Everything You Need To Know About Detroit’s Fight Between Investors And Retirees

BY ALAN PYKE/Think Progress

Two weeks ago, Detroit filed for bankruptcy protections, saying it is unable to pay back the roughly $18 billion it owes. The bankruptcy faces legal challenges from creditors who say emergency manager Kevyn Orr did not negotiate with them in good faith, and intended to steer the city into bankruptcy court. Emails from the winter involving Orr and state officials seem to support that claim. But if Orr can beat the legal hurdles and have the bankruptcy filing approved by a judge, the city will no longer need the approval of its creditors to repay less than what they are owed.

And then what happens? Here’s everything you need to know about who is owed what and how they might fair if the bankruptcy goes forward:

Who does Detroit owe? Detroit owes money to two broad categories of creditors: secured and unsecured creditors. The first, “secured” creditors, are those whose debt is backed by some kind of legal claim to a physical asset of the city. Detroit’s bond obligations relating to the water and sewer department (DWSD) is the largest example of “secured debt” on the city’s books, with over $5 billion in accumulated borrowing since the early 1990s. The water and sewer bonds are backed by the revenues that the city’s utility company brings in using the pipes built with the borrowed funds. Secured creditors generally get much better deals from bankruptcy proceedings than the organizations that don’t have liens on physical assets connected to the debt. The investment management firm BlackRock says the secured debts will be repaid in full. Indeed, Detroit is continuing to pay its secured debts during bankruptcy.

“Unsecured” creditors, on the other hand, face steep cuts. Detroit’s unsecured creditors include, but are not limited to, the current and former employees of the city – or more precisely, the pension funds that are supposed to pay those workers and their families in retirement. Detroit’s pension obligations are split into two funds, one for police and firefighters and the other for all other city employees. $5.7 billion in health and life insurance benefits for retirees are separate from the pension liabilities and are also unsecured.

The remainder of Detroit’s unsecured debt is owed to investors who bought the city’s debt over the years. Hedge funds have reportedly been buying up large amounts of these unsecured bonds. The bondholders, and the bond insurers who would have to pay out any difference between what Detroit pays and what the bondholders are owed, will have significant incentive to fight any effort to cut their payout. To minimize their own cuts, investors must push to maximize the cuts to pensions and retiree healthcare.

The Detroit Free Press published a list of the 20 largest unsecured creditors in the city’s bankruptcy filing, with the two pension funds in the top two slots – but the numbers from the filing are not necessarily correct.

How far behind is Detroit on funding its pension obligations? Detroit’s pensions are not particularly generous compared with other large cities, and the shortfall owes to a combination of demographics, bad management, andfinancial industry manipulation rather than extravagant promises to workers. The financial crisis also wiped out nearly a billion dollars in pension fund holdings.

But the size of the pension shortfall is in dispute. Before Kevyn Orr was appointed emergency manager, the pensions were well funded. The police and firefighter fund had assets worth 99.9 percent of its liabilities in 2011, and the general retirement fund was 82.8 percent funded. As recently as February, the city was $650 million short on the two accounts. But when Orr commissioned private actuaries to examine the city’s books, that unfunded pension debtjumped to $3.5 billion. Reuters municipal bond market expert Cate Long calls Orr’s calculations “pension voodoo.” Orr used non-traditional actuarial assumptions for his figures, which are supported by some in the profession. But the city’s previous estimates used revenue assumptions of about 8 percent annually, which is in line with the past 25 years of pension fund history and supported by the majority of actuaries.

Yet the actuarial differences alone can’t account for Orr’s figures showing a pension gap five times larger than traditional math shows, according to the Economic Policy Institute’s Monique Morrissey. Morrissey notes it’s impossible to check Orr’s math because the accounting firm he hired hasn’t published the “very rough preliminary guesstimates” used to write the emergency manager’s proposal.

What will determine the fate of the pensions? The actuarial dispute determines the size of the debt to retirees that will be factored into bankruptcy negotiations, but the future of Detroit retiree benefits is largely up to federal bankruptcy judge Steven Rhodes. Rhodes is still determining whether or not the city’s bankruptcy declaration is even valid, but if Orr’s case clears that hurdle the negotiations that follow over who gets paid when will be subject to Rhodes’ approval. As Ian Millhiser detailed last month, there are various legal obstacles to cutting pensions, including the Michigan Constitution’s specific pension protections. The state’s Republican Attorney General has pledged to defend retirees against cuts.

