http://rt.com/usa/detriot-debt-default-plan-755/
http://www.zerohedge.com/news/2013-06-14/detroit-default-today
Submitted by Tyler Durden on 06/14/2013 11:58 -0400
http://www.freep.com/article/20130614/NEWS01/306140089/
There is no way the pensions and benefits promised in an era of financialized abundance can be paid once the wheels of financialization fall off. During the past 30 years of financialized abundance, the benefits and pensions promised to public employees were increased substantially. Public unions are a powerful political force in many states, and in eras of rising tax revenues, it's an easy political decision to increase public employee benefits and pension payouts. The rising stock and bond markets generated huge profits for the public-employee pension funds, enabling them to grow without taxpayer contributions. Alas, the 8+% annual growth rate of the boom era is now structurally unrealistic. The New Normal is bond yields of 2% or 3% at best, and equities markets that are increasingly at risk of significant sell-offs. The endgame of promises made in an era of illusory, financialized abundance will be hurried along by a collapse in the equities and bond markets.
Detroit rock bottom: City announces $2.5bn debt default
Published time: June 15, 2013 16:03
Detroit said it will stop making payment on $2.5 billion of the city’s massive $18.5 billion debt and has asked creditors to accept 10 cents in the dollar of what the city owes them in a bid to avoid the largest municipal bankruptcy filing in US history.
Detroit Emergency Manager Kevyn Orr said the city would stop making payments on its unsecured debt in a bid to “conserve cash” for vital services like police and firefighters. He further said pension benefits both present and future along with healthcare would face cuts, while control over the city’s water and sewage would be turned over to an independent body.
“We’re tapped out," Orr was quoted by WWJ-TV as saying. "We need to come up with a plan to restructure our debt obligations and our legacy obligations going forward — that is: pension, other employee benefits, healthcare, so on and so forth."
Orr continued that $1.25 billion would be set aside over the next decade, $750 million of which will go towards public safety, including funds for police, fire, streetlights and other endeavors. The remaining $500 million will be for blight removal.
The emergency manager spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors holding Detroit debt on Friday in an effort to fix fiscal problems which have left the city insolvent.
One bond holder present at the meeting who asked not to be identified told Reuters Orr’s proposal was likely more than debt holders would be able to accept.
"It's just too much. It is an unprecedented amount to ask."
If creditors reject the plan, Detroit could be forced into what would be by far the largest-ever municipal bankruptcy in US history.
Orr said there is a “50:50” chance the city will be forced into bankruptcy and that decision would likely happen in the next 30 days.
"Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin," Orr said.
In a report issued to creditors on Friday, Detroit’s skyrocketing debt, pension and healthcare obligations will sell to almost 65 percent of total city revenue by 2017, up from the current level of 42.5 percent.
Detroit has also experienced a 26 percent decline in population since 2000, while unemployment surged from 6.3 percent in June 2000 to 18.3 percent in June 2012, further shrinking the city’s revenue base. Meanwhile, the city’s budget deficit is likely to exceed $380 million by July 1.
Orr, who was appointed three months ago by Michigan Governor Rick Snyder to salvage the city’s finances and operations, has been met with skepticism by local residents who have accused him of exaggerating the current situation.
“We feel that the bankers and the creditors who are here today with the emergency manager are not going to negotiate in the best interest of the people of the city of Detroit. And we are saying that the same financial institutions that Mr. Orr is negotiating with today are responsible in large part for the crisis that exists in Detroit,” Abayomi Azikiwe, a protester outside the meeting told PBS.
Leaders of some of Detroit’s 48 public sector unions were also upset by the proposals, with water and sewage workers vowing to strike over the privatization plans.
Analysis: Kevyn Orr laying groundwork for
potential Detroit bankruptcy
0
0
As Detroit seeks an out-of-court resolution to its financial crisis, emergency manager Kevyn Orr continues to lay the groundwork for a potential Chapter 9 bankruptcy filing.
