Winners and losers will emerge in largest municipal bankruptcy in U.S. history
By Corey Williams
Associated Press
DETROIT (AP) — Making ends meet is about to get more complicated for Donald Smith and Robert Wallington.
The two city of Detroit retirees are potentially pitted against each other in a bankruptcy restructuring plan that would lop off much less from pensions for former police and firefighters than from retired clerks and other former city workers.
Wallington, a retired firefighter, could have his pension checks immediately reduced by 6 percent, an amount he does not like, but may accept. Smith spent 29 years in a variety of jobs and is under the General Services Retirement system, which could see cuts from 26 percent to 34 percent.
Winners and losers will emerge in the largest municipal bankruptcy in U.S. history, and nowhere is that more evident than the differences proposed for the two classes of retirees in the plan filed last month by state-appointed emergency manager Kevyn Orr.
“I believe he did that purposely to split us up,” Smith, 69, said of Orr’s plan.
Each group of retirees, like other classes of creditors, has its own vote on the plan with the bankruptcy court. But if either side votes ‘yes,’ Orr can force the plan over other creditor objections in what is called a cram down.
“Cram down can be a harsh remedy because it negates the ‘no’ vote of one or more creditor classes,” said Anthony Sabino, a bankruptcy attorney and St. John’s University law professor. “It’s precisely for hotly contested cases like this, where unanimity is nearly impossible to achieve.
“Unless several creditor classes join the (General Services Retirement System) in opposition, I think they’ll be left out in the cold.”
Creditors have until June 30 to vote on the plan. Smith said he will vote ‘no.’ He said he gets just under $670 in pension benefits each month after taxes. Even with $1,000 a month from Social Security he’s left with only about $150 after his bills are paid.
“I have to make up my mind, month from month, whether I’m going to eat, pay my bills or get my medicine,” Smith said.
He does not begrudge the public safety retirees.
“Surely, I didn’t chase down any gangsters. I didn’t rush into a fire and there is nothing I can do for anybody having a heart attack,” he said. “Police and firefighters have dangerous jobs. All I want is what I’ve earned.”
The city’s General Services Retirement System had 11,790 members receiving benefits, according to 2012 financial reports, while the police and fire system had 9,323 getting benefits.
General retirees have been far more vocal in opposition. Of about 115 letters objecting to Orr’s plan sent to bankruptcy Judge Steven Rhodes, about 100 were written by non-uniformed retirees.
“Police are (no) better than civilians,” wrote Yvonne Reynolds, a retired civilian employee in the police department. “We all wore a uniform ... not all with a badge. But we all have expenses we have to meet, some small, others larger.”
Retiree group leaders said they can’t discuss talks on the plan because they are in mediation with Orr’s team.
Retired social worker Oletha Stanfield said some in her class believe former police and firefighters will vote for the plan.
“They don’t have too much to worry about,” said Stanfield, 80. “I know it will hurt us.”
Not so, says retired police detective John Day. The deal offered by Orr also cuts future cost of living allowances, he said. Those cuts over time, will be “in the neighborhood of 25, 30 percent,” he said.
“If we have an inflationary period it would be as if we worked and lost our entire pension,” he said.
Retired police and firefighters also don’t get Social Security. That and the COLA eliminations put a heavier financial burden on them, said Bruce Babiarz, a spokesman for the retired police and firefighters.
About $12 billion of Detroit’s $18 billion in debt is not supported by a current revenue stream. Unfunded retiree health care obligations are $5.7 billion and the pension systems are unfunded by $3.5 billion, Orr has said.
Unsecured creditors like banks and bondholders would get about 20 cents on the dollar from the issuance of new bonds. The least severe cuts to pensions would rely on $815 million in fundraising efforts designed to keep city-owned art from being sold to satisfy creditors.
Of that money, foundations have pledged $365 million. The Detroit Institute of Arts says it will come up with another $100 million, while Gov. Rick Snyder wants the state to chip in $350 million.
If that money comes through, cuts to the police and fire system would only be 6 percent, while 26 percent would be cut from general retirees.
“To get that cut, and not a bigger one, the retirees would have to agree to a negotiated settlement as proposed,” said Bill Nowling, Orr’s spokesman.
Wallington, 73, who retired in 2000 after 30 years working for the city, said his pension is about $2,900 a month.
“I would have to get with the (6) percent,” he said.
