Court Sanctions Emergency Manager Theft of Detroit

(reposted  from Michigan Citizen)


By Curt Guyette
Special to The Michigan Citizen

The grins stretched from ear to ear, and the hugs and back-patting were plentiful.

Emergency Manager Kevyn Orr, Gov. Rick Snyder, Mayor Mike Duggan and U.S. Judge Gerald Rosen — all were in a celebratory mode last week as they appeared at a press conference following the announcement by U.S. Bankruptcy Court Judge Steven Rhodes that Detroit’s proposed “plan of adjustment” had been accepted, putting an end to the city’s journey through bankruptcy.
Gov. Snyder and Mike Duggan

Gov. Rick Snyder and Mayor Mike Duggan celebrated Bankruptcy Judge Steven Rhodes’ acceptance of their Plan of Adjustment that cuts workers’ and retirees’ pensions and healthcare, and takes back earlier annuity payments from the city over the last decade

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Newspaper headlines announced the city had been “reborn,” and the final words of the ruling read from the bench by Judge Rhodes echoed triumphantly: “It is now time to restore democracy to the people of the city of Detroit. I urge you to participate in it. And I hope that you will soon realize its full potential.”
The irony, of course, is that it was the hijacking of democracy that brought Detroit to this place.

It began in early 2012, when lawyers from the Jones Day law firm, in conjunction with the investment banking firm Miller Buckfire, began secretly meeting with Gov. Snyder’s office and other state officials to figure out how to thwart the will of Michigan voters.

The concern was that a grassroots-effort to repeal a new state law giving unprecedented powers to appointed emergency managers would succeed. And so they devised their response, and were ready to act when voters went to the polls in November 2012 and rejected the law by a significant margin.
Within a month, the state’s Republican-led Legislature crafted a new law containing many of the same provisions as the one Michigan’s citizens — engaging in the democratic process hailed by Judge Rhodes — had just voted to repeal. Only this time, an appropriation would be attached to the statute, making it “referendum proof.”

So much for a commitment to the democratic process.

As a result, instead of having elected officials deciding Detroit’s fate, Emergency Manager Kevyn Orr and his former partners at Jones Day began calling the shots, as the city was shoved into bankruptcy.
From the outset, the primary target of debt-cutting was clear: The city’s retirees would be the ones facing the most severe sacrifices.

Again, Jones Day, which had some of the city’s biggest creditors as its clients, would play a key role. The firm’s lawyers laid the legal groundwork for using bankruptcy to go after retiree benefits in bankruptcy — even in a state like Michigan, which has the protection of pensions written into its constitution.
Casual observers of this drama will have heard that, as a result of the much-hailed “grand bargain” — an $816 million cash infusion from the state, private foundations and the Detroit Institute of Arts — the cut to general retiree pensions would be just 4.5 percent, and that police and firefighter retirees won’t get nicked at all.

What tends to get lost in the reporting is the true extent of the hit being taken by retirees.

Kevyn Orr

Kevyn Orr is all smiles at the press conference announcing Judge Rhodes’ acceptance of his Plan of Adjustment. CURT GUYETTE PHOTO

Both civilian and uniformed retirees will absorb massive losses thanks to deep cuts in future cost of living increases. For the general retirees, those yearly raises are being eliminated completely. Taken together, the two groups will give up a total of more than $1.3 billion in the coming years.

Cuts to healthcare benefits only compound the problem. Instead of being on a plan where the city covers 80 percent of healthcare costs, retirees are receiving a monthly stipend. For most, the amount is $125, leaving them to pick up the additional costs of insurance, which can be hundreds of dollars a month.

And then there’s the “clawback” of excessive interest rates the Jones Day attorneys argued was paid to people who participated in an annuity savings program between 2003 and 2013.

As one retiree observed, “I’m getting hit four different ways.”

Add it all up, and at least 75 percent of the estimated $7.3 billion in debt and obligations being shed in bankruptcy comes in the form of cuts to retirees.

Will that be enough to put the city on a sound financial footing?

Despite the media’s focus on Detroit’s supposed rebirth, there is real cause for concern that the fundamental factors that led to the city’s dire straits remain unaddressed. In a recent opinion piece, economist Peter Hammer — who’s also a law professor and director of the Damon J. Keith Center for Civil Rights at Wayne State University — warned:

“The perverse logic of fiscal austerity is creating dozens of second-class ‘minimal cities.’ The move to transition Detroit away from serving as a city, to a slimmed-down version with little to no municipal services, is part of the bankruptcy Plan of Adjustment that the city is pursuing, on a par with what the World Bank and International Monetary Fund pursued with Structural Adjustment Programs in much of the developing world. What we know from these SAPs is that they sucked the life out of countries forced to receive them.

“The same will happen with Detroit, especially given how out-of-touch managers are with the city’s history and context. The 226-page Expert Report, for example, on the feasibility of the POA and the reasonableness of the city’s revenue forecasts never addresses issues of race, racism, regionalism, segregation or foreclosure (all words that appear nowhere in the report). And poverty is only mentioned once. … We need alternatives to the dictates of fiscal austerity and structural racism.”

As for Judge Rhodes, this is what he told the people of Detroit:

“A large number of you told me that you were angry that your city was taken away from you and put into bankruptcy. You told me in your court papers. You told me in your statements in court. You told me in your blogs, letters and protests. I heard you.

“I urge you now not to forget your anger. Your enduring and collective memory of what happened here, and your memory of your anger about it, will be exactly what will prevent this from ever happening again. It must never happen again.”

Then he urged Detroiters to channel that anger into positive action by engaging in the democratic process.

For the next 13 years, however, the people of Detroit will have elected leaders, but it won’t really be a true democracy. That’s because an appointed, nine-member financial advisory board (containing only two Detroit officials) will have the final say over approval of major contracts and the budget process.
“It is your City,” Judge Rhodes told Detroiters.

But it is others who, though unelected and mostly living elsewhere, will be the ones with the final authority over crucial decisions facing Detroit for the foreseeable future.

Curt Guyette is an investigative reporter for the ACLU of Michigan. His work, which focuses on Michigan’s emergency management law and open government, is funded by a grant from the Ford Foundation. You can find his reporting at Contact him at 313.578.6834 or [email protected].

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