Respectfully submitted by Lawrence E. Rafferty-(Guest Blogger)
The main stream media was full of stories in the last week concerning a judge’s decision in Michigan to allow the Bankruptcy of Detroit to go forward. What the media seems to have omitted from the discussion, is just how pensions in Detroit and across the country have come under attack.
“Now that a federal judge, Steven Rhodes, has ruled that the bankruptcy can proceed, a central issue will be whether the city can jettison up to $3.5 billion in accrued pension benefits owed city workers (which Orr claims are unfunded). With accrued state and municipal pension benefits protected by the Michigan constitution, Judge Rhodes’ ruling sets a chilling precedent for future municipal bankruptcies.” Truth-out
Michigan isn’t the only place where pensions for municipal and state workers and teachers are under serious attack. Illinois just passed a so-called pension fix that of course damages and reduces the pension benefits earned and contracted for by Illinois police, fire, and teachers. Chicago’s Mayor Emmanuel is also claiming that Chicago cannot afford to pay its pensions and workers and teachers must take significant cuts.
As in Illinois, the Detroit workers whose pensions are now at risk of being reduced or lost, did nothing to cause the shortfall in the pension programs. The City of Detroit legislators and officials for years have underfunded the city’s portion of the pension plan, while workers were making their contributions according to their respective contracts. The Detroit workers even made concessions in 2012 amounting to millions in savings to the city.
“With average annual pension benefits for non-uniformed city workers of just $19,000, the problem in Detroit isn’t the generosity of city pensions. The problem is the crisis in the city’s tax base and the city’s repeated failures to make required pension contributions.” Truth-out
It is interesting that the Emergency Manager appointed to oversee Detroit, Kevyn Orr has used some interesting techniques to make the pensions appear to be in even worse shape than they might actually be. “City pension funds—one for police and firefighters and another for non-uniformed city personnel—hotly contest Orr’s numbers. Fund documents show a combined shortfall of $977 million, $2.5 billion less than Orr claims. They also show the police and fire fund is 96% funded and the general fund is 77% funded, in contrast to Orr’s allegations of 78% and 59%, respectively.
The methodology for the Emergency Manager’s (EM) calculations takes a page from the playbook of conservatives who argue that public-sector defined-benefit pensions across the country are underfunded and should be eliminated, what one union official calls “the pension-busters’ playbook.” Like many public and private sector pensions funds, the funds assume rates of return on investments of approximately 8%. The EM lowers those assumptions by at least a full percentage point. Detroit pension funds use a common practice called smoothing to prevent sudden large losses—such as those suffered by funds across the country in 2008-9—from making funds appear more underfunded than they really are. The practice averages losses over a period of years and provides breathing space for markets to recover before recognizing, or locking in, losses. The EM rejects the fund’s use of smoothing in its calculations.
Once the size of a shortfall is determined, pension funds also routinely spread out, over a period of years, the contributions needed to eliminate any shortfall, a practice called amortization. Detroit pension funds use29- and 30-year amortization periods. The EM cuts these periods to 15 and 18 years. While this change doesn’t increase the estimates of underfunding, it does push up the size of the annual contributions that would be needed going forward, making the city’s overall budget situation appear worse as it moves into bankruptcy, thus boosting the case for cuts to pensions.” Truth-out
This attempt by the Emergency Manager to “fix” the numbers to make the pension shortfall look even bigger prior to the bankruptcy reminds me of the tactics used to force the U.S. Post Office into financial turmoil by forcing the Post Office to fund their pensions out 75 years in advance over a 10 year period of time. Could these pension attacks also be an attack on the union’s themselves?
It was argued by the Emergency Manager that the only alternative to trashing the pension rights is Detroit defaulting on their loans and Bond obligations to Wall Street. It was also claimed that defaulting on the loans and bonds would not only hurt Detroit, but would also negatively impact the municipal bond market nation wide. In essence it was argued that allowing a default on its bonds is worse than thousands of workers losing their pensions or seeing them severely diminished.
Does anyone remember the government bailout of AIG and the millions in bonuses that were paid to AIG execs with government money on the claim that the execs had enforceable contracts that had to be honored?
“If the connection with AIG isn’t immediately apparent, then you have to look a bit deeper. Folks may recall that AIG paid out $170m in bonuses to its employees in March 2009 with its top executives receiving bonuses in the hundreds of thousands of dollars.
