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Detroit Emergency Manager “Freezes” Pension Fund | Zero Hedge

Detroit Emergency Manager “Freezes” Pension Fund | Zero Hedge.

So far, city employees of bankrupt Detroit have stoically withstood all direct and indirect eliminations of their entitlements and retirement benefits, which was to be expected: after all as per a recent finding, they are merely an unsecured claim in an insolvent entity. However, following the latest shot across the bow from Detroit’s emergency manager Kevyn Orr, which freezes pension plans for all non-uniform employees, said stoicism will likely be acutely tested.

As Detroit News reports,

Emergency Manager Kevyn Orr has frozen the city’s pension plans for all non-uniform employees, closing the General Retirement System effective Jan. 1.

 

Orr’s Dec. 30 action freezes earned pension benefits for employees in the General Retirement System and creates a new 401(k)-style defined contribution retirement plan for existing and future city workers, according to a copy of the emergency manager’s order obtained by The Detroit News.

 

As part of the order, Orr also eliminated the pension “escalator,” effectively eliminating any future cost-of-living increases for all retired city employees in the General Retirement System.

 

The emergency manager’s order also closes the pension system’s Annuity Savings Fund, an added benefit for some municipal workers.

 

 

City employees who were not already vested in the retirement system “shall not be entitled” to pension benefits, according to the order.

 

 

Tina Bassett, a spokeswoman for the General Retirement System, called Orr’s pension freeze “an outrageous and over-zealous action.”

 

“Again the EM’s office demonstrates a lack of integrity and willingness to make a good faith effort when negotiating with our pension system,” Bassett said in a statement. “Currently we are in the midst of mediations that we thought were going rather well. We can only wonder, why take this action now and for what purpose?

Detroit’s bankruptcy shows even pensions aren’t safe – World – CBC News

Detroit’s bankruptcy shows even pensions aren’t safe – World – CBC News.

In Detroit, protesters rally outside the federal court that would allow the largest municipal bankruptcy in U.S. history earlier this week. The judgement overrides a state law that should have protected municipal pensions and other agreements. In Detroit, protesters rally outside the federal court that would allow the largest municipal bankruptcy in U.S. history earlier this week. The judgement overrides a state law that should have protected municipal pensions and other agreements. ( Rebecca Cook / Reuters)

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About The Author

Photo of Neil Macdonald

Neil Macdonald
Senior Washington Correspondent

Neil Macdonald is the senior Washington correspondent for CBC News, which he joined in 1988 following 12 years in newspapers. Before taking up this post in 2003, Macdonald reported from the Middle East for five years. He speaks English and French fluently, and some Arabic.

 

America’s rugged individualists have argued for many years that governments can’t be trusted. Turns out they were right. More so than they probably ever realized.

 

Municipalities, utilities and states across the U.S., faced with debts and liabilities piled up by irresponsible elected officials over the years, now want to renege.

 

Cities are seeking, and obtaining, permission to walk away from their commitments. State governments are simply giving themselves that permission.

 

And U.S. conservatives, who preach financial accountability (Bush-era Republicans saw to it, for example, that credit card debt collectors can follow ordinary Americans all the way to the grave), are not just cheering those faithless governments, but demanding that they go even further.

 

The shrunken city of Detroit is the latest and biggest example.

 

It just secured a judge’s permission to declare bankruptcy, and will now begin imposing “haircuts” on its creditors, who it appears will end up shaven nearly bald.

 

The most vulnerable of them are Detroit’s 23,000 retired municipal pensioners.

 

People like Gwendolyn Beasley, a 67-year-old who worked as a Detroit library clerk for 34 years and now collects $13,085 a year.

 

“I am very angry,” she tells reporters, futilely.

 

Michigan’s constitution, she points out, explicitly protects government pensions.

 

Tough luck, ruled the judge. Beasely’s pension is now in the barber’s chair.

 

Nothing’s safe

 

In America’s Hunger Games economy, nothing is protected anymore.

(Except, of course, the banks and big corporations like Chrysler and General Motors that had to be rescued with tax dollars when everything crashed five years ago.)

 

In the state of Illinois, the legislature just passed a legislative “fix” for the $100-billion hole in its workers’ pension plan, which actually won’t come anywhere near to fixing it.

 

At least, though, Illinois is trying to respect the pension deals it already signed, and is focusing the financial pain on younger workers, who still have the option of finding work elsewhere and retaking control of their futures.

kevyn-orr-detroitDetroit’s emergency manager Kevyn Orr says it will take a month following the bankruptcy decision to figure out where exactly to cut: “The reality is the city has no cash on hand to pay the magnitude of the debt we have, which is $12 billion.” (Rebecca Cook / Reuters)

 

Illinois has also raised taxes to pay for its pensions, provoking the fury of conservatives.

 

The Wall Street Journal’s editorial page, scourge of taxation everywhere, blames the whole mess on greedy unions and cowardly politicians.

