DETROIT - Detroit has reached a deal with retired police officers and firefighters that would preserve current pensions but trim annual cost of-living payments - the first major agreement with retirees in the city’s bankruptcy case, mediators announced Tuesday.
The city retreated from an earlier proposed 6 percent cut in pensions and the elimination of the 2.25 percent cost of-living payment. Leaders of the Retired Detroit Police and Fire Fighters Association, which has more than 6,000 members, endorsed the deal along with creation of a health plan.
Bill Nowling, a spokesman for emergency manager Kevyn Orr, said Detroit believes it can afford the compromise partly because the pension fund’s financial performance has improved along with Wall Street markets.
Orr, who took the city into bankruptcy last summer, released a statement thanking the association. He urged other creditors also to make deals.
The agreement still is subject to a vote by retirees, starting in May, as well as current employees who are eligible for a future pension. It also must go through Judge Steven Rhodes as part of Detroit’s larger plan to exit bankruptcy by fall.
“Sooner or later reality sinks in,” association President Don Taylor told The Detroit News. “The city’s in bankruptcy so you have to do the best you can for the majority of your members.”
The deal also is tied to the city getting $816 million from foundations, philanthropists and Michigan. Lawmakers still haven’t approved the state’s $350 million share, which has been endorsed by Republican Gov. Rick Snyder.
The pot of money would prevent the sale of city-owned art and be earmarked for more than 20,000 Detroit retirees who draw benefits from two underfunded pension funds.
The average annual pension for police and firefighter retirees is $32,000. They would keep about half of their annual cost-of-living payments under the deal announced Tuesday. The reduction could be restored in the future if the fund’s finances improve.
“This has been one of the more vocal class of creditors,” bankruptcy expert Doug Bernstein said. “Maybe the city is getting some momentum where hopefully the remainder of the case won’t be so contentious. That’s optimistic. There’s going to be good days and bad days, but this is certainly significant.
“Judge Rhodes will not approve a plan that over promises,” Bernstein said. “They are definitely going to have to back up their numbers.”
The city still is negotiating with other retired workers, although their pension fund is in worse shape. Orr has proposed a 26 percent cut to current benefits, which may have to be deeper if the $816 million rescue falls apart.
Detroit filed for bankruptcy in July, citing $18 billion in unmanageable long-term liabilities. It’s the largest public filing in U.S. history.
The city last week settled with holders of $388 million in bonds, agreeing to pay 74 cents for each dollar owed. Separately, Rhodes signed off on an $85 million agreement that releases Detroit from a debt deal made years ago that carried high rates of interest.
Detroit does not need to have agreements with all of its more than 100,000 creditors in order to pay off parts of its debts and emerge from bankruptcy. Under municipal bankruptcy rules, as long as one class of impaired creditors votes to approve the city’s plan for paying off portions of its debts, a plan can go forward even if some of the city’s creditors object.
The city was expected by Tuesday evening to file a new proposal for how it would pay off some portions of its debts, known as a plan of adjustment.
Information for this article was contributed by Monica Davey of The New York Times.
Front Section, Pages 4 on 04/16/2014