By J. Ellsworth Summers, Jr. and Scott St. Amand
Over the Memorial Day weekend, while many around the country were enjoying beautiful weather, the lawyers for the city of Detroit were busy filing a lengthy defense to their proposed restructuring plan, which is slated to be heard when trial begins on July 24. Of the over six hundred formal objections to the plan of adjustment, one of the chief complaints is that the plan would treat pensioners and bondholders inequitably, with the bondholders getting the proverbial short end of the stick.
Specifically, the plan proposes to pay pensioners roughly sixty cents on the dollar, whereas bondholders and other unsecured creditors would receive only ten cents on the dollar. On a monthly basis, this cut amounts to approximately 4.5% from the monthly pension checks sent to civilian retirees, while police and fire retirees would not face any cuts.
As we noted in a previous post, the sale of the Detroit Institute of Art’s collection has been a hotly contested topic. On the one hand the collection is valued at $816 million dollars, and its sale would satisfy a large percentage of the city’s debts. On the other hand, the DIA is a cultural cornerstone of the city and the state. What emergency manager Kevyn Orr has proposed has earned the moniker the “Grand Bargain” by many commentators. Under Orr’s Grand Bargain, the DIA collection will be sold to a private trust through philanthropic gifts and a lump sum payment from the Michigan government. The proceeds of the sale would be used to reduce the city’s pension fund debt.