There is so much about the Detroit bankruptcy (even if it doesn’t hold up) that will impact all public benefit plans and government finance in general for decades yet there are several related issues (none worthy of a full blog post yet) that I have not seen addressed:
- When you select a bankruptcy attorney to be your emergency manager haven’t you already set your course?
- Meredith Whitney made one miscalculation in assuming that governments would behave like private sector companies which, when they see an unavoidable iceberg ahead, bail out. In the public sector your ship of state needs to be capsizing before you even start looking around for lifesavers.
- How does Detroit even acquire $30 billion in art? Was there a $1 billion line item in their budget for the next available Van Gogh or was this some tax scheme involving donations and deductions?
Then there’s the big question: can retirees have their pensions cut? According to a CNBC story:
Orr must now persuade a bankruptcy judge to invalidate the city’s pension contracts, freeing him to reduce payments to retirees. The unions’ lawyers will argue that pension and health benefits are protected by Michigan’s constitution, one of seven states that specifically ban cuts in retiree pension and benefit payments.
That’s why the case will be closely watched by states such as Illinois and California, which also have badly underfunded their pensions. If Detroit is allowed to cut payments to its retirees, city and state workers in those states and others could see their future benefits pared back.
What will happen? We can only guess which is a sad commentary on a government supposedly of laws and not men.
Burypensions Blog 
Posted by skip3house on July 19, 2013 at 5:45 pm
See what happens when you don’t pay as you go spending? Now, people never served by past spending/promises will question correctly/consider revolt whether to make good on debts created by others who declined to be taxed for those debts.
Posted by Tough Love on July 19, 2013 at 5:50 pm
Quoting … ” If Detroit is allowed to cut payments to its retirees, city and state workers in those states and others could see their future benefits pared back.”
And considering the excessive nature of current pension promises (most often the result of collusion between the Unions and our elected officials … betraying their obligation to look out for Taxpayer interests), is that not a very GOOD, JUST, and APPROPRIATE thing to do?
Posted by Al Moncrief on July 19, 2013 at 6:47 pm
Judge: Detroit Bankruptcy Filing Violates Michigan Constitution.
“But Attorney General Bill Schuette said he will appeal Circuit Judge Rosemarie Aquilina’s Friday rulings and seek emergency consideration by the Michigan Court of Appeals. He wants her orders stayed pending the appeals, he said in a news release.”
“In a spate of orders today arising from three separate lawsuits, Aquilina said Gov. Rick Snyder and Detroit emergency manager Kevyn Orr must take no further actions that threaten to diminish the pension benefits of City of Detroit retirees.”
“‘I have some very serious concerns because there was this rush to bankruptcy court that didn’t have to occur and shouldn’t have occurred,’ Aquilina said.”
“‘Plaintiffs shouldn’t have been blindsided,’ and ‘this process shouldn’t have been ignored.'”
“Aquilina issued a declaratory judgment that says the bankruptcy filing violated the Michigan Constitution.”
‘In order to rectify his unauthorized and unconstitutional actions … the Governor must (1) direct the Emergency Manager to immediately withdraw the Chapter 9 petition filed on July 18, and (2) not authorize any further Chapter 9 filing which threatens to diminish or impair accrued pension benefits,’ she said in her order.”
http://www.wzzm13.com/news/article/262078/2/Judge–Detroit-bankruptcy-should-be-withdrawn
Posted by Anonymous on July 19, 2013 at 7:36 pm
So where will the money come from for all eternity? Oh right, they can auction off the art collection. Just an expected bump in the road. More to come …
Posted by Tough Love on July 19, 2013 at 8:03 pm
Personally, I think that Attorney General Bill Schuette should have NOT done anything and simply told the State judge ..”Sorry you’re too late … it’s ALREADY in the FEDERAL Bankruptcy Court hands … and now it’s a decision for THAT judge, not you”.
Posted by MJ on July 19, 2013 at 8:48 pm
This will go on for years in the courts with the blood sucking attorneys sucking everything out that they can. Won’t be a whole lot left for anybody.
Posted by Javagold on July 19, 2013 at 8:59 pm
every man for himself, coming soon…..very soon
Posted by Anonymous on July 19, 2013 at 9:15 pm
Detroit earned its bankruptcy the easy way — through greed, the desire for political power and poor planning. Kevyn D. Orr, the city’s emergency manager, offered all interested parties a likely way to avoid the bankruptcy filing just weeks ago. Employees of Detroit could have shared the pain of the restructuring, but each blamed the other for the city’s problems. Orr ran out of options, as two city pension funds went to court to try to protect their assets. The city got what it deserved.
Friday’s top analyst upgrades and downgrades were in shares of AMD, ADM, CVC, COP, IGT, KMP, MSFT, NFLX, STX, and WDC.
Oppenheimer issued a list of its top industrial stocks for 2013 growth potential.
By early indications, GE is up over 2% after reporting earnings this morning. The company is counting on orders and backlog ahead.
Back to school spending is down, a bad omen for the economy.
Big oil is on the rise.
Apple had a rare day out of the spotlight as Google and Microsoft captured headlines. But remained the elephant in the room.
As Tiger Woods rides up the leader board at the British Open, tens of millions of dollars in new endorsements await him.
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Posted by meepbobeep on July 20, 2013 at 10:36 am
John, have you done a drop dead date for Detroit pensions?
Just wondering how close they are to fund exhaustion
Posted by burypensions on July 20, 2013 at 12:59 pm
I’d love to gewt the Milliman report and see what they think. There are too many variables right now but it could be as soon as two years. They’re paying out $500 million a year and say they have $5 billion left. But $$1.5 billion of that are money from those Certificates of Deposits that bondholders will insist they get paid on. Another $1.7 billion is in investments that can’t be exactly determined (hedge funds, etc). Then there’s the DC portion of the employees’ own contributions. Finally, as one of the few money sources who’s to say Detroit won’t use some of the pension money for their own purposes (paying lawyers?).
Posted by meepbobeep on July 20, 2013 at 3:30 pm
fwiw – I saw that you had done a calculation back in 2010 here:
might be nice to update that — you had drop dead for Detroit General as 2017 (the earliest of all the plans listed….except for Milwaukee), and Detroit Police & Fire at 2020
Posted by burypensions on July 20, 2013 at 7:40 pm
I don’t see a reason to update anything since it’s all garbage in. In Detroit’s case there is so much that they left out of their valuation reports (who knew the had POBs or a DC portion or $1.7 billion in questionable assets) that it slants every comparison.
Posted by makoli pakoli on July 22, 2013 at 11:57 am
Regarding the art, this is a list of some of the most valuable pieces. The majority were bought from 1920-30 with money donated by the Fords, Dodges, etc., so the current value represents a lot of appreciation over the years. For example, Bruegel’s The Wedding Dance was bought in 1930 for $38K, and it’s now estimated at $100 million. Detroit’s Rembrandt, estimated value $60 million, was bought in 1926. The purchase price isn’t listed, but a Rembrandt currently valued around $47 million was worth $1 million when Columbia University sold it back in 1975, so it’s likely Detroit’s Rembrandt cost them far less than a million when they bought it almost 50 years before that.
http://www.freep.com/interactive/article/20130526/ENT05/305260067/DIA-sale-arts-Detroit-bankruptcy
Posted by Tough Love on July 22, 2013 at 9:46 pm
Meaningless what they are worth.
They belong to ALL the Citizens of Detroit, not the greedy Public Sector workers and retirees who demanded FAR FAR more than their fair share …
Hey dumb-ass greedy workers/retirees …. I’ll bet your Union Executive’s Pension Plans aren’t underfunded