What is Detroit’s emergency manager proposing for pensioners and bondholders? The only clear blueprint so far for what Orr might seek in bankruptcy comes from a June pre-bankruptcy proposal. At the time, critics said the offer appeared designed to fail. When the city’s creditors rejected the deal, that shored up Orr’s case that he had tried to resolve the city’s finances but had no choice but bankruptcy. So there’s reason to think that the June proposal makes a poor guide to what any final resolution might look like. Retirees and bondholders alike had better hope so: The proposal would replace $11.5 billion in total unsecured debts with $2 billion split among the various creditors. For retirees, the plan includes unspecified “modification of benefits” for healthcare and “significant cuts in accrued, vested pension amounts” for all 30,000 active and retired participants in the system. Even taking Orr’s assertions about pension shortfalls at face value, and assuming “significant cuts” means over 50 percent, pension debts would still eat up more than half of that $2 billion proposal. That would leave little for bondholders – and gives investors and bond insurance companies a lot of reason to fight the bankruptcy.

Pennsylvania GOP’s Budget Cuts Mean Police Response To 911 Calls Could Take Days

By Marie Diamond/Think Progress

Pennsylvania Gov. Tom Corbett (R) has consistently advocated for steep budget cuts that compromise public safety and essential government services. For instance, he signed into law a budget that slashed education funding by $900 million. Instead of lawnmowers, one school district had to resort to using sheep to cut grass.

Now, The Patriot-News reports that the state’s proposed budget cuts could force the Pennsylvania State Police to layoff 500 state troopers. As a result, Pennsylvanians who call 911 for emergency assistance may have to wait daysbefore the police can respond:

Imagine calling 911 for the Pennsylvania State Police and not seeing a trooper for hours, even days.

It’s a scenario that state lawmakers and troopers foresee if the department’s budget is cut 5 percent next year, forcing what would be the first layoffs in the state police history.

An internal department document obtained by The Patriot-News forecasts the potential for 400 to 500 trooper layoffs under a budget proposal to trim the department’s spending. That’s approximately 10 percent of the nearly 4,400 troopers currently employed by the department. The cuts would also force stations around the state to close.

The department provides full- or part-time police service to two-thirds of the state’s municipalities and is relied upon by virtually all police departments to provide specialized services such as DNA, drug and ballistics testing.

This likely budget scenario will require the state police to close five barracks, freeze civilian hiring, and eliminate cadet academy classes until at least July 2013. The police will also be hard-pressed to replace the 150 troopers who typically retire each year, as well as the 1,500 troopers who will become eligible for retirement in the next five years.

Pennsylvania State Troopers Association president Bruce Edwards said, “I don’t want to sugarcoat it. That’s what is going to happen.” Edwards says Pennsylvania could have a public safety disaster on its hands.

Corbett could have avoided making many of these damaging cuts by simply ending a special interest tax break for corporations and natural gas companies. Of the top 15 gas producing states, Pennsylvania is the only one that doesn’t tax companies that use fracking to extract natural gas. The tax could give the state $400 million annually. But the governor, who received more than $835,000 from oil and natural gas companies during his campaign, has only offered to support a completely inadequate one-time fee, proving his loyalty to corporate profits over public safety.

Rick Perry’s Budget Cuts Will Leave 49,000 Teachers Without A Job And 43,000 College Students Without Financial Aid

By Tanya Somanader/Think Progress

GOP presidential front runner and secession enthusiast Gov. Rick Perry (TX) touts the primacy of state control and often points back to his reign over the state of Texas as proof of its efficacy. Of course, under Perry, Texas has a plummeting employment-to-population ratio, the highest rate of uninsuredresidents, the greatest number of executions, thehighest pollution rate, and a derth of well-paying jobs.

