasizes that although there has been some recovery in the city, the challenges remain of high unemployment rate, the big differences in the Detroit labor market when it comes to earnings of city residents compared to non-residents, upgrading the skill levels of city residents and the creation of jobs.
It’s not often we see Detroit held up as a role model — and plenty of people will disagree that the new city pension plans are anything that should be emulated — but attention paid to our city from elsewhere is something Next Chapter Detroit is always looking out for. In this case, it comes from the Charleston (West Virg.) Daily Mail in the wake of the recent revelation that municipalities in that state are about $1 billion short in funding their police and firefighter pensions.
A West Virginia tax on insurance premiums provides about $17 million annually, the Daily Mail reports. Still, the paper urges more leadership on pension funding issues, citing Detroit’s new plan:
Legislators who regulate municipal pensions must do something. But what? An agreement by unions and city officials in Detroit gives hope. Unions agreed to scale back the pension plans in the face of the city’s bankruptcy court proceedings.
The Daily Mail neglects to print the details of the plan, as NextChapterDetroit.com reported:
Terms of the new plan maintain parts of a defined benefit system but also require a contribution from current employees, which will be deducted from their salaries beginning July 14. For police and firefighters, the contribution will be 6 percent of their weekly pre-tax base salary, while non-uniform employees in the General Retirement System will contribute 4 percent. For employees hired after June 30, the contributions will be 8 percent.
But with such a lack of real conversations and initiatives about municipal reform, we thought the Charleston view was worth posting.
Gov. Rick Snyder has signed the legislation that authorizes the state’s $195 million contribution to the Detroit bankruptcy settlement and creates additional oversight of the city’s finances and operations. The governor called the settlement, part of the “grand bargain,” a good deal for taxpayers because it sets the stage for the city’s comeback.
“This is about how not just Detroit but the spirit of Michigan came back,” Snyder said at the signing, held at the Globe Building near the Detroit Riverfront, which is under construction to become a Department of Natural Resources recreation center. “While we celebrate today, let’s recognize that there’s more work to be done.”
The governor said the day Detroit filed bankruptcy could be the “darkest chapter” in the city’s history, but the Governor says the taxpayer donation shows the entire state is behind the Detroit recovery effort. “Detroit, Michigan, means something special. It’s not Detroit versus Michigan or Michigan versus Detroit. It’s Detroit, Michigan, and we should hold our heads proud,” he said to applause.
There are conditions attached to the state contribution– including a commission that will supervise Detroit’s contracts and finances for years into the future. The money, along with hundreds of millions donated by businesses and foundations, will be used to mitigate cuts to pension benefits in the bankruptcy process. But pensioners still have to approve the deal. In exchange, they’d give up their rights to sue for their full benefits or other related issues.
“A ‘yes’ vote from pensioners is a vote for their own well being,” he said, “and the continuation of a message that is greater than bankruptcy.”
House Speaker Jase Bolger (R-Marshall) said the Legislature’s passage of the “grand bargain” bills represented how connected the state was in helping Detroit. “We may come from different peninsulas, but as we stand here today, we are all one Michigan,” he said.
Senate Majority Leader Randy Richardville, (R-Monroe), who showed off his made-in-Detroit Shinola watch, said one of the reasons providing state funding for Detroit’s pensions was important was because city workers live throughout the state “in all 83 counties.” (Here’s a map of where they live)
Rep. Thomas Stallworth (D-Detroit) said the city’s bankruptcy, in part, represents failure on the part of political leadership for the people of Detroit. He urged pensioners to vote “yes” on the Plan of Adjustment, saying it represents the “best possible deal for the city.”
Detroit Mayor Mike Duggan echoed the themes of voting yes, bipartisanship and “coming together.” He said, “What you have done with this bill is give us a fresh chance,” and it “will turn out to be one of the proudest things you’e done.”
As he did last week at the news conference at the Detroit Institute of Arts where the Detroit Three automakers announced their $26 million contribution to the “grand bargain” , U.S. District Chief Judge Gerald Rosen spoke. He is considered the architect of the “grand bargain” and has led the mediation efforts in the bankruptcy case.
“This is leadership, not just bi-partisan, but the three branches of government coming together,” Rosen said. “This isn’t a final victory lap. We’ve got a couple more laps to run.”
