Detroit Workers Deserve Better Than Bankruptcy

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Analysis Law and Policy

Detroit Workers Deserve Better Than Bankruptcy

Sheila Bapat

Detroit's argument that the city is insolvent and thus needs to “save” on its pension liabilities is purely an expression of political priorities—priorities that do not include valuing workers.

The latest census data reveal that extreme poverty among women over age 65 shot up 23 percent in 2012. In general, the economic security of women in their later years tends to be much shakier than men’s due to overall lower earnings. Women also tend to leave the workforce at higher rates in order to take on unpaid domestic labor. All of this contributes to long-term economic instability for many U.S. women workers.

It is against this backdrop that the City of Detroit, which suffers from one of the highest poverty rates in the nation, will soon find out if it is eligible for bankruptcy. The Detroit bankruptcy trial wrapped on November 8, and a judgment is expected any day now. If the city is deemed eligible to go bankrupt, it would be able to skirt at least some of its $18 billion in long-term liabilities and it could slash many city employees’ monthly pension earnings.

Judge Steven Rhodes’ decision has deep implications for many women—particularly given the recent census poverty data as well as research showing that women make up the majority of public employees nationally.

Detroit City Emergency Manager Kevyn Orr argued in the case that the city employees’ right to their pensions is trumped by the city’s right to bankruptcy under federal law. The attorney for the city pension fund, Robert Gordon, argued that the city did not negotiate in good faith with its creditors before filing for bankruptcy, nor did it uphold its duty to protect public pensions pursuant to the Michigan Constitution.

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Rewire spoke with Gwendolyn Beasley, a Detroit native who worked as a clerk for the Detroit Public Library for 34 years. “A cut in pension would drastically impact my lifestyle,” Beasley said. “I can’t understand why the city wants to treat its retired citizens this way.”

Retired since 2000, Beasley currently receives a monthly pension check of $1,500 per month plus Social Security; a cut to this amount would make it hard for Beasley to pay her housing and utility bills. Beasley is one of thousands of workers who contributed money to their pension plans, accepting concessions and wage freezes over the years with assurances that their pensions would be there upon retirement.

Juanita Scott, a retired Health Department employee, said in a recent video produced by the American Federation of City, County and Municipal Employees (AFSCME) that she receives $754 per month in per pension, which she uses to pay for her car, home, and health insurance plans. “After that I have about $300 left. I don’t understand it. I can’t see how the government is allowing this to happen,” she said.

This verdict is about to be handed down just weeks after City Manager Orr cut retired city employees’ health benefits, affecting nearly 30,000 city workers. Beasley has already experienced a cut to her health benefits.

Some Detroit workers’ rights groups are seeking an automatic appeal of a ruling that the city can file for bankruptcy. Such an appeal is critical; the verdict could affect women public employees nationally, as other cities with pension obligations will be looking to the judgment in Detroit to determine whether they may be able to skirt their employee pension obligations as well. As AFSCME President Lee Sanders recently pointed out, “The potential bankruptcy in Detroit is not solely a Detroit crisis; it is an American crisis. Financially devastated cities all across our nation are now struggling for their survival. The outcome in Detroit affects all of us.”

If the city is able to go bankrupt, workers would be paying the price for the city’s poor management of resources. An in-depth report about Detroit’s financial problems issued recently by Demos points out that the city’s desire to pursue bankruptcy “was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk.”

These events are not occurring in a vacuum. They are unfolding within a political context that seeks to destabilize public pension plans and devalue the lives of individual workers. There is a larger right-wing push away from public pension plans in favor of 401(k)s—even though 401(k)s are not performing terribly well. As Laura Clawson wrote at Daily Kos recently, “Continuing to attack pensions and thereby promoting these vastly inadequate personal accounts that are speeding the U.S. toward a generation of elders living in dire poverty, is a disaster waiting to happen.”

Detroit is trying to default on payments to its workers even though the city recently agreed to spend money contracting with the Manhattan Institute to implement Bloomberg-style stop-and-frisk policies. The argument that the city is insolvent and thus needs to “save” on its pension liabilities is purely an expression of political priorities—priorities that do not include valuing workers.