 

And in one respect, at least, the Journal is right: Of course unions are greedy, just as businessmen are greedy. Greed, otherwise known as acting in your own economic interest, is what makes the U.S. economy work.

 

The real villains are the politicians who agreed to labour deals they likely knew were unsustainable.

 

A ‘fraud’ on the public

 

“These jurisdictions didn’t face up to how much money they would need to put in to meet the commitments they made,” says Chester Spatt, a professor at Carnegie Mellon University and the former chief economist for the Securities Exchange Commission.

 

“Frankly, in other contexts, one calls that fraud.”

 

Politicians, who usually want to be re-elected, have a long record of incurring big debts, then walking away and leaving the mess to successors, who, if they can, then pull the same stunt.

 

And their pension plan advisers, anxious to please, play along.

 

Even now, pension funds across the U.S. are assuming “ridiculous” returns of seven and eight per cent to try to show how solvent they are, says Spatt: “It’s stunningly irresponsible.”

 

But as the bills arrive, politicians, especially Republicans, are choosing to demonize the victims, and it is easy to see why.

 

Campaigning against the rapacious clerks, teachers, librarians, police and firefighters who had the nerve to accept these pension deals has become a surefire political win.

 

Many voters don’t have pensions at all. Why, they ask, should government workers?

 

Indeed, some public servants do enjoy pensions and benefits that look shockingly generous and would be difficult to sustain without imposing higher taxes, which is definitely not a vote-getter.

 

The point, though, is that these workers signed deals to which governments agreed, in many cases accepting lower salaries than they would have earned in the private sector.

 

And they held up their end. Whatever you might think of the value of their services, they supplied them, as contracted.

 

More questionable debt

 

A deal is supposed to be a deal. But in post-crash, jobless-recovery America, what is supposed to be is not what is.

 

Spatt calculates the total unfunded liability of government pensions in the U.S. is probably in the trillions of dollars.

 

But the problem goes further than that. In fact, the vast majority of Americans, whether they realize it or not, will be looking to collect from government someday, and chances are the money won’t be there.

 

The Social Security system, America’s biggest pension plan, is basically broke. Successive governments have raided the Social Security fund, and shied away from increasing premiums. By some calculations, it owes $20 trillion more over the long term than it can pay.

 

Detroit’s bondholders – a lot of them senior citizens who purchased municipal bonds as a form of substitute pension – have now learned that not all government debt is safe.

 

They, along with the city’s pensioners, have reportedly been offered pennies on what they are owed.

 

Federal and state debt is less risky, but only because those levels of government can borrow more easily and Washington can print money. (Which, of course, has lowered interest rates and further put the screws to retirees who are getting miserable returns on their savings.)

 

In Detroit’s case, there is no talk of Washington stepping in, and Spatt, for one, says that is a good thing.

 

Not only would federal involvement set off an endless chain of government-to-government bailouts (the city of Chicago’s pension hole is $20 billion), Spatt says it would ultimately do nothing to stop irresponsible politicians from creating the same situation again.

 

Ultimately, says Spatt, workers must understand that pensions are risky benefits, and investors must understand that “the full faith and credit of government doesn’t mean what it used to mean.”

 

I would never, of course, suggest any of this would apply in Canada.

Canada, as we are all constantly told, is far more prudent and better managed, and Canadians trust their governments more.

 

Still, it might not hurt to take note.

 

Kincardine, Ontario Proposed Site For Nuclear Waste Burial

Kincardine, Ontario Proposed Site For Nuclear Waste Burial.

KINCARDINE, Ont. – Ordinarily, a proposal to bury radioactive waste in a scenic area that relies on tourism would inspire “not in my backyard” protests from local residents — and relief in places that were spared.

But conventional wisdom has been turned on its head in Ontario, where a publicly owned power company wants to entomb waste from its nuclear plants 680 metres below the surface near Lake Huron.

Some of the strongest support comes from Kincardine and other communities near the would-be disposal site at the Bruce Power complex, the world’s largest nuclear power station, which produces one-fourth of all electricity generated in Canada’s most heavily populated province. Nuclear is a way of life here, and many residents have jobs connected to the industry.

Meanwhile, the loudest objections are coming from elsewhere in Canada and the U.S. — particularly Michigan, which shares the Lake Huron shoreline with Ontario.

Critics are aghast at the idea. They don’t buy assurances that the waste would rest far beneath the lake’s greatest depths and be encased in rock formations that have been stable for 450 million years.

“Neither the U.S. nor Canada can afford the risk of polluting the Great Lakes with toxic nuclear waste,” U.S. Reps. Dan Kildee, Sander Levin, John Dingell and Gary Peters of Michigan said in a letter to a panel that is expected to make a recommendation next spring to Canada’s federal government, which has the final say.

Michigan’s two U.S. senators, Democrats Carl Levin and Debbie Stabenow, have asked the State Department to intervene. Business and environmental groups in Michigan and Ohio submitted letters. An online petition sponsored by a Canadian opposition group has collected nearly 42,000 signatures.

