Pensions Aren’t Sacred and Art Isn’t Priceless: What the Detroit Bankruptcy Ruling Means

A federal judge's ruling clears the way for Detroit to proceed with the largest municipal bankruptcy in U.S. history

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For 90 minutes Tuesday, as snow fell on protesters outside, Judge Steven Rhodes laid out his rationale for allowing Detroit to seek the biggest municipal bankruptcy in American history.

“This is indeed a momentous day,” Rhodes told the hushed courtroom. “We have a finding that this proud and once prosperous city cannot pay its debts.”

By the time the soft-spoken federal judge had finished, it was clear that from worker pensions to the city’s art treasures, nothing in Detroit is completely safe in Chapter 9 bankruptcy.

The effect of his ruling is likely to touch all corners of the city and could serve as a legal precedent for other municipalities reckoning with unsustainable debt. Here are three of the most important takeaways:

Pensions Aren’t Sacred. Lawyers for the city’s 48 organized-labor groups argued strenuously that Michigan law protected state employees’ pensions. Rhodes disagreed, noting that the state’s constitution classified pensions as a contractual obligation on cities’ part, not something requiring special treatment.

That means the city can treat pensions like any other potentially voidable contract. Expect it to do so. On Tuesday afternoon Detroit’s emergency manager, Kevyn Orr, said he couldn’t fix the city’s financial problems simply by restructuring the debt owed to banks. “It can’t be done without impacting pensions,” Orr said.

There’s No Such Thing as Priceless Art. The prospect of selling treasured pieces from the collection of the Detroit Institute of Arts has raised alarm among art lovers and citizens who worry the city would be using its cultural heritage to service its debt.

In his ruling, Rhodes gave Orr the leeway to pursue such a move, though he cautioned the emergency manager against holding the equivalent of a fire sale. In unloading assets, Rhodes said, a debtor needs to take “extreme care” to be sure a sale is absolutely necessary.

Orr told the Detroit News that an initial evaluation of 496 pieces placed their value at under $2 billion, less than many thought the works would bring. A Christie’s appraisal of all the artwork owned by the city is expected to be finished in two weeks.

The Unions Were Right, but That Didn’t Matter. Although Detroit’s unions failed in their main goal, they won a Pyrrhic victory when Rhodes agreed that the city had failed to bargain in “good faith.”

The judge admonished Orr (who was not present) for trying to pass off a swift series of meetings ahead of July’s bankruptcy filing as a true negotiating effort. Rhodes, however, accepted Orr’s argument that it was impractical to meet with all 48 unions and 100,000 creditors before the bankruptcy filing took place, even though unions said he could have made a greater effort.

A visibly upset Sharon Levine, who represents the American Federation of State, County and Municipal Employees in the case, said her group planned to appeal Rhodes’ ruling to the Sixth Circuit Court in Cincinnati and beyond that, to the U.S. Supreme Court if necessary.

In ruling that Detroit could proceed with its bankruptcy anyway, Rhodes showed that a failing by city officials with labor groups wasn’t enough to offset the overwhelming need for the case to go on.

“For the image of labor, Detroit is a catastrophe,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “The aristocrats of labor have become the paupers of labor. What affected yesterday’s manufacturing workers is now affecting policemen and firefighters. Nobody is safe.”

41 comments
ross1776
ross1776

I still cannot comprehend how public employees are allowed to unionize, since the right to assemble and petition was given for the people, not for civil servants or public employees who are, after all, A PART OF GOVERNMENT.  Insane how truly messed up this country is, and AFSCME is a big part of it, and a bit part of what ails Detroit.  Along with the fact that the federal government, not the states, now hold the purse strings and use those purse strings to keep the states and the people in line while hiding out far away in Washington.  This country's government is upside down, and Detroit's "bankruptcy" is just a small, very small, result of unconstitutional and out of control government.  And health care does not work using "free market" principles, but should be deterimined at the state level also.  Try using free market principles when your nearest and dearest has a heart attack.  This country IS INSANE.

Manchuliantsev
Manchuliantsev

To prevent such in the future - what do you think of the web-based municipal marketplace run by the local authorities to involve jobless into work via peer-to-peer services (Taskrabbit-like), cut payouts and earn on job patents?

Doni
Doni

Sorry to say this folks, but a $13BN destroryer USS Gerald Ford replaced Ford Motors industries.  November 2008 saw Canada helping the US Government $50BN bailout for Chrysler, GM Ford Motors - just look where all the money went.   Yeah, Susan Elizabeth Ford Bales knows nothing about Foisting.  It is the essence of American Business.  Susan should devote her next book on this classical subject.   If I was a Navy Captain, my one wish is to see her beloved Father's heap of junk torpedoed to the bottom of the Ocean.  Obama can turn Detroit around - guess how ?  Mrs Bales is just a pooch - and she is astonishingly toilet trained.  Thanks to Japan and Korea for supplying her critical prosthetic spare parts.

