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Public Pensions: Still Waiting to be ‘Made Whole’

IOU in a piggy bank by Images of Money via FlikrLooks like the Justice Department is settling cases with banks responsible for the 2008 financial meltdown. Citigroup is next up: and reported to be paying $7 billion to end Justice Department investigations.

But I don’t see any of that money headed back to public pension systems.

…like, say, New Hampshire? In June 2007, the New Hampshire Retirement System Trust Fund held $29.7 million in Citigroup stock. Within two years, that stock had lost 94% of its value. (That’s a lot of retirees’ COLAs, right there.)

…like, maybe, Detroit? In June 2007, the two retirement systems covering Detroit public employees had a total of $343 million invested in mortgages. But after the crash, the systems’ “unfunded pension liability” was one of the main justifications for declaring that Detroit was “bankrupt.” (Read “Detroit’s Pension Systems: not ‘unaffordable’, just battered by Wall Street” here.)

State and local pension funds lost a total of $1 Trillion (yes, with a “T”) in value between 2007 and 2008. NOT a coincidence: those state and local pension funds are now “underfunded” by $1 Trillion.

And now the Justice Department is wrapping up its investigations, with fines to the federal government and assistance to homeowners…

… and nothing, as far as I can tell, in the way of restitution to all those public employees whose retirement dreams were destroyed.

Meanwhile, Wall Street broke more records last week…

…and Governor Chris Christie has decided not to pay New Jersey’s pension system more than $2 billion in employer contributions.

New Hampshire public sector retirees haven’t received a cost-of-living adjustment since 2010.

Detroit’s retirees are voting on whether to accept benefit cuts.

And so far, only one banker has gone to jail (compared to 839 people who were convicted for crimes during the savings-and-loan scandals of the 1980s)…

…and as far as I can tell, nothing whatsoever in the way of restitution to public pension funds.

Does that $7 billion settlement sound like a lot to you? Here’s some context:

  • That’s just slightly higher than the $6.4 billion Citigroup had originally planned to spend next year to buy back corporate stock. (Why would a company buy its own stock? “To counteract the dilution of bank shares when executives are awarded stock as incentives.”)
  • It’s roughly equal to six-months’ profit for the corporation.
  • It’s less than 2% of what Citigroup received in the federal bailout.
  • It’s less than one percent of what public pension funds lost in the meltdown.

Mad, yet?

Read the Rolling Stone’s “Looting the Pension Funds” here.

Read “The Plot Against Pensions” here.

 

Is Detroit REALLY “broke”? Because The Math Does Not Add Up

Louis-Philippe Duc d' Orleans Saluting His Army on the BattlefieldCan’t help wondering about this scenario.

The City of Detroit owns one of the finest art museums in the world.  On Wednesday, Christie’s auction house released its appraisal of… just 5% of Detroit’s artwork.  According to Christie’s, that small fraction of the collection is worth somewhere between $452 and $866 million.  Earlier, outside experts had given a ballpark estimate of $2.5 billion – for just 38 of the museum’s 66,000 pieces.

But Detroit can’t afford to pay its retirees’ pensions?

Far more troubling is the fact that the city apparently didn’t seek federal grant money before seeking bankruptcy.

Imagine yourself in the shoes of Kevyn Orr, the “Emergency Manager” that Governor Rick Snyder appointed back in March.  If YOU were walking into a place that was in fiscal trouble, wouldn’t you look around for revenues?  (Anybody else remember “Mediscam”?)

Yeah, well, that’s apparently NOT what Kevyn Orr did.

Back in September, federal officials identified more than $300 million in grant monies that Detroit was eligible for… but somehow… hadn’t gotten.

Democratic  Sen. Carl Levin: “There are dozens and dozens of programs available – some they haven’t applied for… some have been granted and are simply sitting there waiting for the city to do what they need to be doing.”

Yep, that’s what he said: “simply sitting there, waiting for the city” (which is now headed by Emergency Manager Kevyn Orr) to do what needs to be done.