Also as he did last week, Rosen lauded Don Taylor and Shirley Lightsey, who head up police/fire and non-uniform retiree groups respectively.
Lightsey spoke directly to pensioners, saying “If you let that (grand bargain) money go and it’s off the table, you will have no sympathy from anyone. … Think about your decision. This is something you are going to have to live with.”
Lightsey also repeated her phrase that has been printed on buttons worn by some in the crowd of about 200. “We can’t eat principles, and uncertainty does not pay the bills.”
-By WDET’s Sandra Svoboda and Michigan Public Radio Network’s Rick Pluta
Here’s audio of Rick Pluta’s report.
Following the week-old, similar decision of the General Retirement System board, the Detroit Police and Fire Retirement System board also voted to urge its 13,000 members to vote in favor of the city’s bankruptcy plan, Reuters reported.
The city’s plan, which will be the focus of the August trial, does not cut public safety workers’ wages but does reduce cost of living increases. The union representing police officers is urging its members to reject the plan, arguing it ultimately takes money away from Detroit cops who already make abysmally-low salaries.
The pension board voted 8-3 to promote a “yes” vote on the plan.
In order for the $660 million in “Grand Bargain” money to be contributed to the pension funds, both classes of pensioners must vote in favor of the city’s plan. Part of the Grand Bargain terms also protect the Detroit Institute of Arts collection from sale and implement some oversight provision for the city and pension funds.
The 32,000 Detroit pensioners are in the process of voting on the city’s Plan of Adjustment — the document that guides how it will reduce debt and restructure after bankruptcy. The plan, of course, includes cuts for pensioners but some of the terms are confusing. To answer several of the pensioners’ common questions, a special Next Chapter Detroit segment of The Craig Fahle Show featured Michael VanOverbeke, general counsel for Detroit’s General Retirement System and WDET bankruptcy reporter and Next Chapter Detroit blogger Sandra Svoboda. The trio took calls from retirees and listeners.
Here’s a transcription of what was said:
Craig Fahle: Even when you are giving information that is factually based on what is in there, there still seems to be a reluctance to what’s in the deal, the terms of the deal, there still seems to be a lack of faith that this is binding in some capacity.
Michale VanOverbeke: I think it’s a real issue when you look at people have worked their entire careers with this understanding of a constitutional protection: you’re going to receive your benefit no matter what. And so it’s very difficult to hear facts that you don’t want to hear. So the natural tendency, I think, for a lot of people is to sort of shut down the moment you start talking about any form of a takeaway. It’s very hard for many of these people to sit down and get a clear understanding of what’s going to happen. It’s very complex. The plan language supplement that was included in the solicitation package is 24 pages. Most people getting a 24-page document kind of shut down after the first page so it’s a very difficult process for people to go through.
CF: And it’s certainly not something people can abstain from. In a lot of voting situations, if you don’t know what to do, you just don’t vote. That’s not one of those times when that’s a good option.
MV: If you don’t vote, the cuts will still apply to you and you will not get an opportunity to voice what your opinion is so we encourage people to take people of the opportunity to vote.
Sandra Svoboda: Why are we voting now? Why are we voting on this plan of adjustment and why not after there is some sort of formal court hearing?
MV: There has been a formal hearing on the issue of eligibility. The judge did rule that the city of Detroit was eligible for bankruptcy and as part of that ruling the judge did issue a ruling that in the bankruptcy court, the constitutional protection for retirement benefits does not sustain itself.
SS: How can that be? It’s in the Michigan Constitution.
MV: Unfortunately we are in federal bankruptcy court and federal bankruptcy law pursuant to the opinion of Judge Rhodes supersedes the bankruptcy protections in our state constitution.
CF: I think one of the other things that gives people pause here is there’s a feeling that there are other things that need to fall into place for this to be reality. If they vote for this now, what happens if nothing happens with the water department, for instance, what happens if some of these legal challenge to the EM law go through.