Fastgirl
Fastgirl

Nothing should be sacred that is what bankruptcys are about. This what happens to a city after decades of corruption, theft by elected officials and voters voting for candidates just because they have a D after their name. Maybe in the future the voters will be more circumspect about who they elect to run their city. I doubt it.

Oprichniki
Oprichniki

It is just a transition between one set of crooks and another!

clydeconkey
clydeconkey

This is what 60 + years of Democrat rule in one city looks like.

richardenders
richardenders

“The aristocrats of labor have become the paupers of labor. What affected yesterday’s manufacturing workers is now affecting policemen and firefighters. Nobody is safe.”


This is the demogoguery that exists.  Calling policemen and firefighters 'not safe'.  Check out the compensation levels of these guys and how it has risen in the last 10-15 years.  To claim that cops and firemen are not safe is ridiculous.  The reason cities are going bankrupt is because these guys got paid so much more than they used to , and the retirement rules were not changed, so we have cops retiring after 20 years (42 years old) and they need to be replaced.  Its like the NY Yankees payroll.  So many of the guys are earning money and not working.  It was always only a matter of time, when these municipalities went bankrupt.   At Ford and GM  they also got the huge pay raises and retirement benefits--and went bankrupt.   Unions think they are doing their members a favor by bleeding cities dry--now they are finding out that being fair --to the cop and to the taxpayer is what works best.   You pay too much and you go out of business.  No different from a government than a company.  If the product is no good, you move.   Detroit became too expensive for businesses and families to set up because the taxes got too high ---  lesson learned.   Governments dont make money---they have to collect the money and taxpayers have the ability to move.

d_webber
d_webber

No wonder all the people left given the government  was giving it’s self life time parachutes gained on the backs of the poor citizens who had to work till they dropped dead to pay the government employees nice lifestyles.

KaneVirgil
KaneVirgil

So even retired worker's pensions are less important than a bank's debt. USA! USA! USA!

mellotronman424112
mellotronman424112

Detroit's 30 years of moronic city managemnt are what led to this fiasco. and yes the pensioners are going to give some back- but the pension mgmt itself failed the pensioners it swore to represent. it bled money out on loans, gifts, etc. the fund was not managed professionally.

hopefully, since pension obligations are not immediate, then the restructuring will be less painful..I would cut the pensions to a max of $60000 annually ( I know many of the pensions are less) and gradually trim no more than 25% off the lower pensions.

next I would move all current employees into 401 K type plans effectively cancelling out future obligations.

and finally I would have private sector oversight of the City's financial dealings  with qrtly up dates so that the jiga boos who caused this problem and their future ilk cannot wreak havoc anymore.

Openminded1
Openminded1

Ah Detroit the city of blight, crooked politicians and Rats. maybe the new white mayor can turn the city around, but i doubt it. It is the worst major city in the USA. 

daneh77
daneh77

Works of art gifted to a local public museum should be OFF LIMIT. (Henry Ford, wherever you are, take note.) Shame on our later-day bottom-line anne-rand corrupt capitalistic systemers.

MarioGonzales
MarioGonzales

Of course, the whole charade is to steal what's in the pension fund, loot the art, and the fat cats walk away with the cream, as usual.


Public employees need to take a lesson here. Since pensions are not guaranteed even after 40 years of faithful service, forget the pensions and demand enough current wages for each member to fund their own individual retirement plan to the same level as the old pensions. They can't take away wages already paid. So in future, workers, get the dollars, and strike if you don't. To hell with disposable frills and billionaires and banks standing by to steal whatever working people can pile up.

Metro
Metro

Somethings are "sacred" in bankrutcy, like your house. Or a secured transaction.

Metro
Metro

The pension fund is fairly well run. And because it has $5,000,000,000 in assests covering 25,000 current retirees, the banks want to raid this fund. It is not managed by the city, it is managed by an independent board.

#libtardedamerica
#libtardedamerica

@clydeconkey 

other long-term democratic cities include:

baltimore (almost 50 years and all but 4 of the last 65)
camden, nj (decades, and doesn't even have a republican party anymore)
D.C. (more than 50 years)
St. Louis (almost 65 years)
New Orleans (almost 80)

noticing a trend here?

