Shock and Awe in Detroit

Kevyn Orr, Emergency Manager of Detroit

Currently in the news is Orr’s announcement that he is willing to consider cutting pension and medical benefits. It’s likely, however, that this would require a formal Chapter 9 bankruptcy. He’s also proposing that bondholders settle for something under 10 cents on the dollar, which the banks are unlikely to accept.

The city has a work force of 10,000, including police and firefighters. Since 2009 they must take unpaid furlough days. They also pay 30% of the cost of their medical benefits. By Orr’s own admission, they are understaffed and forced to work with outdated equipment.

As for the 20,000 city workers who have now retired, Orr is threatening to challenge their benefits, which are considered “delayed compensation.” Police and firefighters earn about $30,000 in pension benefits (they are not entitled to Social Security) while the nearly 12,000 other city workers or their spouses earn an average of $19,600. These workers are in two different city pension plans; both are better funded than state pensions.

Since the Michigan Constitution says that pension benefits earned by government workers “shall not be diminished or impaired,” reducing them would have to be the result of a ruling from a bankruptcy judge. Orr’s plan when the dust clears, however, might be simply to reduce the pensions of current workers by a “hard freeze” on the existing plans—particularly for those who have worked less than 10 years and are consequently not “vested” and switching future benefits to a new “defined contribution” plan.

There is another aspect of the pensions that deserves inspection. If the funding level drops below 80% of anticipated expenses, Orr can dismiss the pension board members. In their place the State of Michigan’s Secretary of the Treasury can appoint a manager. Currently the general fund is at 83% while the police/fire fund is at 96%. But Orr maintains that this is not accurate and claims the general fund is at 65% and the police/fire stands at 78% — and his figures may be right, since the budgeted “expected return” on the fund’s investments is set at almost 8% annually, which is not realistic.

In fact, the city did not contribute $50 million and Orr skipped paying the other $54 million in pension funds that the city is obligated to set aside in 2013. He’s suspending payments to the city’s “unsecured creditors” due to its purported impending insolvency. Perhaps Orr’s plan is to take over the pension funds through dismissing the current board and appointing others.

In the report that Orr issued, he attributes the Detroit debt to a declining population, high unemployment (officially at 18.3%), a drastic reduction in state revenue sharing and a decrease in collected income taxes (down by 30%) and property taxes (down by 20% over the last six years). He also notes that the way elected officials have dealt with the resulting debt has been through borrowing, not paying into pension funds, not replacing equipment and infrastructure and decreasing services. All of these factors indicate a deep structural problem, going back decades in fact.

Yet he does not call on the state to return to the annual revenue sharing it provided just 15 years ago ($330 million in 1999 versus $173 million in 2012) or ask the governor to pass a law instructing businesses in the city to deduct taxes for those workers who live in the suburbs. This act alone would bring in an annual $155 million more to the city.

Three other steps seem reasonable:

• Since only 27 working-age Detroiters (16-64) out of every 100 have jobs, developing a jobs program is key.
• Stop foreclosures and evictions that are devastating the city. The city currently has more than 45,000 abandoned homes. Most homes are “under water,” with $140,000 mortgages on homes that are valued by assessors at $20,000. We need a program of principle reductions.
• Stop closing public schools, which anchor neighborhoods. Approximately 100,000 children who live in Detroit attend charters, suburban public schools, or schools that the governor has taken over and operates outside of any legal framework. Without decent public schools, many young families feel forced to leave the city.

Detroit’s financial crisis is real, as is that of many other municipalities. It cannot be resolved through the internal resources of the city alone, especially when its assets are being looted and when millions of city income taxes go unpaid through corporate malfeasance.

But the real task of the Emergency Manager is to impose a neoliberal agenda – privatizing services and imposing austerity on the work force — not to help Detroiters, as the Governor Snyder so often claims to be doing. The elements of this agenda are to have what the Detroit Free Press headlined as a “more nimble” city, meaning a cheaper and more flexible work force, reducing the power of unions to the vanishing point, transferring public assets into private hands through various outsourcing schemes and appropriating profitable resources.

Dianne Feeley is a retired autoworker and editor of Against the Current. She lives in Detroit.