10.15.13

Confronting Motor City Legacy Costs. Detroit Emergency Manager Kevyn Orr yesterday announced sweeping changes to health insurance benefits for active and retired city employees. The changes are to take effect on January 1st and would affect 28,500 current and retired city workers—who this week will see the specific changes proposed. City officials began sending notices late last week to about 8,000 retirees under the age of 65 that Detroit is eliminating their city-paid $605 per month retiree health insurance coverage ($1,834 for families). Instead the city will provide them a monthly $125 payment to use toward one of the new plans under the new Affordable Health Care Act. Disabled retirees under the age of 65 will get a $200 monthly payment for their health insurance needs. The city will offer more than 10,500 retirees over the age of 65 a Medicare Advantage plan with city-funded premiums. Under this provision, the plan would require the retirees to be responsible for paying their deductibles and secondary insurance coverage. The plan will increase from the current $200 to $750 annually the individual deductibles for the city’s 10,000 active workers, while city employees with families on the city’s insurance will see their maximum annual out-of-pocket costs rise 50 percent from $3,000 to $4,500. Unlike contractual public pension benefits, retiree health insurance does not have state constitutional protections. Under the plan, unmarried retirees under 65 can receive varying taxpayer subsidies if they earn between $11,490 and $45,960 annually; while, according to the Emergency Manager’s office, married retirees with no dependents would be eligible for a subsidized private health insurance plan on the exchange if they earn between $15,510 and $62,040 annually. In response, Ted Renshaw, chairman of the committee appointed by U.S. Bankruptcy Judge Steven Rhodes to represent retirees in the bankruptcy case, condemned the changes Mr. Orr is imposing, stating they would “eviscerate” insurance benefits promised to retirees as deferred compensation during their public service, and claiming Medicare-eligible retirees could see their deductibles rise $500 and prescription drug costs increase 200 to 1,000%, depending on the medicine. The committee’s attorneys were scrambling Monday to understand how Orr was imposing changes to long-standing health insurance obligations without the bankruptcy judge’s approval. Mr. Renshaw added: “Exposing thousands of retirees on fixed and limited incomes to this burden is unacceptable and we will spend the days and weeks ahead fighting this plan.” Prior to the changes, Detroit’s employee and retiree health insurance expenses were on pace to top $263 million in the 2014 fiscal year, including $105 million to provide secondary insurance for Medicare recipients and $71 million for retirees under age 65, city budget records show; the changes announced and scheduled to go into effect at the end of the year are projected to reduce the city’s annual retiree health insurance costs by $142 million. Consultants for the Emergency Manager have determined that the city’s unfunded retiree health care liabilities alone account for $5.7 billion of the city’s $18.5 billion in debts.

 

Getting Ready to Rumble. Attorneys for Detroit and its numerous creditors are set to begin arguments this morning in U.S. Bankruptcy Court before Judge Rhodes with regard to the Motor City’s eligibility for federal bankruptcy.

Motor City Isle. The Detroit City Council yesterday unanimously rejected Emergency Manager Kevyn Orr’s agreement with the State of Michigan to lease Belle Isle for 30 years. Under Mr. Orr’s proposed agreement, announced jointly with Governor Rick Snyder two weeks ago, would provide for the state to lease the 985-acre island park from Detroit and take over the operation of recreational activities, roads, policing, and for the state to seek grants to invest $10 million to $20 million in the park’s infrastructure. Under the state plan, Detroit would continue to cover the $2 million in water and sewer bills for Belle Isle. The Council said the state’s plan lacked clarity, and then approved a revised proposal by a 4-2 vote with councilmembers Brenda Jones and JoAnn Watson dissenting. Among the changes in the revised plan would be a shorter lease term of 10 years with the option for two additional 10-year renewals. Council President Saunteel Jenkins said the council’s proposed lease has “more definitive plans,” including provisions to ensure the state follows through with funding park upgrades. Yesterday was the deadline for the council to accept or reject the state lease plan that called for two, 15-year renewals on top of the initial 30-year deal. The state plan was projected to save the city about $4 million each year. Councilmember Watson called the Belle Isle agreement a “wealth transfer” that has nothing to do with a financial emergency, stating the city’s master plan for Belle Isle was the route the city should take, not a lease: “We should execute it…The council should not be pushed into approving a lease. … There’s nothing wrong with the city operating its own asset. Belle Isle is a significant treasure. It’s a treasure we can manage better, and we have the capacity to do that.” Under the state’s emergency manager law, Public Act 436, the city council had a 10-day window to consider the proposal. The new plan will now go to the state’s Emergency Loan Board, whose three Gov. Rick Snyder appointees have 30 days to determine which plan is the most reasonable. Council members said they will send the proposal immediately to Gov. Rick Snyder and Orr, although, following the action, Mr. Orr’s spokesperson yesterday reported:  “Emergency Manager Orr believes the current lease agreement between the City of Detroit and the State of Michigan provides the best framework in which to ensure that Belle Isle regains its luster as one of the City of Detroit’s crown jewels…Under the agreement, the city will lease Belle Island for up to 30 years to the state but retain ownership. In exchange, the State will make nearly $20 Million in needed improvements and investment in the park and manage operations. The city will save more than $6 million a year under the lease.” Wayne County Sheriff Benny Napoleon, who is challenging former Detroit Medical Center CEO Mike Duggan in next month’s mayoral election, tweeted that he agreed with “Detroit City Council’s unanimous decision to reject the 30-year lease for Belle Isle with State of Michigan.”

Federal Shutdown’s Impact on Municipal Bankruptcy Proceedings. Bipartisan Senate leaders last night and this morning are nearing an agreement to reopen the federal government through the early part of next year; however, House leaders have indicated little to no support for the proposal, leaving unclear how much longer the shutdown might persist. The unending shutdown of the federal government, absent resolution this week, could impact the municipal bankruptcy proceedings in San Bernardino, Stockton, Jefferson County, and Detroit unless Congress acts soon. U.S. courts are trying to assess how much longer they can continue to operate, with a spokesperson for the U.S. District Court noting:  “After 10 days we’ll have to reassess and see where we go from there,” Rod Hansen, the media information officer for the U.S. District Court, said; “Judge Rhodes is determined to move this along without delay, and how persuasive he might be in being able to continue on, I don’t know.”

 

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