The City of Detroit has been approved to enter bankruptcy. That in itself isn’t really news. We have been expecting it for close to a year at least. Detroit used to be a manufacturing hub. The city swelled to 1.8 million people by 1950, and there were plenty of good paying manufacturing jobs. All of that changed in the 1960s. During that time, the war on unions began in earnest. Their negotiating power was beginning to be underhanded by laws restricting union activity. So-called Right-to-Work laws began springing up around the country.
As a result, manufacturing jobs began to disappear. Citizens began fleeing the city. At least 1 million Detroit residents have left the city since then. On top of all of that, the city went through a series of corrupt politicians who lined their pockets at the expense of the city. Most went to jail for their corruption.
In the end, the City of Detroit now stands with a budget deficit of $18 Billion. With shrinking tax revenues, that is impossible to make up by themselves. It is estimated that the City is spending 40 cents from every dollar it takes in on its debt. That led Gov. Rick Snyder to end democracy in the City and close it down!
When Gov. Rick Snyder was elected, along with his conservative legislature, they passed legislation that allows the State to “take over control of local governments, school districts, and townships” if they fall into the category of Detroit. In March, Gov. Snyder appointed Kevin Orr as Emergency Manager of Detroit with total power over finances. He did not have to seek permission from the elected officials of Detroit to put into place any of his ideas. Mr. Orr by the way, is not a Manager in the sense of someone who manages anything. He is simply a Wall Street Bankruptcy Lawyer!! After just four short months, Mr. Orr and Gov. Snyder announced that negotiations with creditors and unions failed and that bankruptcy was the only way out for Detroit. Surprise!!
City Pensioners were holding their breath. The city says pension funds are $3.5 Billion short. As a result, Mr. Orr in his plan is proposing a cut to pensions. The City has already cut health care for city pensioners. But, there was one glimmer of hope for the pensioners. The State of Michigan in its constitution says “pension benefits cannot be touched under bankruptcy filings”. Judge Rhodes said in his ruling that the constitution “was not a viable protection in bankruptcy”.
“I think this is a very scary day, because what the judge has done here is he has said that the state constitution, that specifically and expressly protects vested pension benefits, can be taken away in bankruptcy,” American Federation of State, County and Municipal Employees (AFSCME) attorney Sharon Levine told FOX Business. “That is very scary.”
Now, Mr. Orr says he is planning to ask the judge to cut 10 – 15 percent of pensions, which he believes the judge will approve. The scary part of all of this is that creditors are licking their chops expecting to get their money back in full. How can that happen? Art possibly worth billions at the Detroit Institute of Arts could be part of a solution for creditors, as well as the sale of a water department that serves much of southeastern Michigan. So, the city workers can have their pensions cut, and the city can lose all of its art treasures just to pay off Wall Street.
It is no secret that Gov. Snyder wants to privatize all public jobs and services. He has spoken often about such plans. The selling off of the water department proves he is planning to move forward.
The whole premise of whether the City could file bankruptcy hung on whether or not it negotiated in “good faith” with its creditors, including unions. The judge said in his statement that he didn’t really believe they negotiated in good faith, but that would not hold up the bankruptcy filing. Mr. Orr has offered pennies on the dollar to creditors, which they naturally rejected. This whole process was completed in just four months. What do you think, is that really “negotiating in good faith”?
Attorney Sharon Levine, representing AFSCME said at the trial: “The governor took more time to interview the consultants to help the city with restructuring than they took to negotiate the restructuring itself. That’s absurd.” I have to agree with her. In actuality, the whole process stunk from the beginning. Part of the problem was that the State of Michigan has withheld over 167 million dollars from the City in the last three years. That was money that Detroit was supposed to get back from their taxes paid to the State. In other words, Gov. Snyder did everything he could to worsen the situation. But, he did manage to put up $250 million for the Detroit Red Wings to get a new stadium! Wonder where the money came from? Yes, I know both of these numbers are small compared to the debt, but I believe it shows Gov. Snyder is really interested in helping the rich and screwing the poor!
Look, Detroit is a mess! It has been a mess for a very long time! Population has been decreasing. Tax Revenue has been decreasing. Services have been dropping. Yet, Detroit is larger in square miles than Boston, San Francisco and Manhattan combined! That spells doom for the city. Even so, does the State have the right to forego democratic process and send in a Bankruptcy Lawyer under the guise of being a City Manager? Have we gotten to a point where a Governor can decide that a city must go?
The real question here is what will this mean to other cities. Detroit is not alone in being in debt. The precedence being set here is really scary to other city workers. Detroit City truck mechanic Mark Clark, 53, said, he may look for another job after absorbing pay cuts and higher health care costs. Now a smaller pension looms. “Most of us didn’t have too much faith in the court. … The working class is becoming the have-nots,” Clark said outside the courthouse. “I’m broke up and beat up. I’m going to pray a whole lot.”