Bankrupt Detroit Planning on Cutting City Worker Pensions

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Susan Tompor and detroit bankruptcyDetroit, Michigan, once America’s thriving Motor City, is causing plenty of heartache for retired city workers with its recent decision to file bankruptcy. Like many metropolitan areas throughout the United States which have fallen on hard times, Detroit and the many individuals who were her public servants for many years are the victims of poor financial planning. Detroit has racked up about $18 billion in debt and almost one-third of that is money owed toward the pensions of its retired city employees. But now those employees are crying foul over Detroit’s plan to cut the monthly pension payments it had promised retired workers.

Although the emergency manager Kevyn Orr, who is attempting to make sense out of Detroit’s financial mess, has publicly stated that retired workers are facing a significant decrease in their monthly pension payments, union leaders say that any attempt to try to save money by decreasing promised pension payouts is unconstitutional because the state’s constitution indicates that pension payments represent a contract between the state and its workers which must be honored, come hell or high water.

A large part of the problem is that Detroit has seen its tax base shrink dramatically in the past few decades, leaving it with less money than it actually needs to fulfill those pension contracts. Slightly more than 20,000 retirees who once worked as employees of the city are now facing a very uncomfortable and uncertain financial future. Many of the retirees are couples who are in failing health themselves and, for one reason or another, would not be able to find new sources of employment to make up for their pension shortfall. Some retirees are calling the decision to file bankruptcy and the pension cutbacks an outright betrayal. It is not known how drastically each pension payment would be reduced.

Read more at The New York Times.