The Motor City edged closer to that Friday when Orr declared the city is not paying its bills on time and that he would seek major concessions from bondholders, creditors and unions to clear debt obligations.
Missing bill payments is a key precondition for a Chapter 9 filing. Detroit has met that condition.
Cities must also prove they’ve negotiated in good faith with creditors before filing for bankruptcy, a discussion process that was on full display Friday in a meeting among Orr, creditors and bondholders at the Westin Detroit Metropolitan Airport hotel.
Orr warned that the city’s bondholders and creditors won’t fare well in bankruptcy court, so they should agree to concessions now.
“It doesn’t get better with time, OK?” he told the Free Press editorial board after the meeting. “It actually gets worse. So the sooner you come in, the better treatment you might get.”
Still, early indications suggest the city’s unions will seek to block Orr’s attempt to reduce pensions, which could lead him to catapult the city into bankruptcy court in a bid to secure
the legal authority to slash payments.
the legal authority to slash payments.
Pension holders are already agitating for their unions to fight Orr’s proposal.
Shelby Township resident Andy Oddo, 77, who retired in 1986 after a 32-year career as a Detroit employee, said he isn’t ready to accept cuts to his pension of about $800 per month.
“I’m just looking at my own problem here, just trying to hang on,” Oddo said. “I just want to hopefully have enough for me to pay my bills.”
Orr’s decision to target cuts to retiree pensions signaled to legal experts that he is preparing for a legal battle that will almost certainly unfold as part of the Chapter 9 bankruptcy process.
Some experts say they believe a bankruptcy reorganization would take years, while others say it could just take months if Orr can line up enough support ahead of time.
“Simply because it goes into Chapter 9 doesn’t mean it has to be chaos,” University of Michigan bankruptcy expert John Pottow said.
One of the reasons that legal experts believe a Chapter 9 filing is inevitable is that Orr is aiming for significant cuts to pensions, which can’t happen outside bankruptcy unless the unions agree.
Orr said he’s ready to “pull the trigger if we have to,” but he would prefer to reach agreements outside bankruptcy.
Ken Schneider, a bankruptcy attorney and principal shareholder of Detroit-based Schneider Miller, said it’s not politically palatable for union leaders to agree to major concessions without being able to say “the court forced it onto me.”
“There’s no way the representatives of the unions can sign onto this,” Schneider said.
The Michigan Constitution says public pensions are a “contractual obligation” that “shall not be diminished or impaired.” City unions say that language protects pensions from cuts.
But Orr said he believes federal law, which allows contracts to be severed in bankruptcy, would pre-empt the state constitution and allow the pensions to be reduced in Chapter 9.
“The retirement systems understand the daunting task the EM and city face to balance the city’s budget and allow it to live within its means, and we are willing to work collaboratively within certain parameters to meet that goal,” the city’s two pension funds said in a joint statement. “Having said that, our first priority is and must be to strive to protect the pensions of the people who have earned these benefits. For many, these pensions are all that they have. They provided valuable service to the city, and many live in the city.”
and allow it to live within its means, and we are willing to work collaboratively within certain parameters to meet that goal,” the city’s two pension funds said in a joint statement. “Having said that, our first priority is and must be to strive to protect the pensions of the people who have earned these benefits. For many, these pensions are all that they have. They provided valuable service to the city, and many live in the city.”
While the unions maneuver to block Orr’s attempt to reduce pensions and health care benefits, the city’s unsecured bondholders are devising their own strategies. Orr is asking them to accept pennies on the dollar.
But bankruptcy looms as a significant possibility, in part because bondholders won’t want to set a precedent of accepting steep cuts in negotiations with distressed municipalities, said Alan Schankel, a head of fixed income research and strategy for Philadelphia-based investment banking firm Janney.
“I can’t imagine they’re going to go quietly into the night and accept that,” Schankel said. “I think there’s lots of negotiations or court proceedings ahead.”
