Detroit workers, retirees approve EM Orr’s plan of adjustment

[caption id="attachment_13250" align="alignleft" width="300"] Retirees Cicely McClellan and David Sole[/caption]

Challenges to follow

By Zenobia Jeffries The Michigan Citizen DETROIT — Emergency Manager Kevyn Orr’s office released a statement late July 21, that retirees and active employees who are members of the City of Detroit’s two public pension plans have “overwhelmingly approved a plan that would provide for $816 million in public and private funds to shore up pensions while placing the collection of the Detroit Institute of Arts in a protective trust.” Although the vote was necessary in moving forward to the final phase of the city’s historic Chapter 9 bankruptcy case, Judge Steven Rhodes will have the final say. Ballots were mailed to the city’s 32,000 pensioners and active workers in May — 12,000 PFRS ballots and 20,000 GRS ballots. The vote is in sharp contrast to the comments retirees made before Rhodes last week. Many said if the grand bargain —a s Gov. Rick Snyder and Orr described — were approved they would be forced to go state aid. Many described “devastating” cuts already to their health care. Retired city worker Cecily McClellan who lobbied hard for a no vote called the voting process unreliable. “We reject the bias and un-creditable voting process, conducted in El Segundo, California,” she said. “Thousands did not vote, some did not receive ballots; over 3200 ballots were incorrect, employees were allowed to re-vote. Now we find out that 6.75 percent interest has been added to the claw back recoupment amount.” ADDITIONAL CLAW-BACK The claw back is an additional amount retirees must pay back from funds they received 2003-2013. According to McClellan, an additional 6.75 percent interest has been added to the claw-back per retiree. This was not disclosed before the vote, she said after Orr’s announcement. “Legal remedy is being pursued,” she said. In all, 7,085 PRFS and 8,541 GRS valid ballots were cast, representing a participation rate of approximately 59 percent and 42 percent, respectively, the  EM’s statement read. “According to the official count by the City’s tabulation agent, approximately 82 percent of the Police and Fire Retirement System (and 73 of General Retirement System) retirees and active employees voted in favor of the City’s Plan of Adjustment (the Plan)… Balloting results were filed (July 21) with the U.S. Bankruptcy Court in the Eastern District of Michigan… “‘Yes’ votes from PFRS retirees and actives totaled more than $622 million, or approximately 82 percent of the approved dollar value for voting PFRS pension claims. ‘Yes’ votes from GRS retirees and actives totaled nearly $781 million, or approximately 73 percent of approved dollar value for voting GRS pension claims.” Under the plan, GRS pensioners will see up to a 20-percent cut to their pensions — 4.5 percent to their base pension and 14.5 percent to their annuities for those who retired between 2003-2013. Also, GRS retirees will lose their cost of living adjustments (COLAs). PFRS will see no cuts to their monthly pension payments, but will see a one-percent cut to their COLAs. TAKE 90 PERCENT HEALTH CARE CUT In a separate ballot, retirees also voted to approve a 90 percent reduction in their healthcare benefits. Cuts were made earlier this year to healthcare benefits. Had retirees and active workers rejected the plan, the $816 million in funds earmarked for pensions would not be available, and pension benefits for some retirees could have been cut by 27 percent or more, according to the statement. Before the vote, EM Orr’s spokesperson Bill Nowling said pensioners could face cuts as high as 40 percent or more. “The voting shows strong support for the City’s plan to adjust its debts and for the investment necessary to provide essential services and put Detroit on secure financial footing,” said Orr in the statement. Accepting the plan means pensioners also give up their right to sue for impairment to their pensions, which are protected by the state’s constitution. GRS, PFRS, the Retiree Committee, unions and associations representing the city’s retirees have appealed the Bankruptcy Court’s ruling that the city is eligible to file bankruptcy. The appeals are pending before the U.S. Court of Appeals for the 6th Circuit. Within a 25-page notice that accompanied the six-page ballot, Orr’s team explained the funds for the plan are only available if the retirees and their representatives dismiss or withdraw their appeals prior to approval of the plan. The notice states “even if the appellate court decides the city cannot legally reduce your pension, the city’s financial problems mean that it would still not have enough money to make the required pension contributions to the GRS or PFRS. So you would still not be assured of receiving a full payment even if you had a legal right to a full pension.” LOSE RIGHT TO SUE What it does not say is the state, according to the Michigan Constitution Article IX, Section 24, would have to cover 100 percent of the pension. Pensioners say this is problematic. “They found a way to go into what we get because they don’t want us to have anything,” said McClellan. “They know one of the lawsuits pending says pensions are protected.” McClellan called the plan deceitful and a way to circumvent the pension board trustees who have the resources to go to court. GRS retiree John Eddings cast a “yes” vote. He said this after casting his vote: “Nobody likes the deal, but it’s a choice between a bad deal and an incredibly worse deal.” Eddings, who worked for the city for 35 years said there’s “a feeling of betrayal, a feeling the city is bluffing, but the city is not bluffing. You’re dealing with cold-hearted lawyers. It hurts, but it doesn’t hurt like increasing it seven times.” The fundraising effort to preserve the DIA required by the plan called the grand bargain, which some pensioners deem a “grand theft,” is closer to its goal. The bargain is contingent upon funding from foundations, corporations and the state of Michigan. The Detroit Institute of Arts pledged in January to raise $100 million for the grand bargain. With the donations made recently by Penske Corp. ($10 million), DTE and Dan Gilbert’s Quicken Loans and Rock Ventures (each $5 million) — the largest individual donors so far, the DIA announced it is closer to its goal with over 80 percent of the funds raised, and hope to reach that goal by Labor Day. Last month, the Detroit City Council voted 8-0 to transfer the DIA, artwork and assets to a charitable trust to protect it from creditors. GM, Chrysler and Ford, this week, collectively pledged $26 million to the DIA, as well as two national foundations, New York-based Andrew W. Mellon Foundation and Los Angeles-based J. Paul Getty Trust that pledged a total of $13 million. BOND INSURERS OBJECT Bond insurers Syncora and Financial Guaranty Insurance Co. (FGIC) and other creditors have contested Orr’s plan, because they say it gives priority to pensioners. State lawmakers passed legislation, last month, to contribute $195 million to the fund in a lump sum upon approval of the plan. The nine-bill package also makes provisions for 13 years of financial oversight for the city’s government. Senator Bert Johnson, D-Highland Park, who voted in favor of the bills, says the pensioners are exposed and the legislation that passed protects them from deeper cuts. “Looking at what pensioners risk … 45-50 percent of their pensions could completely disappear and folks getting $19,000 (would be) sitting with $9,500,” Johnson said. “That’s nothing I can stand by and just scoff at. Johnson says the legislation provides protection of dollars for people who have worked and earned them. Senator Coleman Young, D-Detroit voted against the bills. “There’s a provision in the legislation that says this financial oversight board has the power of a turnaround commission under the Emergency Manager Law … and says the governor can assign this board any duties he sees fit at time of appointment,” Young said in a telephone interview. “That’s a lot of power for something temporary.” He added, “The right to vote should not be based on a balance sheet. That’s a fundamental American constitutional right.” Young referred to mandates in the bills requiring the city to have three years of consecutive balanced budgets. “If they don’t do those things for 10 consecutive years, the (state appointed) commission will stay indefinitely,” he said. The hearing to decide if the plan is fair or legal is scheduled for Aug. 14.