Think about all the press stories you’ve seen, about Detroit’s financial situation.  Then look at the money that was “simply sitting there” waiting for federal officials to point it out:

  • Public safety concerns? Turns out there was $28 million in federal money available to hire police and firefighters, purchase equipment and pay for programs.  Plus about another $2 million available from private foundations.
  • Public transportation issues?  There was more than $130 million in federal money to repair buses, install security cameras and expand service to areas outside the city.  Plus another $3.3 million in private foundation monies.
  • Neighborhood blight?  More than $85 million in federal money to rehab (or demolish) housing units, clean up brownfields and otherwise fight blight.  Plus another $13 million from private foundations.
  • Bleak future?  Federal officials identified another $32 million in private grant monies to help Detroit plan for its future, upgrade its technology, train its residents and bring retail and creative industries back to the city.

Now, think again about Mediscam.  In New Hampshire, public officials faced with fiscal problems got (ahem) “creative” in order to maximize federal funds.

But in Detroit, Emergency Manager Kevyn Orr left more than $300 million in grant monies… sitting there.

Now, let’s look one more level down.

All the press reports about Detroit focus on that “$18 billion” of total debt.  That includes not just pensions and retiree health care liabilities, but also all the usual long term bonds that large municipalities have (about $3.7 trillion total, nationwide).

In a bankruptcy proceeding, the question shouldn’t be “How much does Detroit owe?”  The question SHOULD be “Can Detroit afford to pay its bills?”

And – with different political leadership – the answer to that question could easily be “yes”.

At the end of each fiscal year, public entities prepare a “Combined Annual Financial Report” that provides useful information about their finances.  Detroit hasn’t released its 2013 CAFR yet (even though the fiscal year ended more than five months ago).  But here’s what Detroit’s auditors said, in their 2012 Comprehensive Annual Financial Report:  “The City has an accumulated unassigned deficit in the General Fund of $326.6 million as of June 30, 2012, which has resulted from operating deficits over the last several years.”

So… as I do the math… those operating deficits have been accumulating over several years… but just ONE year’s worth of those grants (which have been “just sitting there”)… could almost completely offset that accumulated deficit.

Whoa… without even touching that art collection?  (And without restoring state revenue-sharing that was cut under Governor Rick Snyder?)

Maybe it’s just me… but I can’t help suspecting there is something else going on here, OTHER than fixing Detroit’s finances.

 

 

Starting in Detroit… next stop: Social Security

Frederick Bancroft, prince of magicians: the wizard's enchantments, performing arts poster, ca. 1895Buried on the PBS website, there is a blog post that ought to strike fear into the heart of every working-age American.

“Detroit Today, Washington Tomorrow” takes dead aim at the Social Security system, using the same “inflate the numbers” messaging strategy that Kevyn Orr and Gov. Rick Snyder have been using lately in Detroit.

What’s the strategy?

  1. Just pick the biggest number that you can find, and use it to scare the bejeezus out of people.
  2. Once you’ve got folks focused on that huge number, it’s easy to convince them that “oh, we’re so sorry! But Detroit can’t afford to pay the retirement benefits we’ve been promising all these decades.”
  3. Nevermind that all those Detroit workers have been paying into the system, all these decades, and planning their futures based on the promises that were made.
  4. Just keep everyone’s eyes focused on that really huge number – and they won’t even think about questioning your claim that “oh, so sorry! We can’t afford it!”

It’s the rhetorical equivalent of old-fashioned magic tricks.  And just like those old-fashioned magic tricks, it will work so long as people don’t pay attention to what’s really going on.

In Detroit, they’re hiding a $326 million accumulated deficit under the rhetorical handkerchief of $18 billion in total outstanding debt.  They’re basically saying: “don’t look at that smaller deficit number (caused by cutbacks in state revenue-sharing) – look at this huge number over here!  Look at how much Detroit is supposed to pay bondholders back, over the next 30 years!  Look here, Detroit can’t afford to pay back $18 billion right now!  (Nevermind that it’s not supposed to be paid back, for decades yet.)  Look here, if we can’t afford to pay back $18 billion, then we should declare bankruptcy and get rid of the debt (that we owe to our public employees).  We just can’t afford to keep our promises!”

Can’t you just hear the calliope music?   (If not, here’s a YouTube to help get you into a properly gullible mood.)

Now, read that PBS post by Boston University professor (and presidential candidate) Larry Kotlikoff.

