The Post-Bankruptcy Plan for Detroit

November 12, 2014

The bankruptcy plan is a blow to retirees and falls short of addressing the circumstances that led to the bankruptcy in the first place, say journalist Curt Guyette and Rev. David Alexander Bullock

The bankruptcy plan is a blow to retirees and falls short of addressing the circumstances that led to the bankruptcy in the first place, say journalist Curt Guyette and Rev. David Alexander Bullock



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Story Transcript

SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

The city of Detroit, Michigan, filed for Chapter 9 bankruptcy on July 18, 2013. It is the largest municipal bankruptcy filing in the U.S. history by debt, estimated at $18-$20 billion. We at The Real News have been covering this issue since then, and we have had a special focus on the water shutoffs.

But today we’re going to focus on one of the very issues that led to the crisis in the first place, the pension system. According to The New York Times, the bankruptcy settlement leaves behind some of the same problems that plunged the city into the crisis in the first place. This is a fundamental problem that could be an issue for other local governments in the coming years. Like many other public systems, it relies on a funding formula that lags the true cost of the pensions and is predicated on a forecasted investment return, a forecast that the judge, Steven W. Rhodes, has questioned during the trial on Detroit’s bankruptcy plan.

Now joining us from Detroit, Michigan, to discuss all of this are our two guests.

Curt Guyette and Reverend David Alexander Bullock.

Curt Guyette is a longtime Detroit journalist. He is now working for ACLU of Michigan, covering issues surrounding emergency management and open government.

David Alexander Bullock is a pastor at the Greater St. Matthews Baptist Church. He’s also a teacher, lecturer, artist, and social commentator.

Thank you both for joining us.

REV. DAVID ALEXANDER BULLOCK, PASTOR, GTR. ST. MATTHEW BAPT. CHURCH: Thank you for having us.

CURT GUYETTE, INVESTIGATIVE REPORTER, ACLU OF MICHIGAN: Nice to be here.

PERIES: So let’s first for our viewers outline some of the grave concerns that the two of you have about the plan itself. And let me start with you, David.

BULLOCK: Well, one, thank you for having me. We’ve been concerned about the bankruptcy since its inception, partly because of the way it came into being. The emergency manager, Kevyn Orr, appointed by Governor Rick Snyder, a governor who originally is on record saying that the city of Detroit never would go into bankruptcy, ultimately filed for bankruptcy in lieu of stopping AFSCME, a trade union, from fighting for protections for pensions, and also fighting against work rule changes in city government. So Kevyn Orr preempts that fight, files for bankruptcy, in my opinion primarily to undermine the Michigan Constitution so that now the emergency manager, through the bankruptcy proceedings, with the help of Judge Steven Rhodes, can go in and gut pensions.

Then another problem with the bankruptcy is this whole question of the financial crisis. The state of Michigan has had a great role in promoting and indeed creating a financial crisis in the city of Detroit, because the state of Michigan has withheld over the past couple of years tax revenue that’s supposed to be coming to the city of Detroit. If you add the other layer of trade policy, you see over 600,000 manufacturing jobs have left the state of Michigan from 2000 and 2010, many of those jobs in the automotive industry. So as the population of Detroit declines and as the employment base gets lower and lower, so that you have high unemployment, you have a lowering of the tax base. Add on another layer of the foreclosure crisis: over 100,000 foreclosures in the city of Detroit between 2008 and about 2010, 2011. So as the tax base disintegrates, as there is no employment prospect, you have state tax revenue not coming to the city of Detroit.

And in lieu of all of those factors, you have a financial crisis. And so now bankruptcy is supposed to fix all of these mitigating circumstances. I would argue that even after bankruptcy you’re still going to have a declining population, you’re still going to have limited employment, you’re still going to have limited tax revenue coming to the city of Detroit. And so how does the city of Detroit move forward without these systemic trends being dealt with?

PERIES: Curt and you have been following this issue for quite a long time now, since the bankruptcy filing. What are your thoughts on the settlement plan?

GUYETTE: Well, I’d like to take a step back as well, and even a further step back than the reverend took, which is how we got here, which is that the road to bankruptcy leads through the appointed emergency manager. And voters of Michigan in 2012 rejected the emergency manager law by a pretty considerable margin.

The emergency manager, for people who don’t live in Michigan, the law here allows the state to appoint a manager over financially struggling school districts and cities, and they have just about unlimited power. They can break collective bargaining agreements. They can ignore laws. They can create new laws. And the voters saw this as too far-reaching, and in a referendum they repealed the law. And then what happened was that the Republican-dominated legislature came back a month after that law was repealed and in a lame-duck session enacted a new law that was very similar to the old one. And it’s important, because instead of having elected officials be in charge of bankruptcy, you now have a corporate lawyer appointed to take charge of the city and was brought in, and the firm that he was with up until he got appointed as the emergency manager was brought in to be in charge of the bankruptcy. They had clients that were among the creditors, major creditors. So instead of having elected officials from the city in charge of things, you have people from the outside that–in charge of things from the beginning.

PERIES: Right. Okay. So both of you have identified and given us context in terms of how all of this came about, which is very important, and I thank you for that. All of the media’s reporting about the disproportionate application of the $7 billion debt obligation, much of it falling on retirees. Explain that to us.

Let me start with you, Pastor.

