The court was divided 4-4.
It’s decision time in Detroit.
With Kevyn Orr, the Emergency Manager appointed by Michigan Governor Rick Snyder, taking Detroit through bankruptcy proceedings, each of 32,000 Detroit city workers with vested pensions must make a hard choice by the second week of July. Although the Michigan Constitution guarantees that pensions earned by government workers will not be reduced, Bankruptcy Judge Steven Rhodes ruled that bankruptcy law trumps the state constitution. Consequently city workers and retirees received ballots last week requesting that they vote to accept cutbacks or face even more severe cuts.
* Uniformed officers—including 3,272 police officers and firefighters as well as 9,054 retirees--who do not receive Social Security benefits and whose pension averages an annual $30,600 are voting on whether or not to allow their cost-of-living-adjustment (COLA) to be cut in half. If they vote yes, the lifetime value of the pension will be reduced by 9.9%. If they vote no, the city promises to gut their COLA, resulting in an 18% loss.
* For general city retirees, whose average annual pension is $19,200, a yes vote would mean a 4.5% reduction in their pension plus the elimination of COLA. If they reject the plan, cuts will amount to 29%. There are 5,658 garbage collectors, water and sewage workers, clericals and bus drivers along with 12,118 retirees.
The uniformed and non-uniformed workers have different pension plans, but each suffered investment losses, primarily because of the 2008 economic crisis. The plans have partially recovered, but remain underfunded since the city administration failed to transfer almost $250 million over the last 18 months. Both are, however, funded at higher levels than the state’s own pension plan.
The city also plans to recoup for the General Retirement System $230 million in excess interest credited to workers’ annuity savings accounts. The maximum cut for any individual would be 15.5% although administrators predict the “average” would amount to 8.8%. Thus the average pensioner with an annuity and voting yes might suffer a 13.3% loss.
Just as workers and retirees received their ballots, the state legislature balked at contributing $195 million to be bundled along with private funds for a total of $816 million to underwrite the revised pension plans. Interestingly enough, a poll of Michigan residents showed the majority supported the state contribution to the “grand bargain.”
However, that did not stop the Michigan chapter of Americans for Prosperity from pressuring the legislators. The Michigan AFP website proclaimed that it would hold Republican legislators—who are the majority in both the state House and Senate--accountable “if they choose to support an appropriation of Michigan taxpayer money for this deal.”
Michigan has had a revenue-sharing system since the Depression, but over the last decade has short-changed its cities, according to the Michigan Municipal League, by 28%. Yet the Michigan AFP director, Scott Hagerstrom, sees the $195 million deal as just another example of “throwing more good money after bad.”
Before the AFP intervention, the legislature was tying any financial settlement to passage of 11 new bills. For its part, the American Federation of State County and Municipal Employees Council 25, which had tentatively signed off on the deal, then urged its members to hold off on voting. Even Judge Rhodes weighed in, declaring that if the legislature didn’t act, he would count all “yes” votes as “no.”
One of the 11 bills would strip the pension boards—currently composed of city officials and representatives elected by workers and retirees--of most investment and management decisions. Instead they would be overseen by a committee dominated by financial and investment “experts.” Currently the two boards manage $6 billion in assets.
A second bill would mandate, once current contracts expire, that the city end pensions for all future employees.
If city workers and retirees were to vote no, they have two separate legal recourses. One is to challenge the ruling that bankruptcy overrides the Michigan Constitution’s pension guarantee. The second is to challenge the emergency manager law.
When Governor Snyder was elected in 2011, he quickly shepherded through the legislature an emergency manager bill that established dictatorial powers for appointed managers. In contrast to the usual legislative process, it took immediate effect. Emergency managers were appointed to formerly industrialized areas that suffered from both capital and population flight. These included Benton Harbor, Flint, Highland Park, and Pontiac—all majority Black cities and towns with high unemployment. An emergency manager was also appointed over the Detroit school system.
Michigan residents signed petitions to put the law up for a vote; in the November 2012 election a majority turned it down in every county across the state. But within a month the lame-duck legislature responded by passing a new version, this time containing an appropriation--thereby making the law referendum-proof.
Shortly afterward the Governor appointed Kevyn Orr, a lawyer specializing in bankruptcy, Detroit’s emergency manager. He has since spent at least $80 million on hiring financial consultants, including his previous law firm.
Currently there is a suit challenging the law on two grounds: Michigan voters voted it down and therefore the second law is illegal; additionally it has a disparate impact on African-Americans. Currently more than half of all African Americans in Michigan live in cities overseen by emergency managers.
For his part, the state’s lawyer dismissed any notion of discrimination. He argued that Michigan voters don’t pass laws, but merely elect representatives who pass the laws--snidely remarking that Michiganders aren’t like Californians.
Given the choice of betting on the possibility that the courts would eventually rule in favor of city workers and retirees or agreeing to a cut that is less draconian than earlier threats, it’s difficult to predict how those with vested pensions will vote.
Over the months the stress of not knowing what to expect takes a toll. Members also see that their unions are unwilling and unable to mobilize thousands or call for a massive work stoppage.
In addition, these same workers and retirees have already suffered massive health care cuts unilaterally imposed by Orr. On March 1 the city dropped a $605 a month health insurance plan ($1,834 for families) for 8,000 retirees and survivors ineligible for Medicare, replacing it with a monthly stipend of $125-175.
The message is clear: City workers and retirees should just drop dead!
By Dianne Feeley, an editor of Against the Current. She is a retired autoworker active in Detroit Eviction Defense.