  1. All of a sudden, our federal debt isn’t just $12 trillion (the number that outrages Republicans, as long as nobody suggests increasing taxes to pay it back). According to Professor Kotlikoff, “the true measure of our debt – the one suggested by economic theory – is the fiscal gap, which totals $222 trillion.”
  2. Now, keep looking at this number over here – it’s really, really huge.  According to Professor Kotlikoff, “Given the $222 trillion fiscal gap … current policy is clearly not sustainable. Making it sustainable requires either an immediate and permanent 64 percent increase in all federal taxes or an immediate and permanent 38 percent cut in all spending or some combination of tax increases and spending cuts.”
  3. Nevermind all those decades that workers have been paying into the Social Security system. Again, here’s Professor Kotlikoff: “If anything, the Social Security benefits, and not the Treasury bond payments, should be recorded as official debt.”
  4. Keep folks paying attention to that really big number.  Professor Kotlikoff borrows the authoritative voice of former Secretary of State George Shultz to finish his performance: “Our country doesn’t have a lot of elder statesmen to guide us. But this tough ex-marine knows our country is broke, knows our children are threatened, and knows we’ve been hiding the truth.”

Yep, that’s where things are headed.  Detroit today, Washington tomorrow.

They’ve been trying to “reform” Social Security since Barry Goldwater ran for President.

And they’re still trying.

And they’re about to have the biggest Congress-created crisis yet.

  • Read about January’s Fiscal Cliff crisis here and here.
  • Read about the March Sequestration crisis here and here.

There is another “perfect storm” of crises coming up in the next two months: the current federal budget will expire at about the same time that the Treasury runs out of debt limit “headroom” (again, thank our federal and postal service employees, whose retirement contributions provide this reprieve!).

What sorts of magic tricks do you think they’re going to try, then?

Detroit today, Washington tomorrow.

My recommendation?  Remember Professor Kotlikoff’s patter, and keep your eyes on the magicians’ hands.

*********

Read the LTE in response to this post.

State “Shared Taxes” Cuts have been Drowning Detroit: is Grover Norquist laughing yet?

norquist_drown_governmentThe Bankruptcy Court judge overseeing Detroit’s “restructuring” is moving really, really fast.

And – at least so far – he’s following the schedule proposed by “Emergency Manager” Kevyn Orr and the law firm Jones Day.

  • Read more about Kevyn Orr here.
  • Read more about Jones Day here.

This Friday, August 2nd, the judge is expected to rule on Orr’s motion that a hand-picked “Committee of Retirees” be allowed to make decisions on behalf of the more than 20,000 retired city employees.

How’s this shaping up?  It looks a lot like what just happened in Stockton, California – where a similar committee just accepted $5.1 million as full “payment” for future medical benefits estimated to be worth hundreds of millions of dollars.

And now that steamroller is headed straight for all those people who spent their lives working for the citizens of Detroit.

One of the many, many things that are wrong with this situation is: how completely the mainstream media has swallowed the spin offered by Michigan’s Republican Governor, Rick Snyder.

First, blame the unions.  (The Wall Street Journal’s “How the Unions Killed Detroit” is here.)

Next, blame “60 years of decline” – particularly the decline of the [unionized] auto industry.  (Watch Gov. Snyder on NBC’s Meet the Press here.)

Then, inflate the numbers.  All of a sudden, they’re not talking about annual deficits – not even the total accumulated annual deficits – they’re talking about “total debt”.   That includes bonds for the Water and Sewer systems.  For renovations to the Convention Center.  For the city’s Building Authority, and its Downtown Development Authority.  Its Transportation and Parking Funds.

Yeah, when you add it all up, that looks like a lot of debt.  But municipalities traditionally borrow the costs of capital projects, usually for terms of 20 to 30 years.  Just like most middle class families don’t pay cash when they buy a house.

But that “$18 billion” total debt number sure makes it seem like Detroit can’t possibly avoid bankruptcy, and can’t afford to keep its promises to its workers.

Great spin.

But what do Detroit’s auditors say?  Quoting directly from the city’s 2012 Comprehensive Annual Financial Report:

The City has an accumulated unassigned deficit in the General Fund of $326.6 million as of June 30, 2012, which has resulted from operating deficits over the last several years.                                                                         

$326 million… $18 billion… Gotta admit: Rick Snyder sure knows how to spin things.