These were people who not only shared responsibility for driving the company into bankruptcy; they also had been at the center of the financial web that propelled the housing bubble into ever more dangerous territory. In other words, the bonus beneficiaries were among the leading villains in the economic disaster that is still inflicting pain across the country.
The prospect of executives of a bailed out company drawing huge bonuses at a time when the economy was shedding 600,000 jobs a month provoked outrage across the country. President Obama spoke on the issue and said that unfortunately no one in his administration was smart enough to find a way that could keep the bonuses from being paid. The problem according to Larry Summers, then the head of President Obama’s National Economic Council, was that the bonuses were contractual obligations and they had to be honored.” Common Dreams
If I understand Larry Summers’ claim, the Wall Street employee contracts are enforceable and must be honored in full, but the employee contracts of municipal and state workers and teachers across the country must not be enforced because Wall Street will lose money. Does anyone else have a problem with this logic? Do you think that employee contracts with city and state workers and teachers should be enforced as written and in the case of Illinois and Michigan, actually guaranteed by those State’s respective Constitutions?
Why was it ok for Wall Street execs to demand that their contracts must be honored and rank and file workers in Michigan and Illinois must be reduced and in some cases eliminated in order to protect the bottom line of Wall Street banks? What do you think?
Additional Resources: Municipal Bankruptcy
Els:
I have been saying the same things myself, and my friends and family look at me as if I’m crazy. Glad to see I’m not alone in my fears.
Elaine,
Thanks for the Taibbi video.
This is very disheartening indeed. When I first moved to the US, thirty years ago, some people in a discussion at that time told me that fascism would never come to the US. I was absolutely floored at the naivety of that statement. I told them it’d come as it always has in history and remember saying that it’d come to the US if many in the middle class would become impoverished. If this theft of resources becomes a precedent for many other places in the US, it’ll add to the angry mood bubbling beneath the surface. I can imagine some sort of ‘revolution’ here in the US but the anger will be expertly funneled through the corporate masters and their political and religious allies into fascism. The wealthy will pay the most disenfranchised and least educated to put on the black boots and the black outfits to beat down the protesters, to jail the leaders of the protests and install martial law. It seems that law enforcement is already well equipped to withstand the onslaught of any kind of revolution against the oligarchs. They may even co-opt the militias which have sprung up like weeds all over this country, wrapping those men and women in the American flag and hanging, from their necks, huge Christian crosses. We need a transformational leader or leaders and Pres. Obama isn’t whom I have in mind.
Houston we have a problem. Politicians in their discussions aimed at reaching an agreement with public unions regarding pensions promised more money following retirement from service to than they were able to fund with taxes. Why did they do that ? I have an idea. Perhaps you have another one ? Talk to the taxpayer – he not Wall Street should be addressed for such promises. Old men start wars, you men have to fight them. Tell our young men what you expect of them for payment
I cannot sufficiently express my outrage at this turn of events. As the author so aptly put it, AIG bonuses were deemed contractual and therefore federal tax dollars (of which I, and millions of other working class citizens, have paid into) were used to pay the bonuses of those whose actions contributed significantly to the financial meltdown of our economy and the world’s economy. But the argument that a civil servants’ pension (part of which is paid for by the employee’s contractual contributions) is subject to change despite the fact that it’s a contractual benefit, is clearly a contradiction. Sure, make sure you honor the contract of those who are rich, but cut the benefits for those that have devoted their working lives to the citizens of their jurisdiction – guess that shows exactly who is calling the shots and who is deemed “important” enough to protect. In other words, protect those with the money (because they contribute to political election campaigns) but tromp all over the working class (whose efforts made it possible for the rich to get richer). Now explain to me how this is fair?!
Matt Taibbi on How Wall Street Hedge Funds Are Looting the Pension Funds of Public Workers
If public pensions need to be reduced, first those with the highest pensions need to have theirs reduced to the amount of the average pension. Those with the highest pensions were far more responsible for the losses than lower paid folks.
The Plot Against Pensions: The Pew-Arnold campaign to undermine America’s retirement security – and leave taxpayers with the bill
By David Sirota
http://ourfuture.org/wp-content/uploads/2013/09/Plot-Against-Pensions-final.pdf
Looting the Pension Funds
All across America, Wall Street is grabbing money meant for public workers
By Matt Taibbi
9/26/13
http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926
Employees PAID INTO the retirement fund, and planned their retirements based on pension contracts. So……let’s pull the financial rug out from under retired folks? In a country where the top one percent are insanely wealthy, stealing, yes STEALING, pensions should be criminal!!! This has happened time and again in the private sector, and now public employees are under attack.
