Wednesday, December 04, 2013

Dead-ass Wrong and Morally Corrupt

So says Lee Saunders, president of the American Federation of State, County and Municipal Employees, of the federal bankruptcy judge's decision allow Detroit to reduce city employee pensions despite a state constitutional provision protecting them. The key article in the Michigan constitution seems to be this one.

That wouldn't be my exact choice of words, but I am with the unions on this one. Surprising, I know. I am no fan of the way unions and some municipal government regimes conspire to elevate compensation through deferred compensation. A better provision in the Michigan constitution would be to outlaw deferred compensation for public sector workers. They could take their pensions as defined contribution plans similar to 401(k) plans.

But those are not the rules under which the workers were employed. Other creditors to Detroit, whether they be bondholders or vendors or anyone else now at risk of not getting paid the full amount of what they are owed, could see the state constitutional protections for these benefits. They could have, and presumably did, demand higher interest rates or other payments from Detroit because workers and retirees had constitutionally protected claims. They have already been paid for the risk they took. They shouldn't get paid again.

If this bankruptcy process results in any of these other creditors being paid at all, while workers and retirees don't get paid in full, then this outcome is certainly wrong and corrupt. The same is true if there is any real estate equity left in the tax base of Detroit once this bankruptcy is resolved. These taxpayers paid lower taxes in the past because their city government chose not to adequately fund its operations. The bill has now come due.


Jim Evans said...

Let me know when the riots in the streets commence.

Invisible Hand said...

If I recall, property tax rates are already very high in Detroit.

Julia Coronado said...

You could say the same for workers as bond holders--why did they accept deferred compensation when they knew the plan was underfunded and the promises being made meant their compensation was greater than they could get in the private sector, suggesting it was unsustainable? Everyone loves a Ponzi scheme until it collapses, and everyone involved has their hand dirty including the workers.