Let’s look at Detroit’s problem from another direction, for a minute.  Let’s consider – just for a minute – that maybe Detroit doesn’t have “a spending problem”, maybe it has a revenue problem.

The reality is, all around the country, municipalities depend on state revenue-sharing to make their budgets work.  Those of us who lived through New Hampshire’s Bill O’Brien years know this all too well.  State tax cuts and budget cuts “trickle down” and hit municipalities where it hurts.

For Detroit, state “shared taxes” used to provide 16% of city revenues.  That means one out of every six dollars that Detroit budgeted came from the State of Michigan.

Then GOP right-wingers declared war on our government.

Look at how different Detroit’s revenues would have been, if the amount of “shared taxes” had stayed the same as it was when George Bush became President:

Detroit Shared Taxes

Data from Detroit Combined Annual Financial Reports available at http://www.detroitmi.gov/Departments/Finance/tabid/86/Default.aspx

An interesting math exercise: if the state had continued to pay the same amount of “shared taxes” as it did in 2001, Detroit would have received $4.1 billion in additional revenue over the years.  (And maybe the city wouldn’t have had to borrow quite so much to finance capital projects…?)

Just in FY2012, Detroit would have received $470 million more in “shared taxes” revenue – if the State had still been sharing revenue like it did in 2001.

And that would have been more than enough to wipe out the $326 million in accumulated operating deficits that Detroit’s auditor cited in the 2012 CAFR.

So maybe Detroit’s financial problems weren’t caused by the unions – or “60 years of decline.”  Maybe it’s not a “spending problem” – maybe it’s a “revenue problem”.

Maybe the problem is that the extreme wing of the GOP declared war on government back in 2001… and they’re still planning to “drown it in the bathtub.”

 

 

Detroit: latest battleground in the war on the Middle Class

whose_rightsThere are times when I would really prefer to be wrong… and Wednesday was one of them.

Yesterday afternoon, the federal judge overseeing Detroit’s bankruptcy proceedings suspended all other legal actions by public workers who are trying to protect their constitutional rights.  And it is very unlikely that workers’ rights will be considered during the bankruptcy proceedings.

What good are constitutional rights, if workers can’t get them enforced in court?  It’s the same basic dilemma that we’ve been looking at, with all the controversy about members of the National Labor Relations Board.  If the NLRB doesn’t have enough members for a quorum – and so they can’t enforce the National Labor Relations Act – then do workers really have the rights supposedly guaranteed to them?

Read my post “Who has rights when Detroit goes to court?” here.

The next step is a procedural hearing on August 2nd, when the judge will decide whether to go ahead and appoint a mediator in the case.

—–

Ever read Sun Tzu’s The Art of War?

Back in the 1990s, the book was a must-read for MBA candidates learning a new, bloodthirsty style of management.  When Newt Gingrich was taking over as Speaker of the House in 1994, he included it on his “reading list” for incoming Republicans.  It’s also a favorite of Republican strategist and Fox News chief Roger Ailes.

One of its principal themes is: Know your opponent.  So let’s look at Detroit from that perspective.

Michigan Governor Rick Snyder:

Bankruptcy Counsel, the law firm of Jones Day:

  • Hostess Strike BCTGM Jones Day was lead bankruptcy counsel for Hostess Brands.  We all know how that turned out: the company’s assets sold off, union contracts tossed to the wind, pension monies lost, bonuses given to top executives, lots and lots of jobs lost.
  • According to press reports, Jones Day attorney Jack Newman represents Peabody Energy in a bankruptcy hearing involving health benefits for retired mine workers, which NH Labor News readers know as the “Patriot Coal” case.  Peabody Energy was the company that “spun off” Patriot Coal in 2007.  A lawsuit filed in federal court in Charleston, WV charges that Peabody violated the federal Employment Retirement Income Security Act (ERISA) by scheming to eliminate contractually-guaranteed lifetime health care benefits for retirees.  (Learn more at the Fairness at Patriot website.)
  • Chicago Teachers Strike 2Remember the Chicago teachers’ strike?  Guess who takes credit for ending it?  From the law firm’s website: “The Chicago teachers’ strike settled the day after Jones Day filed a motion for a temporary restraining order on behalf of the Chicago Board of Education against the teachers union.”
  • Verizon?  Guess who’s their lawyer.  Back in 2006, Jones Day won a federal court appeal, limiting the union’s ability to send grievances to arbitration.  Now they’re in court defending Verizon’s transfer of pension obligations (described as one of the two “largest pension de-risking transactions in US history”).
  • And, back on the subject of the National Labor Relations Board, guess who… oh, nevermind guessing.  Just read “How they Won It: Jones Day Invalidates Obama’s NLRB Picks” here.