Still, Schankel said some bond insurers, which cover losses for municipal bonds that go bad, are prepared to accept some level of losses.
, which cover losses for municipal bonds that go bad, are prepared to accept some level of losses.
“The Detroit train has been coming down the tracks for a while, so this certainly isn’t a surprise for folks,” he said.
To file for bankruptcy, Orr must meet several conditions, including the “good faith” negotiations.
That explains the reasoning for Friday’s meeting, Schneider said.
And if he can win endorsements for a reorganization plan ahead of time, the Chapter 9 bankruptcy could move along swiftly.
“That will help because he’ll need to get a class of creditors which is impaired to go along in order to have a plan confirmed over the objections of some creditors who are never going to agree,” Schneider said.
June 14, 2013 at 2:00 pm
Detroit's EM unveils restructure plan
Orr says bankruptcy decision could come
within 30 days: 'We are tapped out'
Romulus — Emergency Manager Kevyn Orr hopes to know within 30 days whether his restructuring plan pitched to
creditors Friday is enough to keep Detroit from filing the biggest municipal bankruptcy in U.S. history.
Orr spoke with reporters after a 2.5-hour closed-door meeting with about 150 representatives from banks, bondholders, unions and pension funds, all of whom were asked Friday to make steep concessions.
“I think it went well. I tried to emphasize the first clear, objective and candid view of the financial condition of the city,” Orr told reporters at the Westin Detroit Metropolitan Airport hotel.
He stuck to an earlier calculation that the odds of a Chapter 9 bankruptcy are “50-50.”
During the meeting, Orr outlined a plan for creditors to stop Detroit’s downward spiral by spending $1.25 billion on public safety and other city services, money that could come from slashing the city’s $17 billion in debt.
The historic proposal spreads painful cuts among bondholders and creditors, spins off the city’s water department and would revamp retiree pensions and health care.
In a surprise, Orr announced the city is temporarily stopping debt payments, including a $39 million bill due Friday to conserve dwindling city cash.
“We are tapped out,” Orr said.
In a brief meeting with reporters after the meeting, Orr said the session went well and is intended to provide a clear path of the city’s course of action moving forward.
"If we are able to restructure and get a deal in place, then we start paying on the new regime," Orr told reporters. "We can't continue paying with the debt service we have going forward."
In blunt language, Orr highlighted the root cause of the city’s decades-long path to insolvency and blamed the crisis on financial mismanagement that, if unchecked, will have the city spending 60 cents of every tax dollar on legacy costs such as retiree pensions and health care.
“Detroit’s road to recovery begins today,” Orr said. “Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin.”
And despite earlier fears, Orr did not propose selling beloved city assets such as the Detroit Institute of Arts’ collection or Belle Isle.
The plan calls for shared sacrifice among the city’s creditors, many of whom are being offered less than 10 cents on the dollar. Some unsecured creditors will get less than 10 cents on the dollar for about $2.3 billion in claims that Detroit will soon stop making payments on unsecured debt to save as much as $25 million per month in cash, which will be spent, instead, on essential city services. Employees and vendors will continue to be paid.
Many of Orr’s moves are bound to be controversial and mark a dramatic shift from paying pension and health care liabilities to one that puts city residents first. Among the proposals is a plan to modify pension benefits and retiree health insurance.
Orr recognizes the state constitution protects retiree pensions but wants to negotiate anyway – or possibly change the law.
“We might need legislative relief,” he said. “This is the culmination of years and years of kicking the can down the road and borrowing from wherever they could.”
Instead of the current health-care system, retirees would be offered a new program that relies heavily on Obamacare and Medicare, Orr said.
More details regarding pensions and changes affecting city unions will be disclosed Thursday when Orr’s restructuring team meets with union and pension officials. Soon after, the sweeping changes will be implemented quickly.
