COMMENTARY

Detroit’s fiscal future rests on pensioners’ shoulders

6/13/2014

 “We burned our boat. We have to go over the next hill. There’s no way home other than together, forward.”

— Detroit Emergency Manager Kevyn Orr

DETROIT — Now comes the hardest part, as far as the future of Michigan’s largest city is concerned: waiting.

Everything comes down to this: Will Detroit city workers and retirees vote to accept pension cuts that will be difficult for some, even though they are far less steep than was first feared?

We won’t know until sometime after July 11, the deadline for the 32,000 pensioners’ ballots to be mailed in. The ballots are complex, and the votes aren’t equal. The votes of those who are owed larger pensions count more than others.

If the pension fund cuts are accepted, it will be the final step in nailing down the “grand bargain,” in which a coalition that includes the State of Michigan, private foundations, and the Detroit Institute of Arts has put together a pool of money to save the city.

The grand bargain would save most pensions. The art museum would be transferred from city ownership to a charitable trust. This would protect the museum, one of the greatest in the nation, from any future threat from city creditors.

Odds are good that U.S. Bankruptcy Judge Steven Rhodes will approve the deal and the city’s plan of adjustment, so a final bankruptcy settlement may be near. It is hoped that would give Detroit a chance to start anew, stay solvent, and work toward returning to prosperity.

But if the pension cuts are not approved, everything — the agreements, the assumptions, the grand bargain — would collapse.

The private foundations and the state gave their money on the condition that the other parties would too. Mr. Orr, Detroit’s emergency manager for more than a year, spelled it out late last month.

To those voting on the cuts, he pleaded: “Please be careful. This is serious business … you know if that [grand bargain] money goes away, we are talking about severe cuts.”

Worse, Mr. Orr said, “we are talking about predators being unfettered in their number of attempts to get at every asset of the city.”

“This is not a time for protest votes,” he pleaded. If the bargain falls apart, pensions could be cut 27 percent or more, he added.

Yet some pensioners are voting no. They sport T-shirts saying: “Hands off my pension! Make the banks pay!”

Michael Mulholland, a city retiree, claims that “every dollar stolen from us will not be given to the people of Detroit, but merely help the greedy banks cut their losses.” Writing on the Web site Voice of Detroit, Mr. Mulholland urged city workers to take to the courts and the streets, and urged workers and retirees to “help build a mass movement of resistance.”

So far, there are no signs of revolution in Motown. But there are many signs of confusion. The pension vote, like the bankruptcy, is incredibly complex. Some of the ballots were mailed with faulty information.

Nor is this a simple, straightforward vote. There are two different classes of votes. One class consists of police officers, firefighters, and uniformed retirees. Their pension fund was separate and better funded than the general pension fund. They aren’t asked to take pension cuts, but to cut their cost of living adjustment to 1 percent a year.

The other class consists of all other city workers and retirees. They are asked to take a 4.5 percent pension cut, and to give up any future adjustment for inflation. The total value of their pension would continually dwindle.

Both classes have to approve the cuts. But that’s not all. The votes are weighted. Not only do most of those who vote have to approve the pension cuts, the value of their pensions has to represent two-thirds of the full value of the pensions of all those voting.

Retirees will face additional cuts because money was improperly credited to an annuity savings fund. The amount will be different for every individual.

Most city leaders are urging a yes vote on the deal. Sheila Cockrel, a longtime Detroit City Council member who is retired, was initially hostile to the suggestion of a pension cut.

She recently wrote a newspaper column expressing her resentment at those who created these conditions. But she said “it is crystal clear that rejecting the pension proposal will be worse for everyone across the board.”

“This isn’t easy to ask,” she added, “but our tradition as Detroiters can see us through this challenge. We must step up.”

We will find out in a month whether her fellow retirees agree.

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade’s ombudsman, writes on issues and people in Michigan. 

Contact him at: omblade@aol.com