DETROIT - Revisiting a Bankrupt City

"After threats of painful cuts, Detroit moves closer to deal to protect pensions" PBS NewsHour 4/17/2014

Excerpt

JUDY WOODRUFF (NewsHour):  Nine months after it became the largest city in the U.S. to declare bankruptcy, Detroit is drawing closer to a deal on how to protect current and former city workers from deep pension cuts.

Until recently, officials had been warning of painfully large pension reductions.  The shift was announced yesterday, and, today, leaders of the retired police and firefighters group voted in favor of it.  Pensions for those retirees had faced a pension cut of up to 14 percent.  Under the new deal, they wouldn’t take a cut.  Other civilian workers faced a reduction that could have been as high as 34 percent.  That’s been scaled back to 4.5 percent.  Any action on pensions is being watched by other cities that confront huge debt.

And Christy McDonald of Detroit Public Television is here to fill in the picture.

Welcome back to the program.

Christy McDonald, am I right that there were these dire warnings up until just a day or so ago that pension cuts could be enormous?

CHRISTY MCDONALD, Detroit Public Television:  Absolutely, Judy.

And that’s probably part of the negotiation process.  You don’t come to the table first with your best deal.  You have to start the negotiation.  And those negotiations have been coming fast and furious ever since the city put its first plan of adjustment on the table about a month or so ago, which really is the road map of how Detroit is going to get itself out of bankruptcy.

And so there’s been a lot of back and forth, but there’s also been a lot of moving parts in different aspects to deal to try to offset those pension cuts.  And it’s something called the grand bargain is what we’re calling it here in the city of Detroit.

What it is, is about $815 million that would help protect art at the DIA from being liquidated and sold to offset those pension cuts.  Some of that money would come from foundations and also the Detroit Institute of Arts itself, but $350 million of that would also come from the state.

JUDY WOODRUFF:  Now, what turned this around, because there was a serious concern that the retirees were going to take a big hit?  What broke the dam?

CHRISTY MCDONALD:  Well, when you take a look at this entire process, no one is going to be happy at the end of a bankruptcy process.  No one is really going to win.

You know that the banks are going to take a severe haircut, but really the most vulnerable people of all in this entire process are those retirees, the people who worked for the city of Detroit and were promised a pension at the end of it, and it was actually protected by the state constitution.

Well, the bankruptcy judge said in the beginning — this is federal bankruptcy court — those pensions are going to be allowed to be touched.  So, everyone knew and was looking at this pension issues and the retirees, knowing that some sort of special protection would have to come towards them.  And so I think that you have people working at the state level.