Detroit Gives Raises to City Officials As Vote Nears to Cut Worker Pensions

Detroit’s high-profile bankruptcy has filled the front pages of newspapers across the country, and it seems the new twists just keep coming in this drama. In one corner, public employees and retirees are getting ready to vote on a measure that would cut their paychecks and pensions in unprecedented ways.

In the other corner, Detroit’s Emergency Manager Kevyn Orr is drawing flak for awarding raises to many city officials, including the mayor, city council members, and some non-union city workers:

Effective July 1, they all get 5 percent raises. Before the raise, Mayor Mike Duggan earned $158,000 a year, and Detroit’s nine at-large council members made $73,181 each, along with a pension, cell phone, city car and city-paid gasoline.

By comparison, the median household income in Detroit was $25,193 in 2011, according to the U.S. Census Bureau. Orr’s own salary of $275,000 a year to guide Detroit through the largest municipal bankruptcy case in history will not change.

“We’re still in the middle of bankruptcy, we still don’t know what the cost is going to be, and it seems like the attorney fees, right now, have gone up to $75 million,” [Wayne County Executive Robert] Ficano said live on WWJ 950 Wednesday morning.

Orr’s office says the costs for the increases are covered in the city’s restructuring plan, which is pending in federal bankruptcy court. Later this month, some of those same workers will see larger paycheck deductions earmarked for increased pension contributions. Deductions of 4 percent to 8 percent will begin July 14 to help fund pensions.

Back to the vote: the stakes are high for both the city and its workers. If workers and retirees vote “yes” on the measure, they’ll be giving up big chunks of their paychecks and benefits. If they vote “no”, they’ll likely have to settle for a far worse deal:

Hundreds of millions of dollars in pledged foundation and state money to spare deeper cuts from pensions and to save the city’s art collection depends on approval of the city’s plan by workers and retirees. If they vote against it, the pledged donations vanish. This may be the proponents’ most convincing argument: Vote for the city’s deal, or cuts — as much as 4.5 percent from some retirees’ pensions as well as smaller than expected cost-of-living increases — will get far worse.

If they go along with the deal, retirees and workers would also agree to give up lawsuits challenging cuts to their pensions. Though a federal judge here has made it clear that he believes pensions may be cut in bankruptcy, the Michigan Constitution includes protections, and opponents of the city’s plan say they cannot believe their colleagues would even consider ceding legal challenges.

Meanwhile, another struggling Michigan city, Flint, is considering following in Detroit’s footsteps by declaring bankruptcy. Flint is attempting to cut its retirees’ benefits to improve its financial position. But the legality of that move is dubious and will be decided by a judge soon.

Flint once had 200,000 residents has seen a dramatic drop in population over the past several decades. The birthplace of General Motors (NYSE: GM) has lost many factory jobs and abandonment of properties.

Last year, Detroit became the largest municipality in the U.S to enter Chapter 9 bankruptcy. Flint is about an hour away and if the judge rules against the city’s effort to cut its retiree health care benefits, the city is expected to file for bankruptcy. Flint will join dozens of cities and counties that have sought help from courts to modify their retiree benefit system.

“If we don’t get any relief in the courts … we are headed over the same cliff as Detroit,” said Darnell Earley, the emergency manager of Flint’s finances. “We can’t even sustain the budget we have if we have to put more money into health care for city workers.”

Photo Credit: University of Michigan via Flickr Creative Commons License