CA take note: Detroit pensions could take big hit in bankruptcy

July 13, 2013

By John Seiler

Although California’s current financial fortunes seemingly are improving, the next recession could cancel the bliss. So Californians, especially government workers, should take not of what’s happening in Detroit.

Emergency Manager Kevyn Orr is being forced to look at cutting not only future pensions, but already vested pensions.

Reuters reports that city workers filed a lawsuit that “claims Orr’s plan to significantly cut vested pensions would violate strong protections in the Michigan constitution for retirement benefits of public-sector workers.”

California has similar “strong protections.”

In a similar fashion to California, unfunded pension liabilities are a lot higher than the official numbers. Reuters:

“The plan, if enacted, would be expected to result in significant cuts in pension payments. Although the city currently lists $643.7 million in unfunded pension liabilities, Orr in his report said the number is closer to $3.5 billion if ‘more realistic assumptions’ are taken into account.”

That’s more than five times as much.

However, the key is that the city is totally broke and can’t possibly pay the $643.7 million in unfunded liabilities, let alone the $3.5 billion. The state isn’t going to come to the rescue. Nor is the federal government.

Fifty years of liberalism, including a special city income tax that drives Detroiters to the suburbs and absurd pay and benefits packages for city workers, have destroyed the city’s tax base. Things are so bad the population has dropped by more than half and most residents are on some sort of government assistance.

Said UAW attorney Michael Nicholson, who represents some of the workers, “It’s very, very rare for any entity to go after people’s pensions because it puts people in the poor house.”

They should have thought of that sometime in the past 50 years while the government employees were bankrupting their own city.