In a joint statement Friday, the city’s pension funds pledged to help restructure the city “in a cooperative manner and with an open dialogue.”
But pension officials said their first priority is to protect the pensions of city employees who have worked diligently over the years.
“For many, these pensions are all they have,” the funds’ statement said. “They provided valuable service to the city and many live in the city.”
Dan McNamara, president of the Detroit Firefighters Association, bemoaned the city’s current situation after leaving the closed-door meeting.
"We've heard this story 100 times,” he said. “We see the health of the city, but we need these discussions to continue with labor. You've got to fix the fire department. The leadership of the fire department has destroyed us."
Orr is proposing to treat classes of creditors equally. The city’s largest secured bond debt would be restructured with new bonds. Unsecured bonds and other debt, including the city’s two pension funds, would divide a $2 billion in “non-recourse participation notes” payable once the city’s financial condition improves.
Orr wants to spend $1.25 billion over 10 years on public safety, street lights, garbage collection, fighting blight and enhanced emergency medical services to the city’s 700,000 residents.
“Today is a new day, and we have presented a plan that outlines a comprehensive roadmap for ensuring basic services are delivered to our citizens while aligning our obligations with the reality the city confronts,” Orr said.
As first reported by The News, Orr wants to strip the name “Detroit” from the city’s water department, transfer assets to a regional authority and refinance the utility’s debt, moves that could generate almost $1 billion in savings and bankroll the city’s restructuring.
By transferring the newly named Metropolitan Area Water and Sewer Authority (or MAWSA) to a regional group, Detroit could collect revenue from communities that use the city’s water and sewer system and spend the money on public safety or other services.
Orr has begun negotiations with county officials, who have clamored for more control of a water and sewer system that services more than 4 million customers across southeastern Michigan.
Orr is also looking at lowering income taxes and property taxes to attract residents back to the city, even though it may cost the city in the short-term.
“The city believes that lowering selected tax rates — primarily income and property tax rates — to levels that are at least competitive with surrounding jurisdictions is critical to reversing the City’s crippling population and job losses,” the report reads.
Orr quotes a Detroit News series that ran in February that found only 53 percent of city property owners paid their 2011 property taxes as of January. Approximately $246.5 million in taxes and fees went uncollected for 2011, of which $131 million was due to the city.
Orr also wants to invest money in reducing police response times, boost case closure rates, update and overhaul police and fire department vehicles and facilities and achieve full compliance with federal consent decrees governing use of force and jailing issues.
The proposal also includes spending money to improve street lights in areas populated with residents instead of in abandoned neighborhoods. Orr also would create a new Public Lighting Authority and outsource operations and maintenance.
The proposal also relies on funding from the state to tear down vacant and crumbling homes in Detroit. Earlier this month, the U.S. Treasury committed $100 million to fight blight in Detroit, Pontiac, Flint, Grand Rapids and Saginaw.
“The normal we have gotten used to is going to change,” Orr said. “This is not a steady state.”
The meeting, and creditors’ reaction to the plan, could push the city closer to bankruptcy or mark a step toward restructuring after decades of population loss, drops in income and property taxes and unchecked spending that has left the city with approximately $17 billion in debt.
Attendees of the meeting began trickling out of the closed-door meeting around 12:15 p.m.
Media on the floor was restricted by hotel staff to a designated area.
Most creditors headed to an opposite exit. Others ignored or refused requests for comment as they left on a nearby escalator.
Ed McNeil, a representative with the American Federation of State, County and Municipal Employees, disagreed with Orr and Gov. Rick Snyder that stakeholders are making shared sacrifices.
"The only ones sacrificing at this point are city employees," McNeil said.
"The question comes down to 'who takes the hit,'” said retiree Michael Mulholland, vice president of AFSCME 207, which represents water department workers.
It was unclear exactly how steep of a cut the city’s 30,000 current and former city workers could face. Orr’s proposal would cut only the pension systems’ unfunded liabilities, which are in dispute.