Yeah, these are the folks that our union brothers and sisters are up against, out there in Detroit.

And it doesn’t look like they are going to be able to rely on the court system to protect their legal rights.

—–

Sun Tzu gets the final word, here: “There is no instance of a country having benefited from prolonged warfare.”

It’s time for the right-wing’s war on the Middle Class to stop.

—–

Read my Friday blog post about Detroit here.

Read Monday’s post here.

Read Tuesday’s post here.

Read yesterday’s post here.

Who has rights when Detroit goes to court today?

constitutionSo… you think you’ve got rights?  Right there, written in the Constitution?

Think again.

Today everybody heads to court for the first hearing in the Detroit bankruptcy filing.  And I’m guessing it’s about to get really scary.  I’m guessing that one of the questions that will be posed is: whether Detroit workers’ Constitutional rights actually matter during a Chapter 9 bankruptcy.

Here’s the thing: yesterday, the Michigan Court of Appeals halted all state court action on the matter – including the lawsuit challenging the bankruptcy filing on Constitutional grounds.

Here’s the second thing:  there is apparently a legal theory that

Under Chapter 9, a municipality has the clear authority to modify, assume or reject executory contracts, and these actions will not be subject to constitutional challenges outside of the bankruptcy proceeding while adjustment takes place.

Go back and read that again.  “These actions will not be subject to constitutional challenges outside of the bankruptcy proceedings.”

And that category “executory contracts” could include… oh, say… collective bargaining agreements and pension obligations.  (Yes, I’m thinking maybe it even includes those pension obligations written into the Michigan Constitution, back in 1963.)

And here’s the third thing: legal experts seem to agree that, under Chapter 9 bankruptcy proceedings, the federal court doesn’t have much say over what the state and municipality decide to do.  Here that is, in lawyer-language:

A bankruptcy court’s power is greatly limited under chapter 9 in deference to the Tenth Amendment of the U.S. Constitution and principles of federalism that reserve to the states sovereignty over their own internal affairs.  Accordingly, the state maintains its powers to control municipalities (subject to specific Bankruptcy Code provisions). The bankruptcy court cannot interfere with the political or governmental powers, property, revenues or use or enjoyment of income-producing property of the municipality.

So, here’s my huge question: what happens if neither the federal court nor the state court has jurisdiction to enforce the constitutional rights of Detroit workers?

Is it possible that the state of Michigan – through its Governor, Rick Snyder – really does have an unfettered ability to reject constitutionally-protected pension obligations?

Yep, looks to me like that would be a pretty scary legal theory, that I’m guessing they will start to test today.

—–

Speaking of scary…

Remember Governor Rick Snyder’s Very Busy December?  (He pushed through a replacement Emergency Manager law, and then days later he pushed through a Right to Work law?  Merry Christmas, everyone!)

Also in December… The Michigan State University Extension program issued a very interesting report:  “Chapter 9 Bankruptcy: Simulation Exercise.”  You can read it here.

It would look an awful lot like a blueprint-for-bankruptcy, to me, if not for the disclaimer: “It is not intended to provide legal or financial advice or counsel and should not be construed as such to any of its readers. If legal or financial advice is needed, the appropriate licensed professional should be contacted.”

—–

And here’s a disclaimer of my own: I AM NOT A LAWYER.  I could be totally misreading things.

Maybe Gov. Snyder really isn’t going to try to use a legal loophole to get around the rights of Detroit workers.

Maybe I’m just being hypersensitive, what with all the recent attacks on workers and government programs.  (Read today’s New York Times “House G.O.P. Sets New Offensive” here.)

Maybe I’m wrong about all this.

I really hope so.