On education, Perry offers the same message: “I don’t think the federal government has a role.” In rebuking the Obama administration’s Race to the Top education funds, Perry said it “smacks of federal takeover of public schools” and “could very well lead to the ‘dumbing down’ of the rigorous standards we’ve worked so hard to enact.” Once again, Texas tells a different story. Perry’s education “standards” — exemplified by $4 billion in budget cuts to education for the upcoming budget cycle — will force schools to lay off as many as 49,000 teachers and will leave at least 43,000 college students without financial aid:

Faced with a $15 billion budget deficit this year, Texas Gov. Rick Perry signed off on $4 billion in cuts to education in the 2012 and 2013 budgets. The Texas State Teachers Association estimates that as many as 49,000 teachers may be laid off as a result of the cuts and 43,000 college students will lose all or part of their financial aid.

Indeed, scholarships for 29,000 low-income college students will be completely eliminated. What’s more, Perry’s axe to the education budget has forced local school districts to impose fees on school programs and services for students and families, universities to find outside money to continue high-level research, and some universities to consider imposing higher tuition or fees on students.

The cuts will entirely eliminate the state’s medical primary care residency program and reduce funding for the family-practice residency by more than 70 percent. In fact, Perry’s entire education vision will result in the loss of more than 100,000 private sector jobs.

Last year, Texas ranked dead last in the percentage of adults with high school diplomas. That same year, Texas ranked very low among states for spending per student in public school. If Perry wants to continue to point to a state to prove his efficacy, he may have to pick one other than Texas.

GOP Voted For $50 Billion To Rebuild Iraq Without Cuts, Now Insist On Cuts To Offset Funding To Rebuild America

By Tanya Somanader/Think Progress




The recent unprecedented onslaught of natural disasters has left already cash-strapped states with a record $36 billion in damages. Ten different natural disasters have struck in 2011. According to FEMA, damages from Hurricane Irene alone will cost at least $1.5 billion in disaster relief — and the hurricane season isn’t over.

This disastrous year is also the year thatmany Republican lawmakers have also decided to break precedent and demand that much-needed disaster relief be offset with cuts elsewhere in the federal budget.

Yesterday, Senate Majority Leader Harry Reid (D-NV) vowed to quickly usher $6 billion in emergency disaster relief for states through the Senate. However, even as wildfires obliterate more than 1,000 homes in his state, Sen. John Cornyn (R-TX) insisted that those funds be offset because “we can’t keep spending money we don’t have.” Sen. Richard Burr (R-NC), whose state has suffered “millions and millions of dollars” in wind and flood damage from Hurricane Irene, simply demanded that “we’ve got to offset everything“:

“We can’t keep spending money we don’t have,” said Sen. John Cornyn of Texas, where deadly wildfires have charred tens of thousands of acres and destroyed more than 1,000 homes. [...]

“I think we’ve got to offset everything; anything that’s not allocated has got to be offset these days. It shouldn’t delay it,” Burr told POLITICO. “There’s hundreds of billions of dollars of waste, fraud and abuse that could be accessed like that.”

This purist principle did not stop both Cornyn and Burr for voting to fund rebuilding efforts in Iraq without a single offset. Indeed, Cornyn voted against delaying $20.3 billion in Iraqinfrastructure funds even though the late Sen. Robert Byrd (D-WV) noted that such a payment would increase the budget deficit. Overall, the U.S. has spent $44.6 billion in taxpayer funds on rebuilding Iraq through emergency supplemental bills — and not a penny was cut from elsewhere in the budget.

Cornyn and Burr’s position — first espoused by House Majority Leader Eric Cantor (R-VA) — is so callously out of touch that even fellow Republicans are slamming the idea. After enduring serious bipartisan backlash, Cantor is now gun-shy. Calling Reid’s emergency funds bill “unprecedented,” he is not clearly taking a stand against it.

JOHN BOEHNER AND ERIC CANTOR WON’T COMMIT TO HURRICANE RELIEF WITHOUT BUDGET CUTS

From Think Progress


House Majority Leader Eric Cantor (R-VA) is insisting that “any potential emergency disaster aid be offset by spending cuts.” Huffington Post reports that “Cantor spokesman Brad Dayspring on Friday declined to say where Republicans would look to make cuts to pay for a potential storm aid package.” Speaker John Boehner’s spokesperson “ducked the question altogether when asked if Boehner agreed with Cantor’s call for offsets for emergency aid.” Boehner and Cantor’s position is “a break from a bipartisan tradition” of immediately appropriating funds to help those in need following a natural disaster.


