The LA Times is reporting that the City of Detroit’s bankruptcy lawyers have proposed a bankruptcy plan seeking to reduce current health benefits of pensioners and future pensions of current city workers.
This is despite the supposed early reports that Detroit’s lawyers were seeking only small cuts if any to pensions.
Bankruptcy lawyers for the public employee unions will now have the opportunity to object to the City’s bankruptcy plan. Lawyers for both sides will have to convince the court of their position.
Detroit’s plan to emerge from bankruptcy this year largely hinges on significant cuts to city workers’ pensions and retiree health benefits — actions vehemently fought by public employee unions — as well as decreased payments to bondholders, according to a blueprint filed Friday to restructure the city’s $18-billion debt.
Although the employee cuts were largely expected after U.S. District Court Judge Steven Rhodes found in December that Detroit was eligible for bankruptcy protection, Detroit’s bankruptcy plan is being closely watched by other financially troubled cities around the country also struggling with underfunded pension plans. And, setting up a potential court battle between major stakeholders, creditors complained that the plan unfairly favors city workers because it is “politically popular.”
For some retirees, the plan brought the news they have feared most.
“They might as well just go and shoot me,” said Donald Smith, 69, who worked for the city as a parking enforcement officer and receiving clerk for 29 years and gets about $850 a month in pension payments. “I already have to make choices between food and medicine. I don’t know what I’m going to do.”
In the plan, which probably will be amended in the weeks ahead, police, firefighters and those departments’ retirees will take a 10% cut to their current pension payment. The pensions of all other city employees and retirees will be cut more than three times as much: 34%. Neither group will receive cost of living adjustments in the future.
The city says pension plans are underfunded by $3.5 billion, though unions dispute that number.
Bondholders can expect to receive about 20 cents on the dollar.
The plan treats pension holders better than bondholders in part because of $700 million from foundations and the state of Michigan that could be used to bolster the pension funds. That could create problems in court, said George South, a partner at DLA Piper in New York.
“There is still much work in front of us to continue the recovery from a decades-long spiral,” Detroit Emergency Manager Kevyn Orr said in a statement. “We must move swiftly to emerge from bankruptcy so that the financial distress harming the city can end.”LA Times: http://www.latimes.com/nation/la-na-detroit-bankruptcy-20140222,0,3941443.story#axzz2uFo7bIyY
