Detroit bankruptcy is a go so now the question becomes how much retirement benefits will be cut. Emergency manager Kevyn Orr provided some clues in these pension-related excerpts from his press conference today:
Based on these remarks my original timeline prediction changes a bit:
Illinois politicians needed to come up with something that they could pass off as fully funding the state pension systems before the year 2045. Ideally they would have wanted to go with:
- Eliminate all employee contributions
- Eliminate all state contributions
- Put in $1 trillion in 2044.
The proposal they put out comes damn close. Below, in order of importance, is what I see them trying to accomplish based on the points laid out officially:
Illinois lawmakers announced on the slowest news day of the year that they had come up with (in secret) a plan to fix the state’s underfunded pension system without releasing any details and this somehow qualified as news even though this story did not originate on facebook or twitter (presumably).
Of interest is not the plan itself, which seems to be modeled on what New Jersey tried in 2011 (cut COLAs, lower benefits for new hires, guarantee that contributions will be made), but aspects of the propaganda campaigns being rolled out, some of which are funny without comment:
Next Tuesday, December 3, at 9:am, according to a notice released this afternoon, is when Judge Steven W. Rhodes will render his decision on whether Detroit can go bankrupt to avoid pension and OPEB obligations. Considering that our system of ‘justice’ often succumbs to the vagaries of expediency and whatever decision is read will almost certainly be appealed, I still have a hunch as to what will happen.
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Institutional Investor put together a list of their 40 people and, as far as public pensions go, I do not entirely agree. For example, all those union officials may have influence (to the extent they bribe politicians) but as far as impacting independent thought (though not in ways I would always agree with) I would go with the group in this video:
A report came out this week arguing that Detroit should not renege on public pensions but instead renege on:
- bank counterparties in swap transactions;
- bondholders of the 2005-6 Certificates of Participation; and
- those who got tax subsidies for moving into downtown Detroit
on the premise that these people can afford to take the hit* and, besides, it’s Detroit…didn’t they know what they were getting into?
However, the interesting (in the sense of being completely bogus) aspects of the Demos report are the two arguments proffered pooh-poohing the severity of Detroit’s pension crisis:
CNBC came out today with some great coverage of the public pension crisis that almost* got it right while USA Today made it political and got it all wrong.