Motor City Liberal Comment: Someone ought to tell these dingleberries that the jig is up no one believes the Republicans concerns for the growing debt.

Boehner Debt Ceiling Plan Drops A 26-Year-Old Exemption That Protects The Poor From Budget Cuts

By Tanya Somanader/Think Progress

As the Republicans haggle over whether to support their own plan for raising the nation’s debt ceiling, an“unprecedented” coalition of religious leaders are urging President Obama and Congress not to sacrifice the needs of the poor in the name of debt reduction. Even the conservative U.S. Conference of Catholic Bishops joined the effort, singling out House Speaker John Boehner’s (R-OH) plan for its “disproportionate cuts in essential services to poor persons.”

In scrutinizing the debt deals, some religious leaderspraised the plans for at least exempting low-income “means-tested” programs from across-the-board cuts. The Center for Budget and Policy Priorities notes today, however, that Boehner’s plan does not actually exempt programs like Medicaid and food stamps from such cuts. Instead, it does the opposite.

Breaking a 26-year policy of exempting basic low-income entitlement programs from across-the-board cuts, both of the House Republican plans — “Cut, Cap, and Balance” Act and Boehner’s debt-ceiling proposal — “drop all of the low-income exemptions that have been part of every previous across-the-board cut mechanism since 1985″:

For 26 years, all budget legislation that would trigger across-the-board cuts if Congress fails to meet a fiscal target has exempted the basic low-income (or “means-tested”) entitlement programs from those cuts. The Gramm-Rudman-Hollings laws of 1985 and 1990, the deficit reduction agreement of 1990, and the Balanced Budget Act of 1997 — all bipartisan pieces of legislation — included that exemption. So did last year’s “pay-as-you-go” law, which requires Congress to offset the cost of new tax cuts or increases in entitlement programs so they don’t increase the deficit. Congress has never enacted a law with an across-the-board cut mechanism that subjects core assistance for the poor to these cuts.
But in the last few weeks, House Republicans have advanced two major pieces of legislation that would do just that. Both the “Cut, Cap, and Balance Act,” which the House passed last week, and the new Boehner debt-ceiling proposal drop all of the low-income exemptions that have been part of every previous across-the-board cut mechanism since 1985.

“In an exercise in political cynicism,” CBPP notes that both bills include an exemption for payments to Medicare providers that was not part of previous laws. This allows Republicans to avoid another hit from the senior community “even as they subject those living below the poverty line to the risk of automatic cuts that would push them even deeper into poverty.” Earlier this week, CBPP put out an analysis showing that Boehner’s debt ceiling plan “could well produce the greatest increase in poverty and hardship produced by any law in modern U.S. history.”

The Republican move to cut a long-standing bipartisan protection for the poor really brings into question exactly which Americans Republicans say they’re fighting for. Religious leaders should take note. If asked “What Would Jesus Cut,” it seems Republicans are determined to provide the wrong answer.

The Detroit branch of the NAACP launching an investigation into DPS state order budget cuts

DETROIT (WXYZ) - The Detroit branch of the NAACP is launching an investigation into state order cuts for Detroit Public Schools.

Attorney Butch Hollowell says the state cut of 900 million dollars from education will force DPS to cram 60 students into every class.

"We compare this to Brown v The Board of Education...it’s separate but unequal education," Hollowell says.

He doesn't blame EFM Robert Bobb as he believes the state hasn't given Bobb a choice.

A spokesperson for the governor says they have just received the FOIA request and must review it but here's an initial reaction:

“The Governor’s concentration remains on helping Detroit and Robert Bobb make sure DPS can get its finances and operations in line and turned around so we can rightly focus on ensuring the system’s 60,000+ students can get the quality education they need and deserve.”