Once Wall Street learned how easy it was to get public money back in 2008 by creating a crisis, you can bet they’re going to go after pensions, social security, and medicare.
What this really is is wage theft: the labor was already performed, and the pension (AKA: deferred compensation) is partial payment for that labor. To the degree that employees also contributed actual funds from their paychecks (mandatory, not optional, in most cases) it is also material theft.
The “investors” (actually scammers–who else would come up with a contract that includes immediate demand for ALL interest on the loan in the event of a credit downgrade of the borrower) were fully aware that they were taking a risk in making that loan. Such knowledge should mean they take their losses first, before any hits to employee pensions.
The “investors” had a choice in assuming the risk; employees had NO choice about accepting a future pension as part of their total compensation.
It is wage theft, and it should be treated as such.
Elaine,
We just have to follow the money to see who benefits. Thanks for the link.
rafflaw,
Thanks for writing about this important subject!
“If I understand Larry Summers’ claim, the Wall Street employee contracts are enforceable and must be honored in full, but the employee contracts of municipal and state workers and teachers across the country must not be enforced because Wall Street will lose money. Does anyone else have a problem with this logic? Do you think that employee contracts with city and state workers and teachers should be enforced as written and in the case of Illinois and Michigan, actually guaranteed by those State’s respective Constitutions?
“Why was it ok for Wall Street execs to demand that their contracts must be honored and rank and file workers in Michigan and Illinois must be reduced and in some cases eliminated in order to protect the bottom line of Wall Street banks? What do you think?’
*****
I think the “little people”–state and municipal workers, firefighters, police, teachers–don’t count to the powers that be. They don’t get no stinkin’ respect. Remember what happened in Rhode Island?
A Glimpse of Public Pension Reform in Rhode Island: Who’ll Lose Benefits? Who’ll Get Rich?
http://jonathanturley.org/2013/10/13/a-glimpse-of-public-pension-reform-in-rhode-island-wholl-lose-benefits-wholl-get-rich/
*****
As Detroit goes…so go other cities and states.
Retirement: Worry about it when you are young. It is easier to fund if you skip the kid thing. Do not work for a city like Dee Troit. Move south when you retire and live on a boat. Live on a boat at a marina with lots of good dogs around. At your next reincarnation ask Saint Peter if you can come back as a dog.
The filthiness of this situation beggars the imagination. Yeah, go out and tell some 75-year-old man who was a fireman for the City of Detroit for 40 years that now he’s going to have to go out and pull himself up by his bootstraps, because you can’t afford to pay him his pension any more. This is a great recipe for a revolution–so why aren’t we all in the streets?
Reblogged this on Brittius.com.
Detroit is a test case. the canary in the coal mine if you will. When Wall Street gets their mitts on the public money all other cities will fall over like dominos….Take that to the bank folks……..
I don’t like the sound of any of it. Municipal employees already gave time, which can never be returned. Nobody can un-age me not one single day. Contractual Agreements were made, and municipal employees gave their time and honored their end of the agreement. If the municipality wants to turn the clock back and renegotiate, then make me younger. Make my family younger. I want my time back. But, it cannot be done.
Other municipalities are watching the events unfolding concerning the City of Detroit, with Bankruptcy, as it may be used as a model or guideline for other municipalities.
The Honorable thing to do, is establish a brand new cut-off date that has not yet expired, then from the next day forward, any new hires of the municipality would be affected by a new pension tier.
Other side of the coin, I want damages for taking my youth, under false pretenses. I honored contractual agreements and was faithful.
If they did that to me I would open a fire hydrant every night and drain the city of water. At least cost them some money in the here and now. The city does not care about those who retired and moved south to warmer weather. We have some here in FL who moved down after retirement. If they worked for the city they will be selling their boats, homes and houses and moving into the trailer park, living off FL food stamps and begging sonnyboy for xmas money. Back when I was a human my dad was self employed and always admonished us kids: “Never work for anybody else!” Of course he got bit up by the Enron disaster. But, I don’t worry about retirement now that I am a dog.