Bankruptcies of families and businesses during and after the recession were all too common. Most notably, the biggest victims from the Great Recession included entire cities and municipalities that saw their budgets falling into the red because of lost revenue, out-of-control retirement benefits, and poor fiscal planning.
One of the biggest bankruptcies of a major city in the past decade has been the Michigan city of Detroit. The bankruptcy filing has been one of contentious debate and arguments over how the bankruptcy restructuring would best serve creditors and the city.
Errors Plague Bankruptcy Votes & Discussions
One of the most significant issues for debate in the past few months has been how to handle payouts to pensioners to whom the City of Detroit owes millions and millions of dollars. Unfortunately, a recent mistake in ballots sent out in early May has put renewed ire into the situation.
A report from Reuters on the situation revealed:
Some Detroit retirees were sent erroneous ballots this month for voting on the city's plan to deal with $18 billion of debt, including public pensions and exiting bankruptcy, attorneys disclosed in federal court on Wednesday.
About 2,000 of the ballots sent to members of the city's general retirement system contained errors, lawyers said.
Carole Neville, an attorney representing a court-appointed committee for Detroit retirees, said new ballots needed to go out to these retirees as soon as possible.
It can't be a good sign of the city's commitment to fiscal responsibility that a costly mistake with ballots would be made at such a crucial time in the bankruptcy negotiations.
The Union Has Pensioners' Backs
With so many pensioners facing the prospect of getting only 60 cents for every dollar of their pension fund, the United Auto Workers (UAW) union revealed in mid-May that they would try to raise funds to minimize the impact of the bankruptcy payout on retirees.
A report in USA Today suggested:
The UAW — the second labor organization this week to agree to contribute to the so-called "grand bargain" — will not be contributing any of its own funds, mediators said. The union "will help raise material contributions toward the health care costs for Detroit's retirees," mediators said in a statement. Mediators did not provide any further details about the contributions.
Another union already involved in fundraising for impacted pensioners is the Michigan Building and Construction Trades Council, which told reporters it would contribute money to the bankruptcy deal and payout plan.
Many Objections Remain
Regrettably, the city isn't out of the woods yet, and the bankruptcy plan hasn't been well-received, even with the changes, updates, and modifications the city has made to the plan over the past few years. According to the "Detroit Free Press," the most recent plan garnered over 600 objections from groups and individuals impacted by the potential payout.
Some of the features of the latest bankruptcy adjustment include an investment plan that would reduce blight in Detroit, improve the city's computer systems, and hire new police officers and fire fighters. However, such investment would come at the expense of payouts made to pensioners.
According to the city:
…it must protect retirees from the "personal hardship" that would accompany greater cuts and must ensure that its active workforce has "ongoing motivation and cooperation."
Other cuts as detailed by "USA Today" included:
- A 14% cut to police and fire pensioner checks
- A 5 cent reduction per dollar on payouts to bondholders
- Elimination of the board of trustees for the city's pension fund
The bankruptcy saga in Detroit is far from over and pensioners, bondholders, and citizens alike still have a long road ahead of arguments, protests, and bargaining. With one report suggesting that the decayed blight impacting the city would cost at least $2 billion to repair, the city has some incredible projects ahead to return a suitable standard of living to its residents.
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