BULLOCK: Yes [incompr.] classes of creditors. Obviously, the most vulnerable class of creditors is going to be the retirees who depend on their pensions to live. Many of the retirees cannot get another job because they are in their senior years, cannot reenter the workforce, and so live off of their pensions, took a major hit. And I don’t care how you describe it. You know, some say there were some shenanigans with the vote. Whether the vote was a fair vote or not, the final verdict is that retirees took a major hit with the reduction of their pensions. And even Judge Steven Rhodes is on record saying that this is going to be harmful for folks over a long period of time, but this is about shared sacrifice.

Notice now that while the retirees take a hit, I like to describe the bankruptcy as an economic engine for consultants. So you’ve got over $200 million in consulting fees. Even Mayor Mike Duggan, who’s been very silent in this process, recently has raised the question about the amount of money spent on fees to Jones Day, to Conway MacKenzie and other consulting and law firms. And then there’s supposed to be $1.7 billion or so coming out of this deal to go to city services, to turn lights on and fix streets and whatever else.

But the question remains: will this bankruptcy actually benefit citizens in the city of Detroit? How will retirees live off limited pensions in the city of Detroit? And will we see an improvement in city services outside of the very, very valuable territory of Midtown and Downtown? Will the entire town actually benefit from the supposed dollars that are supposed to be freed up by the bankruptcy?

PERIES: Curt, explain who some of these retirees are. Put some faces to the kinds of people we’re talking about here.

GUYETTE: Well, all sorts of city workers, from the uniformed workers like police and firefighters and ambulance drivers to the people who work at the wastewater treatment plant, city clerks, all those people.

I think one thing that should be pointed out is that in some ways the biggest hit to retirees in this is not the cut in their pensions but the loss of health care benefits. Previously they had a–able to be on a plan with Blue Cross Blue Shield. They paid 20 percent, the city paid 80 percent. That was completely taken away. And now, instead, most of them are getting a $125 monthly stipend to put toward whatever insurance they can get. And I’ve talked to people who are saying now they’re paying three, four, 500, as much as 1,000 dollars for their monthly medical insurance. And so that works out to hundreds and hundreds of dollars a month. And then the co-pays aren’t as good, the coverage for the medicine is not as good. And really, out of the $7 billion that is being saved in this bankruptcy, a little less than $4 billion is in terms of the health care costs. Really.

And retirees are being hit four different ways in this. For the nonuniform retirees, there’s the four and a half percent cut in their pension. There is the massive hit to their health care costs. The cost-of-living adjustments are being taken away completely for the nonuniform employees. And that, between the police and the fire and the nonunion employees, in the years ahead that adds up to more than $1 billion. And then there’s this other issue where there was annuity savings that employees could contribute to as part of their retirement, and now the city’s saying, well, they were paid too much interest, and so they’re doing what they’re calling a clawback.

So the result is that retirees could be losing as much as 20 percent of their pensions. And that’s not even including the health care, extra health care costs. So it is significant. And as best as I can figure, about 75 to 80 percent of that $7 billion in savings is coming on the back of retirees.

PERIES: Pastor, what does this mean to the massive organizing that has been going on against both the water shutoffs and the effects this has on retirees? I mean, we do know Detroit’s a very well organized community, and there must be a rebellion on your hands at the moment. What is the community doing to organize and contest these decisions?

BULLOCK: Well, definitely I must say Detroit, Southeastern Michigan, is a very organized community, history of organizing, grassroots organizing, labor organizing, such a grand tradition. But unfortunately we have not seen the kind of sustained protest in Detroit around these hits that retirees are taking in their pensions, the hits around the destruction of democracy brought by Governor Rick Snyder and the emergency manager, the hits around how public dollars are being used for private development and major land transfers happening under the guise of the bankruptcy, lost the water department water shutoffs. We have not seen the kind of sustained protest that we’re seeing in Ferguson.

And I have and others have asked the question, what’s the difference between Ferguson, Missouri, and Detroit, Michigan? The issues in Detroit are persistent. They’re systematic. They’re institutional. And I think what this means is that we must raise the level of our organizing so that we can have the kind of sustained protest, even civil disobedience, that you see in Ferguson in Detroit, Michigan. And unless that happens, I believe, unless we upgrade our movement to that level, then we really won’t see resolution and restoration in the city of Detroit.

PERIES: Right. Curt, what is the ACLU doing about some of these decisions?

GUYETTE: Well, not a lot in terms of legal work. The primary involvement has been having me write about these issues. And we did write some, we cooperated in a big way on the water shutoff issue.

But the one thing I think is important to point out is the significance of this bankruptcy case is that it was a landmark decision. Michigan had a very strong constitutional protection for public employee pensions. That’s been taken away. And with what’s going on, something similar is happening at the same time in t he Stockton, California, bankruptcy. And so people who have public pensions, if they’re living in areas that are struggling, they’re in trouble. They don’t even need to file for bankruptcy. All is they need to do now is go to employee groups and say, look it, you guys don’t have any protections anymore; you’d better not go under and agree to what we’re saying, or we’re going to go to bankruptcy and it might even be worse. The hammers are ready to drop on people all over the country. And they should be very aware of what’s happening in Detroit. This is just not an issue for Detroit retirees. This is an issue for public retirees all throughout the country.

PERIES: Well, we at The Real News will be keeping an eye on the fallout of all of this. And I hope you gentleman join us again to keep us abreast.

BULLOCK: Thank you so much.

GUYETTE: Thank you.

PERIES: And thank you for joining us on The Real News Network.

End

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.