Detroit Bankruptcy – What They Could Have Done Differently

(Zerohedge) – The city of Detroit, Michigan, crossed the line today, officially defaulting on debt obligations by announcing a moratorium on debt servicing obligations and “Certificates of Participation” today. But in reviewing the press release, this is what struck me most:

“Detroit will Honor Pay, Medical and Vacation Obligations to Current Employees”

But how do you reconcile that with the fact that the City of Detroit, long burdened with growing debts and a shrinking tax base, has consistently agreed to increase pay and benefits to municipal employees.

Just in the Detroit School District for the 2010-2011 school year, “contractual obligations” with the teachers union resulted in payments to teachers’ union members of $41.7 Million above and beyond their base salaries and benefits.  The majority of this money ($16.1M) was tied to municipal stipulations in the teachers’ labor agreement for things such as automatic “step raises” and “super-step” raises.

The second largest non-operational cost after “step raises” was a clause in the contract requiring the city to buy-out (contract calls this “reimbursement” but that is ridiculous – reimbursement is a key word which translates to “tax free” in contracts) the unused sick days of teachers when they retire, transfer out, or are laid off, the cost of which was $12.5M in the 2010-11 year, alone.

In addition, Teachers Union members contribute only 11% towards their health insurance.  Raising their contributions to a more competitive ~45% would have saved the city just under $20M dollars in the 2010-11 school year alone!

In the last decade Detroit has spent over $560 Million dollars, just on such contract ‘perks’ and ‘guarantees’ above and beyond basic compensation, just to the teachers’ union!  By extrapolation, we can reasonably estimate that the total excess cost resulting from unionized labor to the city over the last decade has run  well above $10 billion dollars.

Read the Entire Report – HERE

We must wonder, when the “Emergency Manager” of a city which is $17 Billion in debt, reaffirms contract obligations like these with not one, but dozens of separate unions, where said “Emergency Manager’s” interests actually lie…  Certainly, those whose interests run outside of Mr. Orr’s are about to be fleeced under color of “bankruptcy law”.

Ask yourself, “when will enough be enough?  What will it take before the American People say ‘no more!’ and mean it?  What will America do when that line is crossed?

Now ask yourself how many Detroits can our economy take?  How many Stockton, CAs?  What about when it is Chicago, or Atlanta?  What if three or four cities of that size all default in short order?  Will the TBTF cities get bailed out just like the TBTF banks?  And what will that mean to all of the municipal bond holders (mostly retirement savers) when they lose decades worth of investment funds?


~Those who abuse Liberty, sentence themselves to death!

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