Detroit bankruptcy: WAR ON PENSIONS!

City of Detroit Emergency Manager Kevyn Orr, the figurehead named by reactionary Michigan Gov. Rick Snyder to run Detroit and usurp its elected political officials, filed a Chapter 9 bankruptcy on July 18, the largest municipal bankruptcy filing in U.S. history.

Orr claims that the city is unable to pay its approximately $20 billion in debt out of city revenues. Orr’s June 14 Proposal for Creditors and the bankruptcy petition itself make it clear that the bankruptcy’s real goal is to gut the pensions and benefits of Detroit’s over 20,000 retirees. Most of the debt to the banks that caused Detroit’s financial crisis is considered “secure debt,” to be paid despite the bankruptcy filing.

The list of Detroit’s top 20 unsecured creditors that was filed with the bankruptcy court places the General Retirement System of the city of Detroit and the Police and Fire Retirement System of the city of Detroit, as well as trustees associated with administering the pensions, at the top of the list to suffer the bulk of the losses in bankruptcy. The pension unsecured debt is listed at $4.9 billion. The debt for the rest of the top 20 unsecured creditors amounts to only $526 million.

This listing doesn’t include benefits owed to retirees, also considered unsecured debt, which total another $5.7 billion.

In contrast, secured debt, which gets paid first out of city funds under bankruptcy, totals approximately $6.4 billion to Bank of America, UBS, Chase, Goldman Sachs, Citi, etc., according to the June 14 report. This includes water department bonds, interest rate swaps on pension obligation certificates and debt secured by state revenue sharing.

Michigan constitution guarantees public pensions

The pensions of public employees are guaranteed under the Michigan constitution. Article IX Section 24 of the Michigan constitution states: “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”

On July 18, Lansing circuit court judge, Rosemarie Aquilina, was holding a hearing on a complaint and motion filed by Detroit retirees for an injunction to stop the bankruptcy filing because it was intended to gut pensions in violation of the Michigan constitution. Realizing that the injunction was about to be issued, lawyers for Orr and Snyder asked Aquilina for a five-minute adjournment to the hearing. They hastily and surreptitiously filed the bankruptcy during the adjournment.

The next day, Judge Aquilina issued her injunction. Her order stated that PA 436 (the Emergency Manager statute) is unconstitutional and in violation of the Michigan constitution “to the extent that it permits the Governor to authorize an emergency manager to proceed under Chapter 9 (the federal municipal bankruptcy code) in any manner which threatens to diminish or impair accrued pension benefits; and PA 436 is to that extent of no force or effect.”

The judge directed the emergency manager to immediately withdraw the Chapter petition filed July 18 and not authorize any further Chapter filing that threatens pension benefits. Judge Aquilina directed that a copy of this order be transmitted to President Barack Obama.

Snyder and Orr are arrogantly ignoring the judge’s injunction and moving forward with the bankruptcy. The Michigan attorney general immediately appealed the order to the Michigan Court of Appeals. Considering the Michigan appellate courts’ reactionary character, Snyder believes his placing an African-American city into bankruptcy will be upheld despite its blatant illegality.

The Detroit bankruptcy filing has national significance. A Pew Center report dated Jan. 16, which examined the largest cities in the U.S., documented a $217 billion total shortfall in funding for city workers’ pensions and benefits. A June 2012 Pew Center Report on state pensions reported a $757 billion gap between states’ pension assets and obligations.

State and city worker pensions are not protected under federal ERISA law. However, 24 states have enacted legal protections for public pensions, with Michigan’s constitutional protections one of the strongest. If a federal court holds that Detroit’s workers can be gutted through Chapter 9 bankruptcy, it would open the floodgates for states and cities facing pension shortfalls to follow suit.

Fiscal crisis caused by banks

The national media, as well as Gov. Snyder and E.M. Orr, have labeled Detroit’s fiscal crisis a product of inefficient Black political leadership. Every predominantly African-American city in Michigan has now been placed under receivership by Snyder, while mostly white cities in similar straits are not taken over by the state.

But this racist attack on African-American leadership and the people covers up the real culprits for Detroit’s economic crisis: the corporations, and in the recent period, the banks.

Right up to the 1970s, Detroit was a powerful industrial center where African Americans earned decent wages based on union contracts and enjoyed the highest rate of home ownership of any city in the U.S.

The first massive attack on Detroit occurred with the auto industry restructuring initiated by Chrysler in the late 1970s. Chrysler operations were in large part centered in the city of Detroit, with large assembly and parts plants employing thousands of primarily young Black workers. These plants were the base for the League of Revolutionary Black Workers in the late 1960s and early 1970s.