The two pension systems have about $5.1 billion in assets.
The General pension system is likely less than 80 percent funded, making it vulnerable to having its trustees removed by Orr.
A preliminary actuary report on the other city pension fund, the Police and Fire Retirement System, pegged its funding level at 96.1 percent for the fiscal year ending June 30, 2012. Fund officials on Thursday said a final assessment confirmed the findings.
A pension fight is possible.
The city’s two pension funds have amassed $5 million to fight attempts by Orr to cut retiree benefits or seize control of a system that produces some of the city’s biggest bills.
While Orr spoke, protesters gathered outside the airport’s McNamara Terminal, carrying signs and expressing their disgust with Orr’s restructuring.
Jerry Goldberg of the group Moratorium NOW! was among a group of about 20 activists speaking out against banks "who produced the problems" in Detroit through what it described as predatory lending.
"These banks, we don't owe them anything. They owe us for the destruction they've caused," said Goldberg, who peacefully gathered with a group holding signs behind a barricade on the other end of the Delta terminal, down from the Westin.
"We're saying the wrongdoing of the banks ... precipitated the crisis. There should be a moratorium on the debt service and to maintain the city services. That's what we believe is the solution to the crisis. We will continue to mobilize and educate."
Goldberg, a founder of the group, added the foreclosures created a crisis and now Orr is here to "ensure those who created the crisis are paid off."
"Let's put the fight where it belongs," he said. "The fight against the emergency manager is fundamentally a fight against the banks."
Also protesting Friday was Cheryl LaBash, a retired Detroit construction inspector, said she worked for the city for more than 30 years before retiring in 2009.
"I've got nothing to lose, except my pension," said LaBash, 63, who said she's no longer working, her Detroit home is paid for and the neighborhood has "gone to heck." "Really, there's nothing left but to fight for what we have and to maintain it."
"The workers, retirees and the community are really the creditors. We are the ones who built this city," she said, adding as a city worker she literally paved the streets of Detroit. "They can't tell me that those banks should be paid before I am and the other retirees that contributed their lives."
Staff writer Tom Greenwood contributed.
http://www.zerohedge.com/news/2013-06-14/detroit-default-today
Detroit To Default Today, "Shared-Sacrifice" To Follow
- Bond
- Corporate Restructuring
- Creditors
- default
- Detroit
- Jones Day
- Main Street
- Medicare
- New Normal
- New York City
- Reality
- recovery
- Secured Debt
And so the next casualty of the inevitable municipal collapse appears, which is, as expected, that one-time symbol of all that was right with a (once upon a time) manufacturing America, having since been replaced with the anti-symbol of all that is broken: Detroit.
- DETROIT BEGINS MORATORIUM ON ALL DEBT SERVICE PAYMENTS FOR UNSECURED FUNDED DEBT
- DETROIT TO DEFAULT ON CERTIFICATES OF PARTICIPATION DUE TODAY
And, true to from in the New Normal America, where the "fairness doctrine" rules supreme under Big Brother's watchful eye, the premise of the upcoming glorious recovery is a well-known one: "the shared-sacrifice." To wit: "The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring. Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City." The punchline: "Detroit's road to recovery begins today"... By defaulting.
