Pensions on the line as Detroit files for bankruptcy

A Michigan judge ruled last week that the City of Detroit’s bankruptcy filing violated the state’s Constitution, which protects public pensions from cuts, but a federal bankruptcy judge subsequently ruled that the federal court has jurisdiction and that a hearing on the case would be held on Wednesday, Jul 24.

Union leaders on Monday said that they would continue to pursue legal action to block the city from declaring bankruptcy.

Kevyn Orr, the city’s emergency manager appointed by Gov. Rick Snyder, filed for Chapter 9 bankruptcy on behalf of the City of Detroit. As part of their plan for getting the city out of bankruptcy, Orr and Gov. Snyder are proposing cuts to retired workers pensions and the elimination of their health care benefit.

The average pension for a retired city frontline worker is less than $18,000 a year, and some are not eligible for Social Security because the city is exempt from making contributions to the Social Security fund.

“We urge Snyder and Orr to immediately abandon their course of action and to follow the (state) judge’s order directing the emergency manager to immediately withdraw the Chapter 9 petition and to not authorize any further Chapter 9 filing that threatens to diminish or impair accrued pension benefits,” said AFSCME President Lee Saunders in a press statement. “There is too much at stake to play political games with the hard earned retirement security of Detroit’s public workers. These retirees worked hard and played by the rules. . .  Attacking these pensions is not only unfair, it is illegal.”

On Monday shortly after the federal bankruptcy judge’s ruling, AFSCME Council 25, which represent public workers in Michigan, held a press conference where Council 25 President Al Garrett announced that the union had filed an objection to the bankruptcy proceedings in federal court.

The union is questioning Detroit’s eligibility for filing bankruptcy.

According to Ed McNeil, a special assistant Garrett, the city is required to negotiate in good faith over issues such as pensions and health care with its unions before declaring bankruptcy but has failed to do so.

Prior to Orr filing for bankruptcy, members of Orr’s staff met with union representatives to provide them information, but when asked by McNeil whether these meetings were negotiations, Orr’s staff responded that they were only information meetings and not negotiations.

At union’s press conference, union leaders said that the decision to file for Chapter 9 bankruptcy had already been made before Orr was officially appointed as the city’s emergency manager.

“I think it’s really important for the media to report the hypocrisy and the dishonesty that Kevyn Orr says yesterday they reached out and they bent over backwards, and they’ve never had one negotiating session with any of the unions,” said UAW President Bob King, who was supporting Council 25 at the press conference. “That’s outrageous. People in Michigan should be outraged they’re being lied to every day.”

McNeil told reporters that before Orr was appointed emergency manager, the city’s 33 unions proposed contract changes that would have saved the city $180.2 million, but that the city was pressured by Gov. Snyder into rejecting the changes.

Garrett referred to e-mails showing that Gov. Snyder and Orr were discussing the possibility of filing for Chapter 9 bankruptcy even before Orr was officially appointed.

According to a report in the Detroit Free Press, “Weeks before a state financial review team found Detroit’s fiscal condition so dire that Gov. Rick Snyder would soon appoint an emergency manager, discussions behind the scenes indicated that an orderly Chapter 9 bankruptcy for the Motor City might be the best option.”

The report goes on to say that the emails show that Orr had some reservations about filing bankruptcy, but one of Orr’s colleagues at the Jones Day law firm advised him in a January 31 e-mail that,

“It seems that the ideal scenario would be that Snyder and (Mayor Dave) Bing both agree that the best option is simply to go through an orderly Chapter 9,” Jones Day lawyer Dan Moss, who worked with Orr on Chrysler’s 2009 bankruptcy, told Orr in a Jan. 31 e-mail. “This avoids an unnecessary political fight over the scope/authority of any appointed emergency manager and, moreover, moves the ball forward on setting Detroit on the right track.”

At the Monday press conference, Garrett objected to the behind the scenes decision to file bankruptcy.

“Bankruptcy’s not the solution,” said Garrett. “It has been the plan of this administration because there’s been a decision made that the people running Detroit, the people who live in Detroit ought not have a say in the destiny of what the city of Detroit is.”


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