Detroit Public Schools' spokesperson Steven Wasko sent out the following statement in response to the NAACP's actions:

We couldn't be more in agreement. That's why we're working night and day to implement the alternative to the State-approved Deficit Elimination Plan, an alternative that not only severely reduces costs but begins to create for Detroit's parents a portfolio of school options including traditional high performing schools and new charter school models for others that are either too costly to maintain or for which academic success has been thus far out of reach.

Rep. McDermott: GOP Cuts To Anti-Poverty Programs Are ‘Morally Wrong’ And ‘Fiscally Stupid’

By Pat Garofalo

The current continuing resolution under which the federal government is operating expires on April 8, and at the moment, it seems that budget talks between House Republican leadership and Senate Democrats have broken down. Republicans want their spending bill — H.R. 1 — to “serve as a starting point for all negotiations” (even though Democrats have now upped the amount of spending cuts they’re willing to pass, alongside zero concessions from Republicans).

As we’ve noted, H.R. 1 includes debilitating cuts to programs that benefit women,children, students, and veterans. And by limiting their cuts to the non-defense discretionary portion of the budget, the GOP’s cuts disproportionately fall upon those who depend most on government programs that provide important services like education and health care.

Republicans claim the cuts are necessary to reduce the deficit, but in an interview with The Wonk Room today, Rep. Jim McDermott (D-WA) noted that cuts to anti-poverty programs like the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) are “fiscally stupid” due to their potential for providing savings over the long-term:

On two levels [the cuts are] wrong. One is they’re wrong morally. We need to take care of women and children and WIC program is very important for childrens’ health and healthy babies and for healthy mothers. But on a second level it’s fiscally stupid, because if you don’t feed kids, if you don’t feed mothers and get them up to speed, they deliver a low birth-weight baby that then you spend hundreds of thousands of dollars dealing with in the premie units of hospitals.

If you get a mother healthy through the period of her pregnancy she delivers a normal baby, normal birth-weight, and the child has a decent start and it’s a lot less expensive. So if you don’t care about morals and you just want to talk about money, it’s better on the money side. That’s why what they’re doing makes no sense at all.

Watch it:

According to the Government Accountability Office, every dollar invested in WIC “generated $2.89 in health care savings during the first year after birth and $3.50 in savings over 18 years.” But this isn’t the only way in which Republican cuts could conceivably make the deficit worse: they’re also cutting programs like IRS tax enforcement (which lowers tax receipts) Title X family planning (which leads to higher Medicaid expenditures) and food safety regulations (which leads to more foodborne illness and higher health care costs).

Rand Paul’s budget eliminates agency that regulates nuclear safety

By Sahil Kapur

WASHINGTON – As radiation particles from the nuclear hazard in Japan send residents fleeing and make their way across the Pacific Ocean, one U.S. senator introduced a plan to get rid of the agency that regulates nuclear safety.

Sen. Rand Paul (R-KY) unveiled his five-year budget plan Friday, a radical and ambitious proposal that would -- among other things -- eliminate the U.S. Department of Energy, one of the twofederal agencies charged with overseeing America's nuclear capabilities.

The proposal comes as fears remain regarding the possible meltdown of a nuclear reactor in Fukushima, which was crippled by a massive earthquake off the coast of Japan and ensuing tsunami. Hundreds of thousands were evacuated as radiation leaked into the atmosphere. Trace elements of the radioactive fallout made it all the way to the U.S. by Friday.

In response, China, Germany and France ordered safety checks on their existing reactors, even shutting down some nuclear plants temporarily and halting production of new nuclear energy. President Barack Obama also ordered a safety review on U.S. nuclear plants, though he maintained that the U.S. must continue developing nuclear energy.

Paul's proposal to balance the budget by 2016 would also kill the Departments of Education, Commerce, and Housing and Urban Development. It would cut military spending by 6 percent while leaving Social Security, Medicare and war funding in tact.

The tea party favorite, first elected to public office last November on a mantra of cutting spending, announced the plan alongside fellow Republican Sens. Jim DeMint (SC) and Mike Lee (UH).

