Detroit: ground zero for the battle to save public sector benefits and pensions

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There is a bad moon rising in Detroit and workers and retirees saw it coming. Republican Governor Rick Snyder appointed “emergency manager” Kevyn Orr to oversee a coup d’état of city government in March 2013. Orr, a former lawyer with Jones Day, a long-standing firm representing corporate interests, delivered the next blow by forcing the city into federal bankruptcy minutes before a local court would have halted that action. This abrupt bankruptcy status paved the way for wiping out Detroit public workers’ pensions.

On Dec. 3, 2013, U.S. Bankruptcy Court Judge Steven Rhodes ruled that public pensions are not protected under a federal Chapter 9 bankruptcy, despite the State of Michigan law that says otherwise. That ruling sets up not only the City of Detroit’s pension and benefit system elimination, but those of state and local governments throughout the country.

Emergency Manager Kevyn Orr has done a masterful job of making people believe that the city of Detroit is bankrupt because of an $18 billion debt. He has included in this his estimate of the total pension obligations ($3.5 billion), and the total unfunded health benefits ($5.7 billion). He has also tossed in the Water and Sewerage Department debt ($5.8 billion), despite the fact that it serves most of southeast Michigan and a population far greater than Detroit’s 700,000 inhabitants.

A close examination of the facts reveals what is really going on, and exposes Orr’s sinister intentions. First, a city is a public municipality, not a private corporation that can be liquidated. U.S. bankruptcy law has no business dictating to elected officials and public workers’ union contracts.

Secondly, Detroit has a short term cash flow problem of approximately $198 million for three main reasons. One, a decline in the city’s population over decades caused by large industries closing factories and reopening in other locations for lower wages. Two, the recession of 2008 that caused rapid and dramatic unemployment (and much lower tax revenues). And three, servicing additional debt created by the risky “Certificates of Participation” (COP) sold to city managers to bridge the gap in pension funding. Such gimmicks were used not only to coax individuals into buying houses they couldn’t afford, but local and state governments to fund services as well.

On the question of giveaways, it was four short years ago that the Obama administration handed over to General Motors, Chrysler and Ford almost $90 billion of tax payer’s money. Taxpayers will never be made whole, because much of the repayment of that massive loan was in stocks whose values are notoriously volatile.

Obama’s justification for“ helping” the auto capitalists was to “save American jobs.” In fact, the companies that received taxpayer funds have not increased employment even close to previous levels. Those that have added jobs are primarily in the Southern, right-to-work states, and are mostly foreign companies manufacturing cars in the United States.

And why isn’t Washington bailing out the city of Detroit, as it did GM and Chrysler in 2009, or New York City in 1975? Because the workers and retirees in Detroit are 84 percent Black and don’t pull strings in the halls of Congress as the auto manufacturers do. They also don’t reside on Wall Street — headquarters of global capitalism.

To what end? So where is Orr going with this? Simple. While casting Detroit with a racist cloak of mismanagement and corruption, he is trying to cut benefits for all, and transfer current workers’ pensions (or “defined benefit plans” paid for by the employer) over to “defined contribution plan” (401K-style plans for the public sector, paid for by the employee). Wall Street gets to use workers’ retirement money to speculate on the stock market and dump them with all the risk when the capitalist economy falls into the next crisis. Further, Orr wants to privatize the Water and Sewerage Department, even though doing so will do nothing about the debt.

Apparently it matters not that the city of Detroit was cutting public jobs and wages prior to the recession, so their expenses were already declining. Further, its unfunded pension and healthcare obligations are comparable to other major metropolitan areas around the United States. In short, Detroit’s financial condition was not worse than other cities heaving with the burden of capitalism in permanent crisis.

Detroit’s average annual pensions are $19,000 for most workers and $30,000 for fire fighters. They will be much lower after Bankruptcy Court gets through with them. Even so, a $19,000 a year pension is just a little over a full-time minimum wage job in Michigan, and considering that public workers in Michigan do not get Social Security, they are already relegated to a near poverty level existence.

When Orr is done, Detroit’s public workforce and their benefits will be a shadow of its formal self. And this is what the ruling class plans on a national level.

Nationwide battles to come. Detroit is the first major city forced into bankruptcy, and the recent ruling that pensions are not protected does not bode well for public sector workers throughout the country. Throughout the recession, many cities and states deferred funding of pensions and retiree health care benefits, in order to pay for other crucial public services that were no longer paid from federal money and larger tax returns.

A Pew Charitable Trust study estimates that 61 cities have $99 billion of unfunded pensions and $118 billion in unfunded health care costs. The city of Chicago has over $12 billion in unfunded pension costs, and has one of the lowest funding percentages in the country. Although New York City has 70 percent of its obligations funded, the unfunded amount exceeds $40 billion! Retiree healthcare costs have far fewer protections than pensions, so in the event of bankruptcy they will be very easy targets. And all of this is in addition to the severe, ongoing cuts to schools, parks, and other public services.

Detroit public workers have been loud and angry in protests since the unelected city manager took over. The Dec. 3 Bankruptcy Court decision prompted signs such as “People Not Banks!” and “Support Detroit Pensions!” But labor leadership cautiously sticks to courtroom strategies. Reformers will push “Be realistic!” and the right wing will try to drive a wedge between retirees and workers with children. Both political positions will result in torpedoed benefits.

It will take a serious, militant united front effort among workers and all their allies in Detroit and other threatened cities to take on their conservative labor leaders and mount an anti-capitalist campaign against this contemptuous assault on working people’s lives and rights.

Workers deserve far higher wages, children deserve fabulous schools, and retirees deserve a life of comfort and dignity.

Dennis Sanders can be contacted at FSnews@socialism.com.

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