Pension-Busters’ Playbook: The Manipulations behind the Attack on Pensions in Detroit’s Bankruptcy

[marmar]

from Dollars & Sense:


The Pension-Busters’ Playbook
The Manipulations behind the Attack on Pensions in Detroit’s Bankruptcy

BY KATHERINE SCIACCHITANO | DECEMBER 2013


In July 2013, Detroit Emergency Manager Kevyn Orr filed what could be, at $18 billion, the largest municipal bankruptcy in U.S. history. 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.

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.

.....(snip).....

As the bankruptcy proceeds and 80,000 properties lay vacant throughout the city, Detroit’s budget problems are touted by conservatives as a microcosm of national public-sector pension problems. In fact, Detroit is a case study of an economy tied to an industry in crisis. It is a microcosm not of the unsustainability of public pensions, but of the devastation wrought by national economic policies that have sacrificed manufacturing to the needs of global capital and the finance industry, and that continue to profit those same players. ...................(more)

The complete piece is at: http://www.dollarsandsense.org/archives/2013/1213sciacchitano.html

[xchrom]

1. du rec.

[Wilms]

2. ^

[dixiegrrrrl]

3. Remember, Carlin saw this coming.

And Detroit is just the beginning.