Demos researchers: City pensions did not lead to bankruptcy

Demos researchers: City pensions did not lead to financial troubles

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Brandon Jessup speaking at the news conference Wednesday night Brandon Jessup speaking at the news conference Wednesday night
(WJBK) -

Demos researchers have concluded a report that they believe shows revenue decline and Wall Street deals played the largest role in Detroit's financial troubles - not city worker pensions.

Fox 2's Taryn Asher was at the news conference Wednesday night when Demos unveiled the findings.

VIDEO: Learn more about the findings in Asher's report, or read the transcript below

Below is also a statement in response to the report from Bill Nowling, a spokesperson from Kevyn Orr's office.

_________________


"The 60-page study released today that really exposes how Detroit got into this issue," says Brandon Jessup, Chair of Michigan Forward.

Detroit may be broke but Jessup says it's not as bad as you think and it's not just because of the city's legacy costs.

He points to a new report challenging Detroit's bankruptcy just released by Demos, a public policy think tank, that blames it on the shrinking tax base, cuts in state revenue sharing and bad Wall Street deals - not worker's pensions.

"We desire local control right now. We hope that Judge Rhodes sees that the city of Detroit is not insolvent, and really that the governor and his agents, Kevyn Orr being primary, rushed this whole process and did it without public consent," says Jessup.

The report claims emergency manager Kevyn Orr's 's estimates of the 18 billion in long-term debt is inflated. His spokesperson Bill Nowling, who felt the report is just a rehashing of arguments put forward by city's unions and retirees, responded. In part his statement reads:

"It's interesting political rhetoric but it ignores the financial facts that the city faces each day.  The Emergency Manager and his restructuring experts believe that the city's pension funds are at least $3.5 billion underfunded, and that much of that under-funding is the result of lax fiscal management on the part of the funds' trustees.  If the city does not address these levels of under-funding, pension funds will be empty by 2020."

"They're making a pretty compelling case to say 'That's not entirely true,'" John Pattow, a University of Michigan bankruptcy law professor says.

Pattow says you can't put all the blame on the pensioners, but with bankruptcy you can't pick which debts you want to keep. And this report may just be laying the foundation for a political lobbying campaign.

"It wants more revenue ... revenue sharing. So it wants more participation from the state of Michigan, either through supporting the pension plans or just general distributions to the state operating fund. And that's a political opinion, there's nothing the bankruptcy courts can do about that.

Pattow says what's spelled out in the report may be a version of how Detroit got here, but he says it's up to the bankruptcy judge, Stephen Rhodes, to decide where we go from here.
And what is clear - it's the retirees and city workers who have the most to lose.

"If he's going to take 50 percent of my pension he might as well throw me out in front of that Woodward bus, because there's nothing else I can do," says Donald Smith, a retired AFSCME worker.


FULL STATEMENT FROM BILL NOWLING, SPOKESMAN FOR EMERGENCY MANAGER KEVYN ORR:

The Demos report rehashes much of the arguments put forward by the city's unions and retiree representatives. It's interesting political rhetoric but it ignores the financial facts that the city faces each day. During the three weeks of testimony in the City's bankruptcy eligibility hearing in federal bankruptcy court no one made any of the arguments posited in this report and no one credibly challenged the fact that the City is insolvent and cannot afford to pay its crushing debt without sacrificing essential public services. Detroit's debt is a matter of public record and the amount the city owes is not in question. The Emergency Manager and his restructuring experts believe that the City's pension funds are at least $3.5 billion underfunded, and that much of that under-funding is the result of lax fiscal management on the part of the funds' trustees. If the City does not address these levels of under-funding, pension funds will be empty by 2020.

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