Detroit Retirees And Workers Approve Pension Cuts To Avoid Far Worse Outcome

Michigan Gov. Rick Snyder (R) and the man he appointed to manage Detroit’s financial emergency, Kevyn Orr CREDIT: AP
Michigan Gov. Rick Snyder (R) and the man he appointed to manage Detroit’s financial emergency, Kevyn Orr CREDIT: AP

Detroit’s bankruptcy plan won broad approval from workers and retirees on Monday as city workers opted to support a deal that includes pension cuts rather than risk far steeper cuts to their retirement income that could follow if the city’s proposal were derailed.

Among those who participated in the vote, more than four out of five active and retired police and firefighters and nearly three-quarters of other city employees voted “yes.” With turnout of nearly 50 percent among the 32,000 workers and retirees, those vote margins lend populist legitimacy to a plan that is vehemently opposed by a handful of investors and financial firms that stand to lose billions of dollars.

The plan workers approved Monday includes both a 4.5 percent outright cut to current pension payments and a perpetual cut to future benefits by ending annual cost-of-living adjustments that protect workers from inflation. Pensioners and their representatives have pointed out in the past that the actual total damage to retiree interests is even greater once cuts to health insurance are factored in. It may seem surprising, then, that so many thousands would line up to voice support for the plan.

But if the current plan were to fall through, the city would lose access to hundreds of millions of dollars in public and private money that’s being raised specifically to protect workers from retirement cuts. In that event, retirement cuts would be many times more severe unless the courts reversed U.S. Bankruptcy Judge Steven Rhodes’ finding that federal bankruptcy law supercedes the Michigan Constitution’s protections for worker pensions.

A pair of large financial companies voted in favor of the plan even though it cut their payout substantially compared to the on-paper value of the deals, because the underlying deals were unlikely to hold up in court if Detroit chose to sue. Other categories of creditors — mostly bond insurers and other investment firms — voted “no” on the plan. But the approval of workers and a handful of investors seems likely to herald a rapid resolution for the largest municipal bankruptcy in American history, declared a year ago last Friday.

Questions remain about the broader bankruptcy process. There is significant evidence that top officials including emergency manager Kevyn Orr were always planning to push the city into bankruptcy court. Workers, pension fund representatives, and even the judge in the case say they were railroaded at various points by Orr, who managed to preserve the narrative that pension cuts were both inevitable and just despite the fact that it was Wall Street and mayoral corruption, not workers, that blew up Detroit’s accounting books. Orr’s numbers on pension shortfalls appeared to be so exaggerated that one municipal financing expert accused him of “pension voodoo” last summer. And Orr’s old lawfirm, Jones Day, is charging the city tens of millions of dollars for work on the bankruptcy case.

All those concerns could be moot as soon as this fall, as Judge Rhodes intends to hold a final confirmation trial for the bankruptcy plan beginning in August. With bankruptcy out of the way, the city could begin the difficult work of consolidating and adapting to the shifts in population and industry that have driven its long, gradual decline.