MV: Much of that will be resolved through the hearing process. The DWSD deal is likely not to occur. The Plan of Adjustment that has come out contemplates that there will no DWSD deal at least until sometime after the confirmation of the bankruptcy. The funding from the state has since been resolved, there were some questions from a lot of people about voting before the legislation got through the Legislature. That’s been accomplished. There are a lot of concerns about the foundation monies and things of that nature. But understand, the foundation money, the state money, the entire package commonly referred to as the “grand bargain” we like to think of it more as the “outside funding” in many respects, people would like it to be more money but it is what it is. We’re very thankful for it and it allows us to minimize the amount of cuts that the retirees will face.
SS: Let me tell you what I’m hearing from some retirees about that. They still have questions about the guarantee of that money. How do we know the $195 million from the state is coming in? How do we know the foundations will contribute the $366 million? And then I get the questions all the time, of the $100 million we call DIA money, isn’t that going to the museum? People think that’s going to the museum.
MV: The DIA is out raising money, has been able to secure some great funding, the autos have stepped forward to assist the DIA that money will be put into the other funds from the foundations as well as the state and will be contributed directly to the retirement system. The DIA is not getting any money in this deal. The DIA is getting the ability to come out and be a separate nonprofit.
SS: Where do you think it’s coming from that people think that money is going to the DIA and not the pensions?
MV: I don’t know exactly where it’s coming from. I will tell you that through this process we’ve discovered that there is a tremendous amount of misinformation that circulates, rumors, things of that nature, that are driving a lot of the decisions that people are making. Our concern is certainly making sure everyone is very well educated, very well informed so they can make an informed decision and try to get beyond the rhetoric and the misinformation so they can truly make an informed decision.
CF: We’ve got a couple callers on the line. Albert is in Detroit. Hello Albert.
Albert from Detroit: We voted this whole emergency manager thing down in Michigan a while ago and they circumvented what we voted for. That’s the suspicion with the governor right there. My second comment is, why can we borrow money to give corporate tax break and not for pensioners.
MV: The ability to borrow money to pay the pensions is certainly always been an issue. I think if you look at the history of Detroit, one of the reasons we are here in the bankruptcy is because they did just that. Ultimately when you borrow money you have to pay that money back. The concern here is the unfunded portion of the liabilities in the retirement system are of such a nature that the city can’t afford in light of its tax base to continue to pay those obligations.
CF: Sandra, that was the root of the swaps deal, wasn’t it?
SS: It was, that was something in the hundreds of millions of dollars of liabilities when those payments came due on that interest. I’d also like to follow up. I’ve heard that as well: why are we doing deals for new stadiums when pension are underfunded. It’s not really and apples to apples comparison. Those are very different pots of money. The pension are funded through employee, employer contributions of over the years. Stadium building is a whole different process. That’s kind of a short answer to that.
CF: There was a caller who could not stay to go on the air, Linda, she says you’l know what she’s taking about, Michale. She wants to know if there’s an average cap on the number of years to take back the 15.6 percent that’s part of the 21 percent. She says you’ll know what she’s talking about here.
SS: I think she’s talking about the Annuity Saving
MV: The numbers are a little off, the percentages.
SS: Let’s just back up a little bit and explain what she’s referring to in terms of the Annuity Savings Fund.
MV: The retirement system has long had a component to it. When you are participating in the RS, when you retire, there are two pieces to your retirement. The employees get the option of contributing voluntary contributions, post tax, to what’s called an Annuity Savings Fund while they are an active employees. They also accrue benefits for a pension.
CF: It’s an additional saving mechanism for employees if they choose to contribute.
MV: Exactly. Through the period of July 1 of 2003 to June 30 2013, the city has decided to look at that snapshot of time. A lot of the questions are why that period of time. That’s the period of time the city chose through its Plan of Adjustment to review. The board credited interest credits to those accounts and the claim of the city through the Plan of Adjustment is that they credited interest in excess of what was earned on the plan to the detriment to the pension portion of the plan. So the city is doing a recoupment. There are two caps that apply to that amount for active employees who currently have an existing Annuity Saving Fund account, ASF account, they will get a up to it’s a cap of 20 percent of their total account balance maybe reduced. There’s an interest calculation that’s a little more complex than we can do on the air without illustrations. Thy do an interest calculation and you get the lesser of 20 percent or the excess interest. For those that are retirees and no longer have an ASF account, you can’t just deduct that money from their account. There is also an additional deduction from their pension based upon their life expectancy and the amount of money that they owe and that is subject to a 15.5 percent cap. Under the Plan of Adjustment, there’s a basic 4.5 percent cut plus up to a 15.5 cap on the amount of reduction in your pension.
