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April 17, 2013

Detroit Government Retirees Struggle to Keep Benefits

by Kane Farabaugh

Detroit, the largest city in Michigan, has a $327 million dollar budget deficit, and $14 billion more in long-term debt.  In March, Michigan Governor Rick Snyder appointed an emergency manager to oversee Detroit’s troubled finances, making it the largest city in the U.S. under state supervision. 

Some difficult decisions about the city’s expenses need to be made to avoid bankruptcy, casting doubt over the future of public employee pensions and health care plans.
 
Don Taylor spent 26 years of his life as a police officer in Detroit, the city where he was born and raised. It was a dangerous job, but one he is fond of. 
 
It also provided a dependable paycheck, as well as a guaranteed pension and health care coverage in retirement.  Or so he thought. “There’s a dispute on the pensions, you know," he said. 
 
“Borrowing a billion dollars to fund your pension, yes the pension is funded, but now it’s done through more debt," said Eric Scorsone of Michigan State University. He is on the team helping the city of Detroit emerge from its fiscal crisis.
 
“It’s probably as bad as any city has ever seen in terms of a fiscal crisis. My part is to work on tax and revenue forecasting and tax issues in general for the city as they work on a plan to move forward," he said. 
 
The plan includes figuring out how to pay for retirement pensions funded with borrowed money, and how to pay for health care plans for current and retired public sector employees.
 
“The city really should be paying hundreds of millions of dollars more than it is right now, but there’s no money to do it, so the question is how do you fund that liability or do you reduce the liability by reducing benefits," said Scorsone. 
 
Taylor says the pensions and health care plans of retirees are already modest.
 
“There are a lot of misconceptions too that in the city of Detroit, that the people’s benefits are “Cadillac” plans, and they’re overpaid, where the average pension is only $30,000," he said. 
 
“I cannot believe that they could do any more cutting," said retired Detroit police officer Greg Trozak, who has two sons on the police force.  While he is concerned about cuts to his own benefits, he is more worried about future benefits.
 
“I’m sure the active people are going to be hurting a lot more than a lot of us retirees are," he said. 
 
“The elected officials in the city of Detroit should have seen this reduction in revenue coming, and should have seen that the population was declining years ago and should have adjusted for that, but they failed to do so. Now it’s resting on the backs of the employees and retirees," said Taylor. 
 
The clock is ticking to turn Detroit’s finances around.  Emergency Manager Kevyn Orr has less than eighteen months to make difficult decisions that would bring about the Motor City’s eventual solvency.