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Motor City Meltdown
Detroit Cuts Pensions, Again

Every state and municipal worker in the country should be paying attention to the news of pension cuts coming out of Detroit. Unions and the political hacks in cahoots with them will swear up and down that your pension is safe—until suddenly it isn’t.

Earlier this week, Detroit revised its debt plan to include deeper pension cuts to police and firefighters. If the unions agree to the plan, the cuts will only be 6 percent; if they vote against it, the cuts will rise sharply to 14 percent. Pensioners and bondholders aren’t happy about the deal, but as the WSJ notes, the decision ultimately rests with a judge:

In the coming weeks, more than 100,000 creditors will have a chance to vote on the proposed debt-cutting plan, but the final say will rest with a federal bankruptcy judge.

“The City continues to make progress with its creditors and retirees and hopes to reach agreement in the near term on a number of outstanding issues,” said Detroit Emergency Manager Kevyn Orr, who was appointed by Michigan Republican Gov. Rick Snyder one year ago. “The Plan puts the focus back on providing essential public services to the City’s nearly 700,000 residents.”

And there’s more bad news in this story for retirees in other cities on the edge of bankruptcy. Detroit bondholders are taking huge hits—perhaps as much as 85 cents on the dollar. This will translate into higher interest rates for cities and states with bad credit (yes, you wastrels in Illinois, this means you) and speed the development of death spirals as rising debt-service costs hit more cities and states.

Blue governance (with not a few opportunistic Republicans greasing the skids) got a number of our cities and states into this mess. The only way out involves a stay in the House of Pain.

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  • Anthony

    In Chicago Mayor Rahm Emanuel has proposed (4-1-14) pension changes and sent (supposedly to Chicago police and fire unions) signal that status quo is no longer municipally practicable (services, taxes, debts, trade offs). Chicago police and fire have large pension shortfalls as do others – a massive pension debt he inherited.

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