—–
UPDATE: Breaking News from Detroit.
(Reuters) — Lawyers for the city of Detroit on Wednesday asked a U.S. bankruptcy judge to set aside all other lawsuits seeking to block the city’s petition for bankruptcy protection, arguing that federal bankruptcy court is the only venue to debate the matter.
—–

Read my Friday blog post about Detroit here.

Read Monday’s post here.

Read yesterday’s post here.

Detroit’s Pension Systems: not ‘unaffordable’, just battered by Wall Street

blaming_unionsNo, no, no, no, no.  Whatever happened to checking the facts?  Asking the tough questions? Digging a little deeper?

Today, at least one Main Street Media pundit – who is supposed to have special understanding of economics – offered his version of what really happened in Detroit.  From his perspective, it’s all the fault of “the city fathers” who – he says – negotiated unsustainable retirement benefits into union contracts rather than paying their employees adequate wages over all these years.

Oooh, wow – can you feel the weight being pushed back onto our shoulders?  Everybody still wants to blame union contracts.  (Read Amy Traub’s excellent 2010 column “Your Mailman Didn’t Make the Economy Collapse” here.)

Check the facts, look a little deeper, and… wow!  There’s the real truth.  As recently as June 30, 2008, Detroit’s retirement systems were fully funded.  Well, technically, the general retirement system was only 99% funded – but the Group II Police/Fire system had a 10% surplus.

Let’s see if we can remember that far back… what was going on in 2008?!?

Oh, yeah.  Wall Street meltdown.  During the second major recession of George W. Bush’s presidency.   (Did you forget about his first recession?  It started in March 2001… and he tried to cure it with tax cuts.  But nobody paid much attention to the economy after 9/11.)

Here’s a look at the numbers, which I’ve taken straight from the Detroit retirement systems’ annual reports (available at http://www.rscd.org/annual.htm and http://www.pfrsdetroit.org/annual-report.aspx).

Detroit_assetsWhoa!  Take a look at those fund balance dips, after the recessions of 2001 and 2008.  Notice that they’re not very sharp.  That’s because retirement fund actuaries use an accounting technique called “smoothing” when they value assets.  When there is a sharp drop in values, the actuaries amortize that change over a period of several years.  (They do the same thing here at the NH Retirement System.)

So you don’t see the full impact of the 2001 recession until 2004.

Now,let’s try to figure out just how “broke” the Detroit retirement systems really are.

Detroit_ratio Again, you need to pay attention to the actuaries’ math, here.  The funding ratio depends on how the actuaries calculate future liabilities.  And – at least recently – the actuarial assumptions they’ve used have been wildly unrealistic.  “Significant actuarial assumptions used include … projected salary increases of 4.0 percent per year, additional salary increases of [up to] 4.9 percent per year based on merit and/or longevity, and cost-of-living adjustments of 2.25 percent per year.”

Now, let’s look at what actually happened: for instance, last July, Detroit’s police unions took a 10% pay cut.

Gotta wonder how that funding ratio would look if the actuaries had figured future liabilities using that 10% pay cut, rather than all those imagined increases.

Yeah, actuaries can calculate numbers any way they want.

And politicians and pundits can keep spouting the “truth” as they imagine it, rather than how it actually is.  These days, they can win over all sorts of audiences, by blaming unions.  It’s a lot easier to blame unions than Wall Street.

Truth is, we saw the effects of the stock market crash here in New Hampshire, just like they did in Detroit.

As recently as 1999, the New Hampshire Retirement System was more than 100% funded.  But then the Trust Fund lost 10% of its value in the recession of 2001. 

It lost another 25% of its value in the 2008 recession.  In June 2007, before the Wall Street meltdown, the NH Retirement System had $5.9 billion in investments, including

•             $29.7 million of stock in Citigroup, Inc.
•             $23.5 million of stock in American International Group, Inc. (AIG)
•             $14.0 million of bonds issued by Federal Home Loan Mortgage Corp. (Freddie Mac)
•             $13 million of bonds issued by Federal National Mortgage Association (Fannie Mae)

Two years later, when the recession was in full force,

•             Citigroup stock had plunged to only about 6% of its former value
•             AIG stock was worth only about a penny on the dollar
•             Freddie Mac and Fannie Mae had both been placed into federal conservatorship

and the anti-government pundits started getting lots of headlines attacking public employees’ pensions.