CF: OK, that’s clarifies that. Go ahead Sandra.
SS: Thank you Linda for that question. I heard a few more question from pensioner at the meeting last week. One is there’s a 6.75 percent on the payment included on that?
MV: Once they calculate, there’s a lump sum amount determined and they determine that your ASF recoupment is say $30,000, since they’re going to reduce your pension benefits over your lifetime, they do what’s called an actuarial equivalent reduction. In that calculation we have to estimate someone’s life expectancy. We have to actuarially calculate the amount of money that would have been earned on that money. Under the Plan of Adjustment, the interest rate is 6.75. So if someone owes $30,000 in order to determine what the reduction would be on their lifetime benefit, they use an interest rate of 6.75 percent and actuarial life expectancy tables. If someone lives two years and we don’t recoup all the money, it’s an actuarial adjustment so it’s equivalent over the plan. The concern expressed by many is if they outline their life expectancy, and most of us are really pretty optimistic about outliving our life expectancy table, right?
CF: Some of us.
MV: Most retirees when you’re going to have to have money deducted from your pension, you think pretty optimistic about that. So a lot of the concerns expressed and I completely understand them, is when they do the calculations and use that 6.75 percent interest, they see they will be paying back more than what they necessarily were determined to have to owe.
CF: Let’s take some more calls before we get too deep in the weeds here because there because there’s a lot there. Sarah from Detroit has a question about the voting process.
Sarah, Detroit: Thanks for taking my call. My understanding is that it’s common with voting process to be able to have some oversight of the voting and what I was told is that the company that is tallying the ballot is actually going to take the ballots to California and count them there and there’s not going to be any oversight or that so I was wondering about that. And then I thought of another question.
CF: Hold on. Let’s take the first one first and then I’ll come right back to you. Let’s not get two things confused.
MV: That’s a little bit of the misinformation. The company that was retained to count the ballot sis a company called Kurtzman Carson Consultants, KCC is how people generally refer to them. They are based in California. So no one is taking the ballot to California for counting. You must mail your ballot to KCC by and it must be received by July 11 to be counted.
CF: So it has to be received by July11. Not postmarked.
MV: Not postmarked, Must be received. It’s very import especially with the holiday weekend coming up, if you want your ballot to get there you want to make sure it’s mailed plenty early.
CF: That’s good information right there.
MV: That’s important for people to realize. But you know the retirement system has sent a representative of the retirement system to go and view and actually look at the tabulation process as it’s ongoing now as well as the retiree committee that represents retirees and was appointed through the bankruptcy trustee, they have sent representatives there so there’s very little concern that somehow this entity is going to miscount, miscalculate. And the retiree committee also will be reviewing any ballots that are discounted, not tabulated, things of that nature
CF: So people that are there to represent the retirees will have a chance to witness the count.
MV: Yes and it’s a little atypical than the typical voting in an election in that the ballots are being counted as they come in and recorded. It’s not like a typical election where you have a 12-hour, 24-hour period and everyone is counting the ballots and you’re witnessing at that point in time.
SS: KCC is a company that has been involved of hundreds of bankruptcies, their website is kccllc.com. You can go on there and see all of the other cases that they’ve had. It’s not sort of a fly by night company or anything.
CF: Sarah, you had another question:
Sarah: Thanks Craig. So another way that this whole thing has been explained to me is that there is this process of waiving your rights. There’s constitutional challenge to Public aAt 436 which is the law all of this is sort of coming under or through I should say. If the police stop you and ask to search your bag and say I don’t consent to a search then that protects your rights. If you waive your rights, anything they find you basically have waived your rights to any protections and so that voting for this plan is actually waiving the pensioners; rights to their constitutional protection and if I’s found unconstitutional, you know, they’ve cut their own throats.
CF: I’ve heard this one a lot and it’s question a lot of people have. Why do we have to waive our right to sue when we vote for this?