Scott Walker’s Budget Bans Birth Control Coverage And Eliminates Access To Health Care Services For Women

By Tanya Somanader

In the midst of fighting his union-busting crusade, Wisconsin’s embattled Gov. Scott Walker (R) unveiled his budget on Tuesday. Insisting on balancing the budget without raising taxes or fees, Walker proposed a two-year plan in which he expects students, participants in the SeniorCare prescription drug plan, poor families receiving health care or welfare, and local schools to make sacrifices. As one state lawmaker put it, his $900 million cut in state aid to schools is “an absolute annihilation” of public education. But targeting students, teachers, seniors, and poor people is not enough. He is also proposing to repeal Wisconsin’s Contraceptive Equity Law because, apparently for Walker, a budget also has to attack women’s health:

Gov. Scott Walker’s budget would repeal a state law requiring insurance companies cover prescription birth control.

Walker’s budget released Tuesday would undo the law signed in 2009 by his Democratic predecessor Gov. Jim Doyle. Passage of the bill, which took effect last year, came after more than a decade of trying by Democrats.

The mandate had been fought by anti-abortion groups and Catholics but supported by Planned Parenthood and public health groups.

Such a repeal would seriously jeopardize a woman’s reproductive health in Wisconsin. American women who aren’t using contraception like birth control represent “one-third of all women at risk of unintended pregnancy and account for 95% of the three million unintended pregnancies that occur every year.” Such pregnancies, in turn, have been linked to “numerous negative maternal and child health outcomes,” including“increased risk of morbidity for women” and delayed prenatal care for the infant. According to the CDC, prescription contraceptives are currently the leading method by which women avoid this danger.

But Gov. Walker’s anti-birth control agenda doesn’t just stop with banning insurance coverage. Taking a page from Gov. Chris Christie’s (R-NJ) playbook, Walker’s budget also eliminates Title V, “the only state funded family planning health care” that “ensures access to critical health care services for uninsured Wisconsinites including cervical, breast, and prostate cancer screening, well women exams, sexually transmitted disease screening and treatment, and access to contraception.” Zeroing out Title V leaves 50 health centers in Wisconsin at risk of closing — many of which provided contraceptive care to 52,000 Wisconsin women in 2008 alone. But to Walker, the deficit takes precedence. Of course, as a Guttmacher Institute study indicates, every $1 spent on birth control saves taxpayers $4.02 is just an inconvenient detail.

While other states like Iowa have specific legislation to limit birth control options, Walker is using his budget to “launch an all out assault on reproductive health care,” said NARAL Pro-Choice Wisconsin’s Executive Director Lisa Subeck. In doing so, “Walker completely fails the women and families of Wisconsin.”

M.C.L Comment: How bad do you think Scott Walker will feel if he's the main reason the Democrats mopped up the floor with the Republicans next year? I've always thought the Dems would have a good year next year because the Republicans and their presidential candidate will have nothing to run on but thanks to a relatively unknown Republican governor in Wisconsin the Democrats will gain more then the 25 seats in the house representatives, the already weak Republican candidate will be weaker because he or she will have to take a side on whether collective bargaining is a good thing and the tea party won't help them.

No “Shared Sacrifice” in Snyder’s Budget

by John Tramontana

LANSING – Gov. Rick Snyder’s proposed budget doesn’t include shared sacrifice and leaves plenty of people behind, breaking his campaign promises.

The budget represents a huge tax shift from big corporations and wealthy CEOs to students, senior citizens, the middle-class and low-wage workers, while at the same time cutting education and other vital government services like public safety.

“This budget violates the principles Gov. Snyder set forth of shared sacrifice and leaving no one behind,” Michigan Democratic Party Chair Mark Brewer said. “Balancing the budget on the backs of our kids, seniors, the middle-class and low-wage workers while wealthy corporations and CEOs get billions in tax breaks is unfair. We should be investing in our kids and our future, not slashing education budgets.”

“This budget also will take firefighters and police officers off the streets,” continued Brewer. “Cuts to revenue sharing will either force local municipalities to raise taxes or lay-off public safety officers. We can’t be cutting programs that keep Michigan safe.”

“While we need real reform, slashing schools hurts the economy and cutting public safety makes Michigan a less attractive place to live and invest,” said Brewer. “Big corporations and CEOs benefit from good schools and safe streets and they should help pay for them.”