One More Lap. The Detroit Police and Fire Retirement Board yesterday voted unanimously to endorse Kevyn Orr’s revised plan of adjustment proposal to eliminate proposed reductions to post-retirement pension benefits, but modify future cost-of-living or COLA adjustments. The approval, coming one day after Detroit’s General Retirement System endorsed a similar proposed agreement which would sharply reduce the city’s proposed reductions to civilian retirees’ pension, remains to be final until individual active and retired Detroit workers vote on the plan in the coming months. Under the proposed agreement, retirement benefits would be reduced by 4.5 percent. As with the GRS fund’s endorsement earlier this week, the police and fire pension board conditioned its approval on the resolution of outstanding issues that are being negotiated in private mediation sessions. Under the proposed agreement, police and fire retirees are expected to receive annual COLA increases of 1% under the deal, down from 2.25%. The retiree benefits package represents a signal change from the city’s initially proposed pension cuts of as much as 34% for civilian workers and retirees and up to 14% for police and fire, although the cuts to the General Retirement System are more drastic because the fund was not managed as well as the police and fire fund for years.
Giving the Public Interest a Voice. U.S. Bankruptcy Judge Steven Rhodes yesterday ruled that he will not permit the Motor City’s plan of adjustment to proceed without a demonstration by Mayor Mike Duggan and the city’s other elected leaders that they understand and are committed to its implementation. The Judge directed that Detroit’s elected leaders—who are given no role under the federal chapter 9 law–must testify and convince the court that Kevyn Orr’s revised plan of adjustment submitted to the court this week is not just feasible, but is one they are committed to carrying out — and that means political leaders have to prove they will carry it out. In an announcement that appeared to reflect the deep concerns expressed by his colleague U.S. Bankruptcy Judge Thomas Bennett earlier this week at the “bankruptcy and Beyond” symposium in Pennsylvania’s capitol city of Harrisburg that the federal chapter 9 law appears to ensure a role for each of Detroit’s 170,000+ creditors, it provides no voice to the public interest or a city’s taxpayers or elected leaders. Not unsurprisingly, Judge Rhodes—who, after all, is a specialist at weaving in the contrapuntal contributions of each of his colleagues from his band, the Indubitable Equivalents—is apprehensive that a plan concocted by unelected non-Detroiters would be difficult to put into effect after Emergency manager Kevyn Orr’s anticipated departure next Fall: “It will be very hard to find feasibility unless the mayor, and in his judgment, the City Council fully supports the plan and the city’s commitment of the plan and the city’s means of implementing the plan…We absolutely do not want to get to a place where we have a plan that’s confirmed that obligates the city to make certain payments and Mr. Orr is no longer in office and whoever is running the city at the time doesn’t support the plan.” Judge Rhodes wants the court to be fully briefed on the specifics of how a post-bankruptcy Motor City will operate and implement a sustainable future, going so far as to urge the city to designate one individual from the city—not the emergency manager’s team—to report to the court regularly about the restructuring plan and any problems: “Who that is or how this person gets appointed, we can talk about…It’s in everyone’s interest — city and creditors — for any implementation issues or challenges or failures to be flagged and dealt with promptly.”
Judge Rosen to the Rescue. The ever musical coordinator federal bankruptcy Judge Steven Rhodes yesterday also ordered the Motor City to enter mediation with three of its neighboring counties to resume negotiations with Wayne, Oakland, and Macomb Counties over leasing the Detroit Water and Sewerage Department (DWSD), noting such resumed negotiations offered a “unique opportunity for the creation of that regional authority…And if we do not take advantage of this unique opportunity, the opportunity will in all likelihood be lost forever.” In virtual tandem, Chief U.S. District Court Judge Gerald Rosen, whom Judge Rhodes asked to oversee all mediation with the Motor City’s creditors, yesterday announced he had engaged two additional mediators to his team, U.S. District Judges Sean Cox and David Lawson, with Judge Cox primarily responsible for overseeing the DWSD talks. He requested that Judge Lawson also be responsible for mediating cases brought against Detroit from creditors fighting the city’s eligibility on constitutional grounds. The timely appointments came nearly simultaneously with Judge Rhodes’ hearing yesterday—which had come in response to Wayne County’s request after the Motor City had filed a notice with the federal bankruptcy court that the negotiations had come up dry. The proposed regionalization and privatization of Detroit’s water and sewer department—a department which today provides essential public services to 40% of the State Michigan’s population, had been a pivotal part of the city’s proposed plan of adjustment and source of revenue for its sustainable future—producing as much as $47 million annually in municipal lease revenues. The talks had foundered, however, because Oakland and Macomb County leaders reported Mr. Orr’s team had not provided enough financial information and that ratepayers should not be forced to subsidize Detroit’s general fund. In response to Judge Rhodes’ order, in fact, Oakland County Executive L. Brooks Pattersonissued a statement after the hearing, saying he would comply, but that tough issues remain: “While we remain open to the possibility that a reasonable solution to forming a regional water and sewer authority may be reached, we strongly believe it will require the assistance and participation of the state of Michigan and the federal government…Any solution that may be found in mediation cannot merely divert funds from water and sewer customers to Detroit’s general fund so the city can meet its obligations.” Any negotiations, if and when resumed, will be further complicated because the Motor City has yet to agree to a settlement with holders of $5.9 billion of water and sewer revenue bonds. At the end of yesterday’s all-day hearing, Judge Rhodes ordered Wayne, Oakland, and Macomb counties to negotiate in closed-door talks headed by Judge Rosen, noting: “The customers ought to have the opportunity to participate in the governance of the water services…That can only be done through a water authority.”