When Chrysler embarked on reindustrialization based on the introduction of new technology and robotics, it shut virtually all its operations in the city of Detroit and reduced the power of the Black working class. Some 35,000 union jobs were eliminated in Detroit from 1979 to 1982. General Motors embarked on a similar restructuring from 1986 to 1988, closing all its operations in the city of Detroit except one assembly plant.

Despite this attack, under the leadership of African-American mayor, Coleman Young, and a predominantly African-American city council, the city was able to stabilize and by the early 2000s, property values were rising and the neighborhoods were reviving.

However, as documented by this author in the article, “How the Banks Destroyed Detroit” (, March 31, 2011), in the mid-2000s Detroiters, particularly African-American homeowners, were targeted by the banks for racist, predatory mortgage loans. Some 73 percent of the 330,000 new mortgages in Detroit from 2004 to 2006 were subprime mortgages (mortgages at least 3 percent above the prime interest rate, often with adjustable rates and other exotic features). Some 87 percent of African-American borrowers in Wayne County, where the city of Detroit is located, were sold subprime loans in 2006.

As a result, Detroit experienced 67,000 bank foreclosures from 2005 to 2009, more than 20 percent of all household mortgages. At least 50,000 additional Detroit homes have experienced mortgage foreclosures since that date, with tens of thousands more Detroit households losing their homes to tax foreclosures. The average sale price of HUD backed mortgages in Detroit plunged from $46,702 in 2003 to $6,035 in 2009.

A product of these massive foreclosures caused by the banks’ racist practices was that the city’s population declined by 237,000 in the first decade of the 21st century, devastating the city’s tax base and leading to the present financial crisis.

With the banks’ lending practices decimating Detroit’s tax base, the city was then forced to borrow from the banks to maintain operations. The same banks that practiced predatory lending on the city’s residents, then imposed predatory loans on the city itself.

The most prominent form these loans take are pension obligation certificates coupled with interest rate swaps. Under these instruments, the city pays a fixed 6.3 percent interest rate to the banks on bonds where the actual interest rate paid the bondholders is only 0.57 percent. The banks pocket the difference (totaling about $800 million on all the swaps), as well as the fees for underwriting the instruments.

As a result, the same banks that destroyed the city’s neighborhoods — Bank of America, Chase, UBS, Citi, Goldman Sachs, etc. — now collect first lien on the city tax dollars. And while pensions are about to be destroyed in bankruptcy, most of these banks’ loans are “secured” by specific liens on casino tax dollars, state revenue sharing, etc.

National fightback needed

The people of Detroit are fighting back against the attack on their city. There have been numerous demonstrations against the emergency manager and against the governor and the banks’ imposition of austerity on the city’s workers and residents. Many protests have targeted the racist disenfranchisement of this African-American city, whose political leadership has been stripped of all power, which the protesters see as part of the national attack on the Voting Rights Act.

The Moratorium NOW Coalition to Stop Foreclosures, Evictions & Utility Shutoffs has particularly targeted the banks for their role in Detroit’s financial crisis. Moratorium NOW! calls for canceling Detroit’s debt to the banks and guaranteeing the jobs and pensions of Detroit city workers and services for its residents. The coalition demands that the banks be ordered to pay Detroit reparations for the destruction that they have caused to the city, with the funds being used for a massive jobs program to put the youth and unemployed to work rebuilding the city’s neighborhoods.

The coalition goes out with sound cars every Saturday to educate the public and has formed a committee to defend retiree pensions.

But the fight against austerity imposed by the banks is a national and international phenomenon that requires a commensurate response. Within the U.S., cities whose populations are predominantly people of color, from Stockton, Calif., to Philadelphia to Baltimore to Chicago, are particularly suffering from financial crises.

As noted above, the crises are a byproduct of the subprime mortgage crisis which targeted African Americans and Latino/as. A study by the Service Employees union dated March 22, 2010, documented that like Detroit, these cities are now victims of the banks’ predatory lending. It noted that as of that date, interest swaps alone had robbed $28 billion from city and state governments. In Greece, Portugal and Spain, workers are fighting similar austerity plans imposed by finance capital.

The Moratorium NOW! Coalition has issued a call for an “International Assembly Against the Banks and Austerity” to begin in Detroit on Oct. 5, on the fifth anniversary of the U.S. bank bailout. It is urging all those affected by the racist, predatory policies of the banks to come to Detroit and join the assembly. This includes students facing massive debt, homeowners fighting foreclosure and evictions and unions fighting to defend their pensions and jobs.

For more information, contact the Moratorium NOW! Coalition at 313-680-5508 and visit its websites at ­ and

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