The decision on the $1 billion Canadian project could influence the broader debate over burying nuclear waste deep underground, said Per Peterson, a nuclear engineering professor at the University of California at Berkeley, who served on a national commission that studied the waste issue in the United States. The U.S. government’s plan for building a repository at Yucca Mountain in Nevada has been halted by stiff opposition.

“Demonstrating that this facility can be approved and operated safely is important because it can improve confidence that future high-level waste facilities also can be operated safely,” Peterson said.

The Canadian “deep geologic repository” would be the only deep-underground storage facility in North America, aside from a military installation in New Mexico. Other U.S. radioactive waste landfills are shallow — usually 30 metres deep or less.

The most highly radioactive waste generated at nuclear plants is spent fuel, which wouldn’t go into the Canadian chamber. Instead, the site would house “low-level” waste such as ashes from incinerated mop heads, paper towels and floor sweepings. It also would hold “intermediate waste” — discarded parts from the reactor core.

The project would be operated by Ontario Power Generation, a publicly owned company that manages waste generated by its nuclear reactors and others owned by Bruce Power, a private operator. Officials insist it’s the safest way to deal with radioactive material that has been stored aboveground since the late 1960s and needs a permanent resting place.

“We’ve had many scientists and engineers studying this for many years,” OPG spokesman Neal Kelly said. “They’ve concluded that it will not harm the environment or the public.”

Most of the waste would decay within 300 years, but the company acknowledges the intermediate waste would stay radioactive for more than 100,000 years. That’s too long for Eugene Bourgeois, who has a wool yarn business near Bruce Power.

“We have only recently discovered radioactivity,” he said. “It’s arrogant to think we’re smart enough to know what it will do to life on this planet over such a long time.”

Larry Kraemer, mayor of Kincardine, says most of his constituents don’t share those fears. The risk of radioactive pollution is “so low as to be almost unimaginable,” he said. “The people here draw their drinking water from the lake. We’re certainly not going to take any chances with it.”

Kincardine is among several small communities hugging the shoreline in southern Ontario’s Bruce County, which has miles of sandy beaches popular with tourists — particularly from Toronto, about three hours southwest. The downtowns are lined with shops, restaurants, parks, museums and woodsy footpaths.

The area’s first nuclear plant was built in the 1960s in countryside north of Kincardine. The sprawling Bruce Power site now has eight reactors and employs about 4,000 people. Kraemer says about half the jobs in his town of 12,000 are connected to the industry.

“We don’t have the knee-jerk reaction when someone says ‘nuclear’ that other people do,” said Joanne Robbins, general manager of the chamber of commerce in nearby Saugeen Shores. “We grew up with it.”

Beverly Fernandez, leader of the group that started the online petition, lives in Saugeen Shores but admits she’s focusing on rally opposition outside the area because the industry is so popular in Bruce County — which she dryly labels “the nuclear oasis.”

Company specialists say the waste would be placed in impermeable chambers drilled into sturdy limestone 680 metres below the surface, topped with a shale layer more than 180 metres thick. The lake’s maximum depth in the vicinity of the nuclear site is about 180 metres.

But Charles Rhodes, an engineer and physicist, contended seeping groundwater would fill the chamber in as little as a year, become contaminated and eventually reach the lake through tiny cracks in the rock.

“It’s only a question of how long, and how toxic it will be when it gets there,” he said in an interview.

Kraemer, the Kincardine mayor, said naysayers should be grateful his town is willing to shoulder a burden few others would accept.

“Opposition without responsibility is just a little too easy,” he said.

___

Online:

Ontario Power Generation: http://opgdgr.com/

Opposition group: http://www.stopthegreatlakesnucleardump.com/

Elliott’s Singer Sees More Detroit-Style Municipal Insolvencies | Zero Hedge

Elliott’s Singer Sees More Detroit-Style Municipal Insolvencies | Zero Hedge. (source)

Via Paul Singer of Elliott Management,

In the U.S., states cannot file for bankruptcy. Cities can, however, and there is a special provision in federal bankruptcy law reserved for cities. Furthermore, unlike countries, states and cities cannot print their own currency. When they overspend or overpromise, they beg for money from the federal government (or state government, in the case of cities), reduce their spending and/or default on their obligations. When the cash register is empty, it is lights out – literally. By contrast, the ability to print money allows countries to get away with long-term insolvency (at least until markets wake up and force them to restructure their obligations).

What is happening in Detroit – a combination of poor and corrupt civic leadership, shortsighted business leaders and overreaching labor unions – is interesting because it was 40 years in the making, but just months in the denouement. It turns out that Chapter 9 of the Bankruptcy Code gives judges tremendous leeway to chop obligations quickly and severely, regardless of the expectations of pension-holders and bondholders.

We see Detroit as the “coming attraction” to a significant number of municipal insolvencies in the months and years to come. Perhaps the pain of the restructurings will improve the behavior of city governments, labor groups and businesses, and perhaps it won’t.

But there is no question that this episode is a precursor to what will happen on the federal level as national promises prove to be empty.

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