MV: It’s a great question. She used the analogy of getting pulled over by the police. I think a better analogy is you may be charged with a crime but prior to your trial you may decide to plea that crime to a lesser charge or some other type of charge to avoid the larger charge. It’s kind of the compromise settlement process. The Plan of Adjustment really reflects that compromise settlement position. The board has filed a Sixth Circuit Court of Appeals, other outside parties from the bankruptcy have certainly filed some forms of lawsuits and to the extent that they have done so, if they’re not part of the voting of Class 10 or 11, the police and fire, the general, those actions may continue through whatever process they will. But part of this process is the condition for the outside funding, the grand bargain as people like to call it. One of the conditions was that this would end the bankruptcy and end the litigation with respect to those parties that are benefitting from those dollars, and it’s typical of any type compromise where I’m willing to put money forward but you’re going to have to wage some future rights. And that’s probably the most difficult concept for a lot of people to understand and agree to. I think it’s important to know that Judge Rhodes rules already on the issue of the constitutional protection versus bankruptcy. That is on appeal. As part of the General Retirement System, and the GRS filed that appeal. People talk about CALPERS and other state retirement systems have file amicus briefs, We encouraged all that. We went out, we solicited those. We got those to be filed. That being said, we’ve met with our bankruptcy counsel, all of our bankruptcy experts, and the risks of pursuing that litigation at the loss of the outside funding is great. And so I think what people need to keep in mind is if they decide to pursue the litigation, they don’t get the outside funding, they’re facing deeper cuts. It’s really kind of a gamble.
CF: It is a gamble, but I think one of the things that’s motiving people is if the state guaranteed this, can’t we go after the state to fulfill the obligation even if the grand bargain goes away?
MV: That is one of the reasons I think the state has put their $196 million on the table. That’s never been tried. There’s no case law on that. That’s another form of a gamble: Can we get this to come through? I will tell you I’ve spoken to a lot of different people and I’ve gotten a lot of different legal opinions on that. I certainly have my opinion on that, but you know you have to understand that that’s a gamble, and are you willing to gamble on those dollars?
CFS: Let’s go back to the phones here. We’ve got another call. Aaron is in Detroit. Hi Aaron.
Aaron: Hi Craig. I know that just like me and most of the retirees and the active employees, we don’t understand all the legal aspects of what’s being dealt with but one thing we do understand is that the purpose for a contract in this country is so two parties will be held to an agreement, and we have kept our part of the agreement. We don’t understand why the illegality of this whole situation is not part of the debate. How can you make an agreement with someone and they fulfill their part of it and then because you mismanage your funds, you come back and say, “We can’t keep our part, as a matter of fact, we’re going to need something back from you,” and that’s legal in this country? I don’t understand that.
CFS: Aaron, I appreciate the call, and what a lot of public sector employees are looking at right now is what a lot of private sector employees have been dealing with for a long time. Ask Delphi employees how they feel about is too. It’s not fair, and this is a good question. And Michael, as someone who is obviously serving as general counsel, how do you respond to that when someone says, “This just doesn’t seem fair.”
MV: Well, it’s not fair. Frankly, it’s not. These people spent years in employment and based retirement decisions on an understanding that there was a constitutional protection to protect their benefits. Aaron, I completely understand your troubling with that. When is a promise not a promise? I’m the kind of person, shake my hand and a deal is a deal. It may be a good deal, a bad deal but I’ve got to live with it. Unfortunately the federal bankruptcy law, it was put into place to allow companies or individuals to evade a contractual obligation provided they meet certain requirements under the code to allow them to file for bankruptcy and discharge contractual obligations. And one of the concerns is Article 9 Section 24 of the constitution which is that provision that people refer to as protecting the retirement benefits, specifically states, retirement benefits shall be a contractual obligation which shall not be diminished or impaired. And Judge Rhodes’s ruling was it’s a contractual obligation and that’s what he bankruptcy code is intended to address: contractual obligations.
CF: Maybe this is something people can wrap their heads around too, and I’m not suggesting this is a good policy, but individuals file bankruptcy all the time to discharge credit card debts, things along those lines. Those are contractual obligations as well, are they not?
MV: That’s a promise to pay the credit card company for your expenditures.
