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(R) Trisha Calvarese
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June 14, 2013 10:24 AM UTC
5 Comments
Orr says bankruptcy decision could come within 30 days: 'We are tapped out'
Emergency Manager Orr recognizes the state constitution protects retiree pensions but wants to negotiate anyway – or possibly change the law. “We might need legislative relief,” he said. “This is the culmination of years and years of kicking the can down the road and borrowing from wherever they could.”
http://www.detroitnews.com/article/20130614/METRO01/306140057
It looks like Detroit will need to go into Chapter 9 bankruptcy to get out of their pension obligations. This article is interesting in that Manager Orr is attempting to treat all city creditors equally, not only hitting city retirees. In Colorado, 90% of the financial hit of SB10-001 is on retirees, 10% on PERA-affiliated employers, and leaving other bonded creditors totally intact. Why break contracts only with PERA retirees … why not shared sacrifice with bondholders?
Hey hawkeye, it's interesting that even Chapter 9 bankruptcy by municipalities does not always allow them to escape their public pension debts. Note the proposed settlement in Stockton that was reported this morning. Like the Vallejo bankruptcy, Stockton's bankruptcy will trim not a penny of its public pension debts:
"Under the deal with some 1,100 retired employees – Stockton's largest group of unsecured creditors – the city will pay a lump sum of $5.1 million to reflect the loss of their health benefits in retirement and leave their current pension benefits intact."
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20130613/A_NEWS/306130321
And, of course, state governments cannot declare bankruptcy under federal law.
A few more thoughts:
State and local governments in the U.S. have three times much bonded debt as they do public pension debt. Why is public pension debt such a "burden," while all other state and local government debt (300 percent greater debt) is not a burden? ($2.8 Trillion, total state and local government bonded debt, according to the U.S. Census Bureau.)
How is the fact that state and local governments have not "banked" the three percent of future revenues needed to support their public pension debt a "crisis," while the fact that state and local governments have not banked the 97 percent needed for all other future public expenditures is not a "crisis." Doesn't fit the political agenda does it?
The return assumption for PRIVATE sector defined benefit pension plans in the U.S. is now 8.1 percent, higher than the return assumption for most public sector defined benefit pension plans. Good enough for the private sector, not good enough for the public sector?
The ratings agencies, Fitch and S&P believe public pension systems to be well-funded at 80 percent actuarial funded ratios, the average funded ratio for US public pension systems is currently in the 70s. Why is pension debt owed by "well-funded" pension systems considered to be a "crisis"? Why did the Colorado Legislature decide to attempt to break public pension contracts until a funding level 20 percent beyond "well-funded" is achieved? In the words of Meredith Williams, "It's just easier that way."
Hey Algernon, I agree there's a political agenda in play. On June 29, 2011, MN District Court Judge Gregg Johnson and CO District Court Judge Robert Hyatt both simultaneously rendered their decisions to breach public retiree contracts. At first glance, one would think neither judge wanted the distinction of being the first to breach public retiree contracts, so they agreed to a "tie". However, on second thought, it's pretty obvious these judges at at least unwitting participants in the retroactive claw-back of retiree benefits.
Algernon, I don't know if you've considered the timing of the pending SavePeraCola lawsuit before the Colorado Supreme Court, but I anticipate a delay until after the Nov 4th elections so as not to influence the outcome of the school tax ballot measure. However, do you think anything unfavorable to SavePeraCola would bolster the changes of passage of the ballot measure?
Hey hawkeye, I think that the possibility of a Colorado Supreme Court decision in Justus v. State, prior to the election, is remote. Even if the Supreme Court takes the case (rather than letting it go back for trial) typically, it would take the court at least six months to render a decision. Caveat: I believe that they were faster than that in Lobato! Also, why is the connection between the PERA pension debt and public school finance significant? The PERA debt would remain even if we completely privatized Colorado schools. The PERA debt is owed to PERA pensioners who worked in hundreds of public sector positions other than "teacher," or "school administrator." Al