On Tuesday December 3rd 2013, Federal Judge Steven W. Rhodes approved that the city of Detroit can go ahead with bankruptcy proceedings along with stating that the city’s obligation to pay pensions in full was not untouchable in its attempt to make the necessary economic reforms to help the city come out of the more than $18 billion in debt that it owes to creditors.
The city of Detroit has been on the decline for the past 50 years, which of course coincided with the departure of the “big three” auto-makers in Ford, General Motors and Chrysler to countries like Japan and Germany. These moves have contributed to the high unemployment rate of 17.7% in August (the latest report released).
Detroit has been struggling over the past 50 years with not only unemployment, but also the billions of dollars in debt that the city has incurred with the obligation of the city to pay pensions for city workers. The cities employees have for years received pensions that have, according to emergency city manager Kevyn Orr, included life, vision and dental coverage percentage 80 to 100 percent. The debt that has piled up over the years includes $10 billion in long term liabilities owed to city pensions and retiree healthcare plans. “We cannot pay it. Everyone has known that for the last 20 years and no one wanted to deal with it,” said Orr said in a statement to the Wall Street Journal.
One consequence of the cutting back of services in the city is the response time of the police department. The average response time of a Detroit police office is one hour if the crime is violent. Non-violent crimes on the other hand are said to rarely receive a response from city police.
In a similar situation, the state legislature of Illinois voted on December 3rd, 2013, to cut the benefits in the state’s pension system which has given the state the lowest credit rating in the United States. Like Detroit, the state of Illinois has over $1 billion in debt which includes $100 billion in pension debt. In a debate Tuesday lawmakers from both sides of the political spectrum blasted the plan which was agreed to on Tuesday. Their plan includes the following:
1) Raising the retirement age for people currently 45 and younger, requiring them to work up to 5 years longer.
2) Place a $110,000 cap on the amount of salary upon which a pension benefit can be based.
3) Lower the annual cost of living payments for retirees.
The response from both sides of the political spectrum has been swift.
“We cannot continue to be the embarrassment of the nation,” State Senator Kwame Raoul (D-Chicago) said in support of the compromise. The response from the other side of the aisle was critical was well. With fellow State Senator Kyle McCarter (R-Vandalia) stating that he “would be much more inclined to support this bill if this bucket didn’t have so many holes in it.”
Thomas Manning
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