SS: And frankly the municipal bankruptcy of this magnitude is new. This has never happened before on this scale. And like we said on the segment last Thursday on your show, Craig, we’re not talking labor agreements, it’s not collective bargaining. It’s bankruptcy and that’s a very different treatment. They’re not employees, they’re creditors now. Just like banks in some ways.
CF: We’ve got a number of callers on the line, let’s take a few more before we wrap up. Steven is in Washington Township.
SW: I’m a retired city employee and I’ve met Sandra — she’s a very nice lady — at one of the meetings. I’m one of the people with the clawback. I have an $89,000 clawback and with the 6.75 percent interest. I’m 55 years old, if myself or my wife, we live to 80, I’m sure one of us will, I’ll be doing a clawback of close to $200,000. I don’t know how that’s fair, and is it written in the bankruptcy documents about adding that 6.75 percent interest to the clawback? I was told that is not in the document.
SS: I wanted to say “Hi” to Steven first of all and to follow up. I also had your question about a lump-sum payback. I wanted to ask Michael about that. That’s part of a situation you’d be interested in maybe.
MV: It is written in the Plan of Adjustment that there will be an actuarial reduction in somebody’s benefit for the lifetime so the first part of your question, where is that written in the Plan of Adjustment, it is provided for in the Plan of Adjustment that it would be for those individuals that no longer have an ASF account there would be an actuarial reduction in their benefit over their lifetime. And from the perspective of how they do that calculation, it’s much like a mortgage in that if you owe me some $80,000 today and you’re going to pay me that over your lifetime, at the end of your mortgage you end up spending a lot more for your home than what you bought it for. The 6.75 percent interest is that interest rate that’s encompassed within the plan, and I understand his concern. So Sandra raises a great point and that is one of the things we are continuing to push for and having extensive discussions on a day-to-day basis is the ability to have a lump-sum (payback) option. In many instances I think people may look at see the lump sum option may be a little more expensive because they’re subject to the additional 15.5 percent cap in terms of total reduction and benefit but I think people should be able to make that determination, and we’re continuing to work with the city to try to get them to allow the retirement system to offer a lump-sum option.
CF: So that is something that’s still potentially open to negotiation at this point?
MV: Well, we feel that it’s open for negotiation. I don’t know if the city is really taking that position. They have engaged us in dialogue on it, and the retiree committee is engaging with the city and dialogue as well.
CF: Let’s take another call here. Paulette is in Detroit. Hi Paulette.
Paulette: Hi Craig. My question is about the ASF fund also. I just want to know how can it be legal to go back 10 years after you’ve gotten your money and in most cases spent your money for the city to come back and get this money that you legally earned through the fund that was a city fund, was sponsored by the city, encouraged us to put money into it. And you go back 10 years into the past, because if you go back into the past and you tell me that you know I’m going to get 7.9 percent then I’m going to put my money there, but if you tell me I’m not then maybe I’ll say maybe I’ll put my money somewhere else. But now I have no due process, I can’t go back and take my money out of the fund but you’re going back to take my money that I put in the fund 10 years ago. I just can’t see how that makes sense, and if it was allowed, the trustee board, the pension trustee board did it, if they did something that they shouldn’t have done then maybe they should be in court being sued for that but not me.
SS: I’ve heard that question asked: Was the ASF legal in the first place?
MV: The ASF recoupment is probably the most controversial aspect of the bankruptcy process and it hits a lot of people on an individual basis very hard. The issue of whether it’s not it’s legal or not will be an issue that will be directly addressed by Judge Rhodes as part of the plan confirmation process, so that’s very good that we’ll get that ruling ultimately. But understand the city’s position on this is there are numerous ways that they could have adjusted benefits through bankruptcy. They chose to do a 4.5 percent cut and ASF recoupment. The ASF recoupment in the eyes of the city, is just another way of adjusting benefits as it emerges from bankruptcy. They could have come through and said we’re going to adjust everybody’s benefit by 13 percent but instead of doing that we’re going to adjust everybody’s benefit by 4.5 and for those that received these interest credits, we’re going to make another adjustment and reduce their benefits in another manner. While clearly we see it as a recoupment and a clawback and we have challenged it on every level and quite frankly through the mediation process we were able to get caps on the amount of recovery. Understand if Class 10 or Class 11 don’t vote in favor and the outside funding doesn’t come in, those caps go away and the recoupment could be even more and Jude Rhodes has indicated in open court he doesn’t understand why there’s caps. So that’s another concern and reason we are supporting the plan.
