When Detroit’s tens of thousands of creditors return their ballots, casting their votes for or against the city’s restructuring plan, they send them to a company called Kurtzman Carson Consultants, located in El Segundo, Calif. That hasn’t passed unnoticed. At an information meeting for employees last week about the new pension plan, a woman questioned “what kind of election” has the ballots sent out of state. A caller to The Craig Fahle Show on June 17 asked what kind of oversight there would be. The answers to those question are 1) it’s not an election, it’s a bankruptcy-plan voting process and 2) attorneys from the city’s pensions systems and the court’s Official Retirees Committee are onsite to review all the ballots cast. But today, the Detroit Free Press digs in further to the company and the role it has played in bankruptcies – municipal and private — for years across the country:
KCC, based in El Segundo, Calif., charged the city $642,004 for its work and expenses from July 18 — when the city filed for bankruptcy — through the end of last year, according to reports filed in bankruptcy court that detail the city’s professional fees related to its Chapter 9 case.
The price tag will soar as the voting takes place. But if you want to review some of the work KCC is doing, visit the company’s website, specifically its Detroit Chapter 9 page. It offers searchable, but not-quite-real-time updates of filings in the case, and other bankruptcy information. And unlike the federal court system where it costs 10 cents a page to view documents, including the docket, the KCC site is free.
Bankruptcy reporter and Next Chapter Detroit blogger Sandra Svoboda and Bridge Magazine’s Mike Wilkinson join Craig to talk bankruptcy court proceedings and Mayor Mike Duggan. Sandra also tells Craig about the Next Chapter Detroit community meeting that happened earlier this week in Southwest Detroit. “The bankruptcy process is something that has seemed a little bit distant from the neighborhoods at this point. Nobody’s opinions are right or wrong or more important than anyone else’s,” she says.
As part of our ongoing bankruptcy coverage at NextChapterDetroit.com, WDET is hosting a series of community meetings around the city. They’re sessions where we can answer residents’ questions about the bankruptcy and about how the city can restructure going forward. We also like to hear from the residents about issues in their particular neighborhoods and what they’d like to tell city leaders about getting problems solved.
Our next meeting is Wednesday, June 25 – from 6 to 8 p.m., at Urban Neighborhoods Initiatives’ All Saints Community Center. That’s at 8300 Longworth in southwest Detroit. U-N-I along with Congress of Communities is our hosting partner for this meeting.
And here’s the transcript of it:
Sandra Svoboda: For people who aren’t familiar with U-N-I, tell me about your group.
Dennis Nordmoe: Urban Neighborhood Initiatives started back in 1997 as a way of exploring how we could develop neighborhoods, urban neighborhoods, in a very comprehensive way, to just bring out all the positives and make them the kind of neighborhoods that people want to stay in, neighborhoods where they would think of them as positive places to live, work and play and attractive places to invest further as they prosper rather than to leave as soon as they can afford to go somewhere else.
SS: A lot of people listening probably know about southwest Detroit in terms of Mexicantown, the busy west Vernor area, maybe Clark Park. You’re located a little outside of that, what’s it like in the neighborhood area that UNI is located in?
DN: We’re located about a mile and a half west of Mexican town. It’s a very densely populated, working class neighborhood, nice bungalows and smaller homes, dating from the 10s and 20s of the last century. One of the extraordinary things about it is it has its own little downtown and really functions in many ways like a little village or a small town rather than as a part of mass society, kind of metropolitan experience. SS: What are some of the particular challenges to your area in light of what’s happened in the city of Detroit and the bankruptcy?
DN: Of course we went through some loss of population as the housing crisis emerged but I would say the most troubling thing has been just the decline over the years, and it goes back many years of intensive police activity that roots out the low level kind of crime that kind of eats away at things. We don’t have the serious crimes that people read about in the papers and hear about on television but when you come out to your car and you see broken glass in the street, you know this is not a good thing. We understand that the police have to be active in the parts of the community where there is very serious crimes but they can’t just put us on the back burner until they get everything else in order in the rest of the city. We’re beginning to see more police activity now. We’re very hopeful about where we’re going.
SS: We’re coming out as part of WDET’s Next Chapter Detroit and WDET community meetings this week. We’ll be out there at your All Saint’s Neighborhood Center. What else do you think we’ll hear from residents in addition to the problem you just described?
DN: Well, I know that everybody is concerned about education. We have actually some of the better schools in the city but people will still be concerned about that and express their issues. Young people want jobs. We do a fairly good job of helping young people get jobs through our programs but that’s an issue. Parents want activities for their children and that’s actually an area where we probably rank pretty well citywide but still it’s a concern. Transportation here is poor in terms of connecting to the rest of the city. If we for example had a bus route on West Vernor that would be active every 20 minutes instead of once and hour that would connect people to the downtown hub of transportation, that would be a huge issue. Frankly though there’s a part of the population that has been here for along time but hasn’t done so well economically and they’re struggling with very practical issues like how to get a new roof. How to get a furnace that just doesn’t devour what little income they have.
SS: As the city moves forward and restructures coming out of bankruptcy, what kinds of things do you think the administration should focus on, particularly for your neighborhood there around Urban Neighborhood Initiatives?
DN: The city is apparently making a commitment to do a lot more clean up of derelict properties including a major abandoned school. That’s a very hopeful thing for our area. And also they’re beginning to make the inspections that apparently they were supposed to be making all along that can really improve the quality of the environment that we see in rental homes and commercial properties in this area.
SS: My final question, we’re looking from questions from the community that people have about bankruptcy. Are you hearing those? What do you think we might hear in that regard?
DN: I’m not hearing a lot of questions about that. They’re concerned about whether things are going to get better and they’re pleased with the improvements that they recently witnesses both in police activity and in the handling of the garbage collection and bulk trash pick up. These are really hopeful things that are coming out.
In Mayor Mike Duggan’s first six months in office, one of the biggest difference between him and previous mayors has been his relationship with the City Council: it’s a cordial one that works, says Council member Saunteel Jenkins. “It’s different because the mayor has actively pursued a relationship with council,” she tells Craig Fahle on his show today. Here’s the whole show segment.
Mayor Mike Duggan has been in office for six months. When he took office he asked residents to give him that same time period to show improvement in city services and government before they made a decision to leave the city. This week, the Detroit Journalism Cooperative has been taking a look at how and what Duggan has done in his first six months in office. Today on the The Craig Fahle Show, Bridge Magazine’s Nancy Derringer, Michigan Radio’s Lester Graham and WDET/Next Chapter Detroit’s Sandra Svoboda discuss with Craig what the mayor has — and hasn’t — done.
When Mike Duggan was first elected to serve as Detroit’s mayor earlier this year, he asked that residents in Detroit and its surrounding communities give him six months to make a difference in Detroit. Now that the time has come, Craig speaks with listeners to hear their assessments of Duggan’s performance. Hear what they have to say.
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 email@example.com