Detroit Enters Bankruptcy As Pensions and Benefits Go on Chopping Block
Some of the information provided in this interview was originally published in the 60- page report, “The Detroit Bankruptcy” authored by Wallace Turbeville, which can be downloaded from the “Demos” website: http://www.demos.org/publication/detroit-bankruptcy
JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore.
On Tuesday, a federal judge ruled that Detroit is insolvent, making it the largest city in U.S. history eligible to claim bankruptcy. In the ruling, Judge Stephen Rhodes said Detroit can cut pensions and retiree benefits to help pay off its $18 billion debt, adding, quote, “pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection or bankruptcy”. Two major Detroit public pension holders have said they will appeal the decision.
Now joining us to discuss this is Frank Hammer. He’s a retired General Motors employee and former president and chairman of Local 909 in Warren, Michigan. He’s lived in Detroit for 35 years.
Thank you so much for joining us again, Frank.
FRANK HAMMER, COFOUNDER, AUTOWORKER CARAVAN: Thank you very much, Jaisal.
NOOR: So, Frank, we wanted to get your response to this ruling today. And there’s been some critics of people who have said that pensions will be cut, and they pointed to other instances where cities have declared bankruptcy and pensions did not ended up being cut. And also your response to the fact that supporters of bankruptcy argue that tough cuts need to be made.
HAMMER: Yeah. I think that this feels to me like the quote that came from a major back during the Vietnam War that said that we have to destroy the city order to save it. I believe that this is sort of what’s going on here in the city of Detroit. Rather than, you know, weapons or a military arsenal, it’s financial. And this is what’s happening to the city.
The attack on pensions is, as you said, unparalleled, and, I think, practically immoral. But I think that it’s immoral for not only the devastation that the retirees are going to experience, but also because they’re not the cause of this crisis, and they’re being made to bear the brunt of it.
It’s very clear that it’s not long-term debt that’s the issue. The issue is short-term flow of cash. And this is due to the decline of revenue for the city and not an increase in obligations, which is what’s been put out in the media. So, for example, revenues to the city have been down 20 percent since 2008. Unemployment in the city has increased by 53 percent since 2000. The state’s cut revenues.
And there–the city has continued to have to give out tax cuts to corporations who want to do business in Detroit. And most recently, GM tried to get subsidies. You’ve also heard of the Red Wings’ new stadium getting subsidies.
So all these revenue losses is what explains the bankruptcy.
In fact, the only–what’s up is the financial cost to the city for bad debts that the banks dragged the city into. The banks are acting like predators here, much in the same way that they did with housing, giving new mortgages and new loans that were impossible to pay. And that’s what’s happened to the city on the scale of an urban center the size of Detroit.
NOOR: And, Frank, talk about the emergency manager. It’s played a central role in this bankruptcy proceeding. And critics have said Detroit’s emergency manager refused to renegotiate the pensions until bankruptcy, and that this kind of led to this crisis we’re seeing today.
HAMMER: Well, in my recollection, the city workers previous to 2013 have actually engaged in multiple rounds of negotiations where they made concessions in order to prevent–in a good faith effort to prevent the bankruptcy from going forward. And so, surely, Kevin Orr, the emergency manager, came back, and the judge agreed that, well, he didn’t quite negotiate in good faith, but he sort of said it didn’t matter anyway. And it’s clear that the city workers and the city unions were trying to defend the interests of the workforce that had already been making concessions. And I think that the appointment of the emergency manager, Kevin Orr, indicated the state’s direction from the very beginning, because what was he? He wasn’t somebody that could operate a city; he is somebody that could manage a bankruptcy.
NOOR: And, Frank, what will the impact be on the grassroots groups and citizens and pensioners that have been opposing this proceeding? And finally, what lesson will come out of this for other cities that are on the brink of bankruptcy or may be a few years down the line? I’m speaking to you from Baltimore right now, which perhaps will be going through a similar thing in just a few years.
HAMMER: Yeah. I think that the consequences for the municipal workers, the retirees, are obviously devastating in their own right, depending on what the ultimate negotiations or what the judge, Rhodes, decides as to what reductions they’re going to experience. He said he would be careful. The new mayor-elect is saying, well, we should be fair. Well, if anything was fair, it would be respecting the Michigan State Constitution, which in fact respects–protects the pensions of the municipal workers. But that’s being disregarded.
You know, going forward, it’s going to be a negative consequence to the city’s long-term recovery, because many of the pensioners live in the city. They will no longer be able to afford to stay in their homes, so that in fact we’re going to create more foreclosures, more home vacancies, and put the city in even deeper straits.
So there are different approaches that are being taken. The municipal unions are challenging in court the actions of the emergency manager. And in the streets there are the workers who have been affected. And there are progressive groups that are saying that what needs to be done, the solution, is for the banks who issued these predatory loans to cancel the debt to the city. Among other things, the state should also revive the revenue-sharing that had existed before the crash and so on. There are other solutions that would get Detroit through the cash-flow problem.
What is being proposed is really not only a raping of the retirees’ pensions, but the raping of city assets. And really, if you go to the Mackinac Center for Public Policy, you’ll see that that was the intention all along. That was the right-wing think tank that engineered this.
NOOR: Frank Hammer, thank you so much for joining us.
HAMMER: Thank you very much, Jaisal.
NOOR: You can follow us on Twitter @therealnews, send me questions, comments @jaisalnoor. Thank you so much for joining us.
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