Full release:
Emergency Manager Presents Plan to Secure a Viable, Strong Detroit
Focus is to Improve Delivery of Basic Services to 700,000 Detroit Residents
Detroit will Honor Pay, Medical and Vacation Obligations to Current Employees
Plan Provides for Shared Sacrifice Among All Creditor Groups to Return Detroit to Sustainable Financial Foundation and Permit Reinvestment in City
Negotiations Starting Now - Emergency Manager and His Advisers Are Moving Forward with Discipline, Speed and Efficiency of a Corporate Restructuring
Detroit will Honor Pay, Medical and Vacation Obligations to Current Employees
Plan Provides for Shared Sacrifice Among All Creditor Groups to Return Detroit to Sustainable Financial Foundation and Permit Reinvestment in City
Negotiations Starting Now - Emergency Manager and His Advisers Are Moving Forward with Discipline, Speed and Efficiency of a Corporate Restructuring
Kevyn Orr, the Emergency Manager for the City of Detroit, today presented to the City's creditors a plan that outlines the required steps to secure a viable, strong Detroit. The focus of the proposal is to ensure that the City improves the delivery of basic services -- fire and police protection, functioning street lights, regular and reliable garbage collection, blight removal and enhanced emergency medical services -- to the 700,000 people who live in Detroit.
The City currently faces approximately $17 billion in total liabilities. Detroit is insolvent and cannot meet its financial obligations without a significant restructuring. Mr. Orr's plan provides for shared sacrifice among all creditor groups – from Wall Street and Main Street consistent with their legal rights – in order to return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the City.
"Detroit's road to recovery begins today," said Mr. Orr. "Financial mismanagement, a shrinking population, a dwindling tax base and other actors over the past 45 years have brought Detroit to the brink of financial and operational ruin. We cannot repeat the mistakes of the past -- the City, its region and the country deserve better. Our plan is bold because aggressive action is required to get Detroit back on its feet and improve the quality of life for the people who call Detroit home.
"Today is a new day and we have presented a plan that outlines a comprehensive roadmap for ensuring basic services are delivered to our citizens while aligning our obligations with the reality the City confronts. My team and I hope Detroit's creditors and constituents recognize that compromise and shared sacrifice are required for a better, more sustainable future for Detroit and its citizens."
As part of its plan, Detroit is in the beginning of a moratorium on all debt service payments for unsecured funded debt, which will begin with the next payment to holders of Certificates of Participation due June 14, 2013. The City has made this decision in order to conserve cash so that it can continue to provide essential services to its citizens. Detroit also will continue to honor its pay, medical and vacation obligations to its current employees and maintain its current vendor contracts for essential goods and services.
Mr. Orr and his advisers have started discussing the plan with Detroit's creditors, and they will move forward with the discipline, speed and
efficiency of a corporate restructuring. They are committed to negotiating in good faith with all constituent groups to pursue consensual agreements. The team also is focused on pursuing a restructuring that protects and promotes the long-term viability of Detroit and the basic well-being of its citizens.
efficiency of a corporate restructuring. They are committed to negotiating in good faith with all constituent groups to pursue consensual agreements. The team also is focused on pursuing a restructuring that protects and promotes the long-term viability of Detroit and the basic well-being of its citizens.
Mr. Orr and his advisers will work to maximize recoveries for creditors within the City's means, while providing pension and health insurance benefits that are reasonable and fair. These changes will allow essential reinvestment in the City to improve the lives of its citizens for decades to come.
The plan presented today can be accessed in the Emergency Manager section of Detroit's website at http://www.detroitmi.gov/. It identifies the sacrifices the City is seeking to ensure its future viability. The plan proposes the following with respect to certain creditor groups:
- The Emergency Manager is proposing to treat the City's obligations of similar priority in roughly the same manner so as to provide relative equality of treatment as the Emergency Manager addresses the City's staggering legacy liabilities.
- Holders of secured debt will receive treatment commensurate with the value of their collateral. The City's largest secured bond debt would be restructured with new bonds that respect the valid security interests of the bondholders, or otherwise as agreed by the parties.
- The City's unsecured bonds and other unsecured obligations (including unsecured General Obligation bond debt, pension certificates, the pensions' underfunding claims and retiree healthcare claims) will receive their pro rata portion of $2 billion face amount nonrecourse participation notes, payable as the City's financial circumstances improve. Principal paydowns will occur at certain intervals and will be based upon the City's
receipt of currently unbudgeted sums related to asset values and improved City revenues. - The plan proposes to modify pension benefits consistent with available funding.
