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Critical Pension Deal Put Before Detroit Employees

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(Credit: Bill Pugliano/Getty Images)

(Credit: Bill Pugliano/Getty Images)

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DETROIT (AP) – The historic restructuring of Detroit through bankruptcy court is taking a crucial step by putting a key plan before the some of the people most affected: roughly 30,000 retirees and city employees.

Ballots have been sent to those who qualify for pensions and should be arriving by midweek, Bill Nowling, a spokesman for state-appointed emergency manager Kevyn Orr, said Monday. Detroit is proposing to cut pensions by 4.5 percent and eliminate cost-of-living payments. Retired police officers and firefighters have a better deal that trims only cost-of-living payments.

While there are many moving parts to the restructuring, the pension agreement is viewed as a centerpiece. If the retirees and employees don’t support the plan, hundreds of millions of dollars from foundations, philanthropists and the Detroit Institute of Arts would vanish and deeper pension cuts would become inevitable.

Creditors – not only retirees but also big banks and others – are voting on the plan, and ballots are due by July 11. That will be followed by a summer trial on Orr’s plan to restructure the city’s debt, and the ultimate step comes when Judge Steven Rhodes rules on the plan by the end of September.

Detroit filed for bankruptcy last July, citing $18 billion in unmanageable long-term liabilities. Orr’s goal is to avoid a cram-down, a bankruptcy term that gives a judge sweeping power to settle disputes.

The employees and retirees now must decide if they can live with less – albeit more than the drastic reductions Orr initially proposed.

Under tentative agreements reached by negotiators, police and fire retirees would not lose pension benefits but their annual cost-of-living allowance would be trimmed to 1 percent. Other city retirees would see a 4.5 percent pension cut and the elimination of cost-of-living payments. There is a possibility of restoring some of that money if the health of the two pension funds improves.

The average annual pension for police and fire retirees now is $32,000, while most other retired city workers get $19,000 to $20,000.

The deal also hinges on whether state lawmakers approve legislation introduced last week to use about $195 million from Michigan’s savings account to help shore up bankrupt Detroit’s pension funds and prevent the sale of valuable city-owned art. The plan has backing from legislative leaders and Republican Gov. Rick Snyder, but its passage is no certainty in a bailout-averse, Republican-controlled Legislature.
For city retiree Donald Smith, 69, the uncertainty is worse than the cut he might face to his $889 per month pension.

“I’m still in limbo – I don’t understand how we can vote without something concrete,” said Smith, who worked for the city for 29 years including employment in parking enforcement and as a civilian for the police department. “At this point, I can’t make an informed decision. If it was 4.5 percent and everything was locked up. I’d probably be inclined to do it. … It doesn’t seem like a fair vote.”

Tina Bassett, a spokeswoman for the general services pension fund, said officials are holding four informational meetings on two days next month, two of which will be streamed on the Internet. The goal, she said, is to provide as much information as possible to members, not campaign for passage.

She recognizes the vote at this point is “a leap of faith” that “the state money will be there,” but added the plan includes language that could restore benefits if the pension funds keep making money.

“We’re bringing them what we believe is the best possible deal we could attain,” she said. “A lot of people have worked very hard, very long (and spent) so much time trying to make this work out.”

[Detroit Bankruptcy: Complete Coverage]

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