CF: OK I’ve got time for one more call. Albert is in Southfield.
Albert: I guess in listening to this I had a couple questions. One, can the city default on the pension similar to the Delphi situation that you brought up earlier because I guess I look at it: the retirees don’t understand what that default means. I was caught up in that Delphi situation and I’ve lost 76 percent of my promised pension and even after 32 years I am still ineligible to collect that or start collecting it. I still have another year or two to go.
CF: Alright Albert, I appreciate the call. Thank you very much. The Delphi situation was a difficult one.
MV: And deeper cuts is one of the things we’re very much concerned about. Again, that’s the bankruptcy process and what happens as a result of bankruptcy. In this instance, the Plan of Adjustment arguably is a default of the city on the pension obligation because there will be a reduction but for general retirees that’s a reduction of 4.5 percent and depending on ASF recoupment 20 percent, not the 76 percent that was referred to. Once the city emerges from bankruptcy, the new pension benefit, the reduced pension benefit will now be again guaranteed by the state constitution, and I realize people look at that and say that’s what our protection was supposed to be in the first place. But unless the city goes back through a bankruptcy process again those protections will continue to exist and certainly the bankruptcy process is about reorganizing the city so that it does not again go to bankruptcy.
CF: We appreciate you being with us, Michael. Thank you very much.
-By WDET’s Sandra Svoboda
@WDETSandra and firstname.lastname@example.org
Because one end-of-the-day announcement wasn’t enough, the American Federation of State, County and Municipal Employees Council 25 and the city today released a statement that they have “completed a series of tentative agreements” for nearly all 2,000 AFSCME employees working for the city of Detroit.
The agreements, the union said in a statement, “build on the master template agreement,” which was announced April 28 and covers about 3,500 workers in 30 labor groups, including most of AFSCME’s. Mediators said the agreements “will be presented to active employees” ahead of a June 30 ratification and state approval.
“We remain severely concerned with the way this bankruptcy has been handled from its inception,” AFSCME Council 25 President Al Garrett said in the statement. “However, the agreements we have achieved are, in our view, the best path forward for city employees and retirees.”
Mayor Mike Duggan must also be happy. Five-year agreements extend well beyond his first term leading the city, meaning labor negotiations won’t happen for years.
Emergency Manager Kevyn Orr isn’t left off of the growing “love train” either. As part of the agreement announced today, AFSCME’s leadership also agrees to campaign for “yes” votes by pensioners on the Plan of Adjustment. Without pensioners’ acceptance of the plan, the “grand bargain” money goes away.
Expect to see some more announcements about “Grand Bargain” money from additional donors, writes Daniel Howes in The Detroit News. The business columnist predicts that DTE Energy Co., Quicken Loans Inc., Blue Cross Blue Shield of Michigan and Roger Penske’s companies are all between a certainty and a likelihood to make donations.
The Grand Bargain funding — $366 million from 12 foundations, $100 million donated through the Detroit Institute of Arts, and $195 million of state money — will go to Detroit’s pension funds to help restore cuts to retiree benefits. But the funding is tied to a favorable vote from the city’s 32,000 pensioners on the Plan of Adjustment.
The city and a few unions and retiree groups are campaigning for “yes” votes, which are due July 11. Howes reminds his readers about how unique this whole situation is:
The campaign also illustrates the unprecedented nature of the grand bargain. It is an audacious effort to buy the DIA’s freedom from city ownership by bolstering underfunded city pensions with $660 million in cash raised from a dozen foundations, DIA donors, the state Legislature and a business community that understands how pitiless bankruptcy could be without a bargain to cushion the landing for retirees. …
It’s hard to overstate just how historic the effort is. Foundations are stretching their philanthropic missions well beyond their traditional bounds; a Republican-controlled Legislature and a Republican governor are engineering a state-funded rescue of a Democratic stronghold; corporations and well-heeled donors are responding quickly to appeals otherwise likely to have been made in a long-running endowment campaign; even a union is joining the fundraising.