- The plan also proposes to modify retiree health insurance, with many retirees obtaining benefits from Medicare or the healthcare exchanges under the Patient Protection and Affordable Care Act.
- A follow-up meeting with the City's unions and retirees will be scheduled in the near term to explain the details of revised pension and healthcare benefits.
Mr. Orr and his advisers also want to make sure that the restructuring achieved by Detroit is sustainable and leads to a permanent revitalization of the City. Many of the planned revitalization efforts will take years to complete. In exchange for the painful sacrifices from creditors, Mr. Orr and his team will insist that structures are put in place to ensure that the restructuring initiatives are continued and that fundamental changes are not undermined. Toward this end, the Emergency Manager expects to adopt oversight structures that have been used successfully in other cities, including New York City, to ensure that reforms are sustainable and long-lasting.
"The City and its creditors and constituents will have worked too hard and sacrificed too much for the gains of the restructuring to go for naught," said Mr. Orr. "We will need an oversight structure to ensure that the tough decisions and the compromises we make today are sustainable and allow Detroit to become a vibrant and growing American city once again. We look forward to our continued discussions with the City's creditors and to a brighter future for Detroit and all of its citizens."
Miller Buckfire & Co., Jones Day, Ernst & Young LLP and Conway MacKenzie Inc. are advising the City of Detroit in its restructuring.
http://www.freep.com/article/20130614/NEWS01/306140089/
Here are highlights of Detroit emergency manager Kevyn Orr’s report to creditors on Friday:
■ Out-of-control debt : Without any change in direction, Detroit’s mounting pension and health care obligations will swell to almost 65% of total city revenues by 2017, up from 42.5% today. No other major city has similar obligations exceeding 20% of revenues.
■ Pension cuts : There must be significant cuts to accrued vested pension amounts for both active and currently retired city workers. The amount of cuts is still to be determined.
■ Health care: Obligations for city retirees and perhaps some current city workers will largely be shifted to health exchanges being created under the Affordable Care Act or other federal programs, including Medicare.
■ Belle Isle : The city park will be leased to the State of Michigan under substantially the same terms as a lease that the Detroit City Council rejected at a previously estimated savings of $6 million a year for the city.
■ Water and Sewer: The city’s Water and Sewerage Department will be spun off into a regional authority, though still technically owned by the city. The department creates its own revenue that backs its own separate bond issues.
■ Other city assets : No decisions have been made regarding disposition of assets, including artwork from the Detroit Institute of Arts.
■ Bond payments suspended : Unsecured creditors, including many bondholders who invested in the city’s general obligation bonds, will see a severe reduction in payments. The amount is unclear but likely to be less than 10 cents on the dollars.
■ Freed up money: Money saved by curtailing payments to retirees and bondholders will be put into improving city services. Over the next 10 years, some $500 million will go into blight removal, and $750 million into public safety, including more money for police, fire, street lights and other endeavors.
■ Full coverage: Visit freep.com/detroitcrisis
Guest Post: The Endgame Of State/Local Government Pensions
Submitted by Tyler Durden on 06/14/2013 - 15:01There is no way the pensions and benefits promised in an era of financialized abundance can be paid once the wheels of financialization fall off. During the past 30 years of financialized abundance, the benefits and pensions promised to public employees were increased substantially. Public unions are a powerful political force in many states, and in eras of rising tax revenues, it's an easy political decision to increase public employee benefits and pension payouts. The rising stock and bond markets generated huge profits for the public-employee pension funds, enabling them to grow without taxpayer contributions. Alas, the 8+% annual growth rate of the boom era is now structurally unrealistic. The New Normal is bond yields of 2% or 3% at best, and equities markets that are increasingly at risk of significant sell-offs. The endgame of promises made in an era of illusory, financialized abundance will be hurried along by a collapse in the equities and bond markets.
No comments:
Post a Comment