Yeah, here in New Hampshire we understand what’s happening out there in Detroit.  All around the country, public employee unions are dealing with the exact same fallout from the Wall Street crash and the same “truth-or-rhetoric?” political opportunism.

There’s a reason why we talk about solidarity.

—–

Read my Friday blog post about Detroit here.

Read yesterday’s post here.

 

 

What happens in Detroit WON’T stay in Detroit.

8easystepsIt’s amazing, the stuff you can find on the Internet these days.

Step-by-step instructions for all sorts of things, including – oh, yeah – how public employers can relieve themselves of retirement obligations through the Chapter 9 bankruptcy process.  Like they’re trying to do in Detroit, right now.

And reading through Ice Miller’s description of the process – right here, if you’re interested – it sure doesn’t seem all that hard.

Ice Miller, by the way, is a nationwide law firm that has provided services to the New Hampshire Retirement System for years.   Here’s how they summarize the bankruptcy process that Michigan Governor Rick Snyder has just started:

“A proceeding under Chapter 9 is very different than under other chapters of the Bankruptcy Code.  [Under Chapter 9,] the court must determine whether the petition was properly filed and then, at the end of the case, must determine whether a plan for the adjustment of debts is confirmable. Between those two points, a bankruptcy court cannot require the sale of assets; does not oversee the use of funds; does not interfere with political or governmental powers; cannot require tax increases; and generally does not take an active role.”

Whoa.  Doesn’t look like there’s much protection for city workers, in that process.  And according to Ice Miller, during bankruptcy a public employer can:

  • try to reject their obligations under existing collective bargaining agreements;
  • try to reduce pension contributions and retirement benefits.


Which sounds pretty much like what they’re trying to do, out in Detroit right now.

Starting to feel a little queasy here?  Let’s look a little closer.

 

Will of the voters?

Yeah, right.  The “emergency financial manager” who filed Detroit’s bankruptcy petition last week was appointed under a law passed by the Republican-led state legislature in December 2012.  Trouble is, that law is almost identical to a law rejected by voters barely a month before, in a referendum vote.  (Whatever happened to democracy?)

And then there’s the timeline.

I’m not even going to try to figure out which chicken came before which egg.  The newest emergency manager law became effective in March.  The law firm Jones Day was awarded a $3.35 million contract as Detroit’s “restructuring counsel” in March.  Jones Day partner Kevyn Orr was named Detroit’s emergency financial manager in March.  (Or maybe by then he was a former partner? Attorney Orr resigned from the firm sometime in March.)  Different media reports give different dates;  and from this many miles away, it’s impossible to figure out what happened in what order.

And then there’s the law firm.

I’m human; I can’t help but sometimes judge a law firm by its clients.  And Jones Day’s client list includes Koch Industries, as well as Mitt Romney’s old firm, Bain Capital.

And then there’s the lawsuit, filed by Jones Day lawyers, challenging a ban on political contributions by foreign sources (including foreign corporations).  And then there’s the lawsuit, filed by Jones Day lawyers not long before last year’s election, challenging an Obama administration regulation regarding insurance coverage.   (Also can’t help but wonder at all the work this law firm is apparently doing for free!)

And then there’s the attorney.

According to his official bio, Attorney Orr worked for the FDIC’s Resolution Trust Corporation in the 1990s; and while there, his duties included “serving as the agency’s chief lawyer responsible for the agency’s participation in the Whitewater investigation.”  Yeah, you read that right: the Whitewater investigation.

Starting to think that maybe there’s politics involved here, somehow?

And then there’s the Governor.

Last December was a busy month for Gov. Rick Snyder.  Not only did he push through a new emergency manager law, to replace the one rescinded by voters, he also pushed through a Right to Work bill.  Read “GOP, Koch Brothers Sneak Attack Guts Labor Rights in Michigan” here.  (Yes, there’s the Koch brothers, again.)  He was so effective at pushing stuff through the Legislature that the Washington Post named him “The Scott Walker of 2014”.

And… oh, dear:  is there really a Rick Snyder for President Facebook page?

Got a headache yet?

