Apparemment l'administrateur judiciaire de la ville "emergency manager" l'envisagera si la requête "Chapter 9" est retenue.
Questions about Detroit emergency manager Kevyn Orr’s plan to pursue “significant” cuts to pensions and to reduce the city’s spending on retiree health care were front-and-center at a meeting Thursday morning between Orr’s advisers and city union leaders.
Orr says he believes he would have the legal grounding to slash pensions if the city files for Chapter 9 bankruptcy, while unions say they believe the Michigan Constitution will shield pensions from cuts.
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Meanwhile, Orr is also targeting major changes for retiree health care, another fertile ground for a legal battle.
On Thursday, Orr and the unions talked. But next up might be a fight.
There is significant uncertainty on how unions would fare in bankruptcy court, in part because Chapter 9 happens so infrequently. But here are answers to some key questions.
Can Orr cut payments to retiree pension holders?
Not yet. But cuts are possible if the city files for Chapter 9 bankruptcy. Orr wants to freeze pensions for workers who are already vested and transition current employees to 401(k)-style plans. But bankruptcy could lead to more cuts if bondholders push for reductions. That’s why Orr is encouraging city unions and retirees to make a deal outside bankruptcy to reduce pensions.
“The sooner you get in, the more he’s likely to give you,” said Laura Beth Bartell, a Wayne State University bankruptcy law professor.
How much could pensions be cut?
This is very difficult to say. Orr declined to provide an estimate. Bondholders could push for steep cuts. Legal experts generally agreed the cash that has been contributed to the city’s pension funds so far cannot be touched.
But Orr says the city will stop making additional payments to its pension funds, which would total $200 million to $350 million annually. This could trigger a recalculation of future monthly pension checks.
Doesn't Michigan law protect public pensions from cuts?
Outside bankruptcy, yes. Inside bankruptcy, maybe not.
City unions point to a clause in the state constitution describing public pensions as a “contractual obligation” that “shall not be diminished or impaired.” But Orr said federal bankruptcy code, which allows contracts to be severed, pre-empts the state constitution and would allow pensions to be reduced.
Bankruptcy attorneys agree with Orr, but no Michigan municipality has ever challenged this in bankruptcy court.
Exactly how much are the city's unfunded pension liabilities?
This is in dispute. Orr’s report said the city’s two pension funds have about $3.5 billion in unfunded liabilities. Union leaders say it’s far less. The answer depends on how the city’s pension liabilities are calculated. Orr says the pension funds’ projection of 8% and 7.9% annual growth is too optimistic.
By contrast, for example, General Motors expected growth of 6.2% for its U.S. pension funds in 2012.
“What you need to pay people has certain assumptions about what the money that’s in there is going to earn,” Bartell said. “People differ looking into the future. So he thinks the figures that were generated before had unrealistically high assumptions about return.”
Could retirees lose their health care coverage?
Yes. Orr wants to eliminate city-paid retiree health care and life insurance plans, which cost the city about $177 million in the 2012 fiscal year. He is proposing that senior retirees rely on Medicare, while younger retirees pay for their own insurance on the federal government’s new health care exchanges, available starting Jan. 1.
Ken Schneider, a bankruptcy attorney and principal shareholder of Detroit-based Schneider Miller, said the retirees may be entitled to a small settlement if the city eliminates health care as part of its bankruptcy reorganization.
“It’s just going to translate into a great, big claim that will be paid into pennies on the dollar,” he said.
Are benefits for current employees susceptible to cuts?
Yes. For example, according to Orr’s report, the city owes $101 million in “accrued compensated absences,” which includes unpaid vacation and sick days. The city will probably try to shed those liabilities in bankruptcy.
Can Orr impose new work rules for city unions?
Orr plans to pursue new labor terms, including favoring “quality of the employee” over seniority in promotions. He has the power to impose new contracts under the state’s emergency management law. According to the report, he also plans to make major changes to union rules.
For example, he blamed the Detroit Police Department’s 8.7% case closure rate in part on “unfavorable work rules.” He decried the fact that police are not subject to performance metrics, creating a lack of accountability.
Schneider said the city would have to show a bankruptcy judge that it has made wide-ranging changes to fix its structural problems.
Contact Nathan Bomey: 313-223-4743 or
nbomey@freepress.com. Follow him on Twitter @NathanBomey.
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