More Deals Coming in Detroit Bankruptcy
On the heels of major deals with pension funds, an attorney for the city of Detroit on Thursday predicted more agreements in the days ahead to help it emerge from bankruptcy.
The city gave an update to Judge Steven Rhodes during a court hearing that covered many topics, including the critical step of sending thousands of ballots to creditors, especially retirees, who will vote on Detroit’s exit plan in May and June.
Attorney David Heiman said the city believes it is entering “the beginning of the last stage of this case.”
Detroit this week got the support of pension funds and a retirees’ group to reduce payouts to thousands of retirees as well as employees who qualify for a future pension. Police and firefighters would not see a pension cut but annual cost-of-living payments would be reduced to about 1 percent.
Other retirees covered by a different pension fund would see a 4.5 percent cut and the elimination of annual inflation allowances. Roughly 30,000 retirees and employees still must vote, and the judge also must review Detroit’s entire bankruptcy plan in the months ahead.
“We are also optimistic in the next several days we may be in a position to announce further agreements,” said another city attorney, Bruce Bennett.
There are plenty of concerns, however. Foundations, philanthropists and the state of Michigan are supposed to pay $816 million to shore up pensions and prevent the sale of city-owned art.
The Republican-controlled Legislature still hasn’t approved the state’s share, $350 million, although Gov. Rick Snyder and House and Senate leaders are on board.
Union attorney Sharon Levine told the judge that the money should be guaranteed when retirees vote. Pension cuts would be deeper without it.
“This would not be the first time they would be lied to,” Levine said.
Carole Neville, an attorney for retirees, said there needs to clear disclosure about another key issue facing many pensioners. The city is proposing to recover 20 percent of what they earned in separate annuity accounts.
The pension fund for years offered an annual interest rate of at least 7.9 percent in good investment times and bad.
“Nobody understands that,” Neville said of the claw-back.