Openminded1
Openminded1

@richardenders White flight, it was the whites that paid taxes, blacks do not in the same way. So Detroit is where it is now. A dump of a city.

richardenders
richardenders

@KaneVirgil No I think the idea is that if you work as a policeman until you are 42, and retire and that builds on itself, because of 5-10% raises  a year over the last decade that the unions couldnt see that money would eventually not be there.  Just like social security began when the life expectancy was about 65 so the system made sense.  People live beyond 80 now and adjustments need to be made.   Policemen used to retire at 55 now at 42.   And they can retire earlier because their pensions are bigger and the whole thing catches up.   No one in this country should be poor, but no one in this country should be retiring at 42 on taxpayer money.    

hockeyshark000
hockeyshark000

@KaneVirgil  yes...if the banks fail you can kiss the pensions goodbye,who do you think holds the pension accounts

Metro
Metro

Absord this: The average police fire pension in Detroit is $28,000. None of the police fire retirees gets Social Security. None.

Metro
Metro

As if you have anything to do with the success or failure of were you live.

GayleLoveland
GayleLoveland

@daneh77 ---So you're saying that, rather than sell Detroit's artwork to, say, New York Metropolitan Art Gallery, it's BETTER that Detroit's current retirees live on NOTHING? I've got a news flash for you: I was born and raised in the Detroit area. The current population of that city are NOT spending their time in its art gallery! It's a complete WASTE of something that should be APPRECIATED by the multitude..............

bryanfred1
bryanfred1

@daneh77 You're blaming Detroit's problems on capitalism, rather than government mismanagement?  Really?

richardenders
richardenders

@MarioGonzales  Sure.  Do that.  But then you will be in a higher tax bracket and not be elegible for all the benefits that come with deferring compensation.   You retire as a cop at 42 or 45 after 20 years on the force and collect 60k a year until you die at age 85 means you just went from earning 80k a year to 200k a year.  (2.4 million in pension)   200k a year is too much for a cop.  I was in the marines for 14 years and my highest pay was 36k.   I risked my life --these guys claim they risk their life at the barganing table...but rarely is it true.

rokidtoo
rokidtoo

@MarioGonzales I hope public employees throughout the country are listening. Any deferred compensation promises are not worth the paper they're written on. If governments won't pay the going rate for your skills, find a new job. There's nothing holding you to your current position, i.e. no loyalty, no future pension, no future healthcare benefit.

Fastgirl
Fastgirl

@Metro In some states they can take your house and everything you own. As for secured loans they are manged through the bankruptcy.

Fastgirl
Fastgirl

@Metro Where did the money come from that funded the pension funds? From the taxpayers. Unfortunately this is what happens when any enity has to delcare bankruptcy. If they sold their $20 billion in art they wouldn't need to touch the pensions. They don't think they should have to sell that either. Every American needs to learn a lesson from this. It could happen elsewhere.

Openminded1
Openminded1

@richardenders @KaneVirgil I retired as a cop after 30 years of service at age 51. i paid my dues. It was not Detroit that i retired from it was another major city that was run the right way, not the Detroit way. The problem is the way Detroit was governed and who ran the city.

Openminded1
Openminded1

@Metro I do know i would never live in Detroit, or cities like Gary Ind, or St louis, New Orleans, Dc, and or Newark.

bryanfred1
bryanfred1

@richardenders @MarioGonzales Richard, you just summed up the entire problem right there - work for 20 years, get paid for another 40.  There is no other job in America where that's the arrangement, because it is patently obvious that such a scheme is financially unsustainable.

Openminded1
Openminded1

@richardenders @MarioGonzales Bs i was a Marine in Vietnam, yes i was at risk everyday for a year. Not so much risk when i was at camp lejune and Paris island as A DI. You spent 14 years in the Marines how much was stateside not in a war or conflict. I spent 30 years in law enforcement not knowing each day if i would make it home. Your hatred for cops is showing, How many times you been arrested moron?

bryanfred1
bryanfred1

@Fastgirl @Metro Correct, but a secured loan is at the front of the line.  In this case the pensions are unsecured obligations; however, if the city's bonds are unsecured as well then they're all in the same pool.

GayleLoveland
GayleLoveland

@Openminded1 ---Openminded1: If you ever get the chance for a "pension buy-out," I'd take the money----and run. There is NO such thing as a "secure city government pension," unless it is a SECURED (read: non-401K, non- market-dependent) entity........

Openminded1
Openminded1

@bryanfred1 @Openminded1 @richardenders @KaneVirgil true, Detroit already has a former mayor on his way to prison, and many other alleged civic leaders should join him. My Pension is very secure, and i have been retired 11 years.

bryanfred1
bryanfred1

@Openminded1 @richardenders @KaneVirgil Assuming your pension is secure, it's likely because your city did not elect mayors and councilmen who competed primarily on the basis of who could give more money to public unions the fastest.  The so-called leaders who continued to approve Detroit's increases knew they would be safely out of office by the time the bill came due, but didn't care because all they cared about was getting elected.  If I lived in Detroit I'd be tracking down the people who set this mess in motion and did nothing to fix it when the problem became apparent.  They're the ones to blame for all this.


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