Politics & Prejudices
Detroit 'grand bargain' far from done deal
Those pensions aren't safe yet.
Published: April 22, 2014
You have to give Kevyn Orr considerable poker-player cred, especially for the art of the bluff.
Detroit’s emergency manager had everyone thinking that most city pensioners were going to take massive cuts that would amount to more than a fourth of their income.
That’s right. Cops and firefighters would lose only 4 percent if they made nice, didn’t fight, and signed on the dotted line. General pensioners, however, would take a 26 percent hit, thank you very much. If they fought, they’d get less.
Then all of a sudden, on April 15 — bam! They announced a deal whereby police and firefighters would get their full pensions, though their COLA — Cost-of-Living Allowance — would fall to a mere 1 percent, less than inflation.
Hours later, another bombshell: An agreement with negotiators for the General Retirement System. Their pensions would be cut — but by a mere 4.5 percent, far less than the minimum amount Kevyn Orr was offering before.
That means a pensioner who has been getting $19,000 a year, about the average, will lose a mere $855.
Naturally, there was big rejoicing. For once, people were happy about the news that they would lose money on Tax Day.
But not so fast.
This is anything but a done deal. There are good reasons to think it may never happen — and that the pensions, and the treasures of the Detroit Institute of Arts — may not be safe.
The reason is that this all depends on the Michigan Legislature, which is controlled by the Republicans, most of them from the far suburbs or outstate Michigan.
They hate unions. They don’t give a rat’s ass about minorities or the city of Detroit. Some of them are Tea Party wackos. Others face challenges from even wackier types in the August primary. Few have contested general elections.
Preserving city pensions depends on a “grand bargain” worked out, in which nearly a billion dollars would be added to shore up the general pension fund.
To make this happen, private foundations, supporters of the Detroit Institute of Arts and the legislature need to kick in money. The DIA seems likely to raise its share of $100 million. Various foundations have pledged more than $450 million.
But the legislature still has to come up with $350 million. This was Gov. Rick Snyder’s idea. He may not love and appreciate Detroit the way, say, former Gov. Bill Milliken did.
As a businessman, however, he knows having a central city collapse into chaos and anarchy is bad for business.
Allowing the looting of one of the world’s great art museums wouldn’t be smart either.
But many of the legislators couldn’t care less. Some are motivated by hatred of unions. Last weekend, Speaker of the House Jase Bolger said he wouldn’t allow even a vote on the proposed $350 million unless city unions agreed to bleed themselves further.
A fleshy man himself, Bolger wouldn’t say how many pounds of flesh would be required, but he added “it should be material.” Evidently having retirees lose part of the meager pensions they were promised isn’t material enough for him.
By the way, the seemingly wonderful settlement the pensioners agreed to last week isn’t as good as it seems.
Those rejoicing forgot the existence of one dirty word — three syllables as scary as any on the planet:
Under the deal, general retirees get no cost of living increases at all. You may not have thought of that, because in our last few recession-tainted years, we’ve had historically low inflation. Prices have risen by only about 1.5 percent a year.
But even if that stays constant, it would mean that retiree pensions will lose that much of their value every year.
What’s more, inflation will almost certainly not stay this low. The Consumer Price Index was rising by about 5 percent a year just before the Great Recession began in 2008.
Back in the late 1970s and early ’80s, inflation was raging at more than 10 percent a year. That, in fact, may have been the biggest reason voters elected Ronald Reagan in 1980.
By the way, you know what a 1980 dollar is worth today? Less than 35 cents. The odds are great that even if this agreement holds, and the state kicks in its $350 million, Detroiters collecting pensions a few years from now will be collecting ever-shrinking small change indeed.
That is, if this “best-case scenario” really happens. My guess is that Bolger, who comes from the picturesque and affluent western Michigan town of Marshall, wants to sabotage Detroit, but doesn’t want to pay a political price for it.
What he may well hope is that the poor unions balk at this demand — so that he can blame them, not his legislators, for scuttling any deal that would save the pensions and the DIA.
> Email Jack Lessenberry