The big trouble here is, whatever happens with Detroit – with its very expensive law firm, with its history of highly-political cases…

whatever happens in Detroit will set a legal precedent for other politicians and other employers who may want to relieve themselves of their obligations to public workers. Yesterday’s USA Today even has an interactive graphic; read “Detroit not alone under crushing pension obligations” here.

So… you think you’ve got retirement benefits? Think again.

That Ice Miller report has a state-by-state breakdown of the requirements to go through the Chapter 9 bankruptcy process.   Including a note that, when the report was published, Michigan didn’t have any law authorizing a municipality to declare bankruptcy.  Which it didn’t, until Governor Snyder and the Republican-led Legislature pushed through “The Local Financial Stability and Choice Act” last December… just days after pushing through the Right to Work bill.

If it’s happening in Detroit, it can happen almost anywhere.

Think you’ve got retirement benefits? Think again.

Really, truly: what is happening in Detroit is more important to you than the Zimmerman jury sequestration details.  Or the Rolling Stone cover.  Or any of the other things that have been distracting us lately.

Detroit has gone bankruptWhat’s going on in Detroit could steal our families’ financial security.  It could radically alter what our lives are going to be like, here in New Hampshire, when we can’t work any longer.

Here’s the short version:  four months ago, the Republican Governor of Michigan, Rick Snyder, named bankruptcy lawyer Kevyn Orr to be “emergency financial manager” of the City of Detroit.

Yesterday, Attorney Orr filed a petition in federal court to have the city declared bankrupt.

What’s he looking for?  High on his list: debt relief from the city’s obligations to its current and future retirees.

This is where you need to start watching, really closely.  Depending on which accounting method is used, Detroit’s pension systems are either 91.4% funded or 69.3% funded.

The New Hampshire Retirement System “presently has a funded ratio of 56.1 percent.”

Yes, Detroit’s pension funds are in a lot better financial condition than ours is.  Yet Attorney Orr says their unfunded liability is too large, and he has asked a federal court to give the public employer “relief” from its retirement obligations.

Sound familiar? Down in West Virginia, thousands of people have been protesting a bankruptcy judge’s decision to let Patriot Coal off the hook for its retirees’ benefits.

And in Oklahoma, American Airlines retirees are waiting to see if a bankruptcy judge will let their employer renege on long-promised benefits.

Yes, using bankruptcy to evade pension obligations has been a problem in the private sector for decades now.  But just last month, it became a problem for public sector employees, too.

During bankruptcy proceedings for Stockton, California, a federal judge ruled that the city could use bankruptcy to relieve itself of the obligation to provide retiree health benefits.  “The liability for retiree medical benefits is estimated by the parties to be in the hundreds of millions.”  Stockton retirees are having to settle for a single lump sum payment of $5.1 million.  That’s barely pennies on the dollar, for a debt owed to people who spent their careers in public service.

And now Attorney Orr is trying to take Detroit down that same path toward “debt relief”.

Think it couldn’t happen here?  Think you can rely on the 1984 constitutional amendment, Article 36-a, that was meant to protect New Hampshire public workers from raids on our retirement benefits?

Probably City of Detroit workers thought their 1963 constitutional amendment would protect their retirement benefits, too.

What’s really going on here?

During the 2007-2008 Wall Street meltdown, public pension systems across America lost more than a trillion dollars in value.   Yes, that’s “trillion” – with a “T”.

And now that our pensions are a trillion dollars underfunded, they’re being attacked as “unaffordable”.  (Aren’t you glad Bill O’Brien isn’t still Speaker of the NH House?)

Any guesses on how many other Republican governors and mayors will soon be trying to “restructure” their way out of obligations to public sector retirees?

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Back when I worked for Republican politicians, they truly believed in the sanctity of contracts (such as employers’ contractual obligation to pay long-promised retirement benefits).

In fact, when they talked about “core functions” of government, the enforcement of contracts was right up there at the top of the list.  After all, how can the economy function if parties aren’t required to live up to their contractual obligations?

Perverting the bankruptcy process to obtain “relief” from contractual obligations… well, that wasn’t anywhere in the playbook, back when I worked for Republicans.

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Can’t help but notice…

The very same day that 30,000 Detroit public workers learned their financial future was on the chopping block, thanks to losses from the 2007-2008 Great Recession…

…over there on Wall Street, the Dow hit another record high.

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