Updated on 12/3/13:
On December 3, U.S. Judge Steven Rhodes ruled that the city can file for bankruptcy and can propose pension cuts as part of the restructuring, though he cautioned that the court “will not casually or lightly exercise the power under federal bankruptcy law to impair pensions.”
He declined to stay the bankruptcy proceedings until appeals play out, and said such appeals must be filed in bankruptcy court rather than heading straight to the 6th Circuit U.S. Court of Appeals as the American Federation of State, County and Municipal Employees Council 25 had asked. The Federation Council filed a notice of appeal in the bankruptcy court.
Four months after Detroit filed for the largest municipal bankruptcy in U.S. history, retired Detroit Public Library (DPL) employees are still struggling with anxiety over the fate of their retirement benefits, which are all-but certain to be targeted for significant cuts as part of a wide-ranging strategy to return the troubled city to solvency.
On July 18, Detroit, home to about 700,000 residents, filed for bankruptcy, with debts estimated at $18-20 billion. (It’s the largest municipal bankruptcy filing in U.S. history, far exceeding Jefferson County, AL’s $4 billion filling two years ago.)
These former library employees, now collecting benefits negotiated long ago by their union, are watching closely as a pivotal moment in Detroit’s fiscal crisis is played out in U.S. Bankruptcy Court.
Some former library employees are doing more than watching: In July, Michael Wells, a retiree who logged 34 years with DPL and Janet Whitson, a fellow library retiree, joined Robbie Flowers, a current DPL employee, in filing a lawsuit in state court challenging the city’s right to declare bankruptcy, arguing that such an action would violate their rights by causing pension benefits to be slashed. (They are otherwise protected by Michigan’s state constitution.)
A judge later ordered a stay of that case, in anticipation of the wider legal action that was heard in federal court. But William A. Wertheimer, attorney for the three plaintiffs, told LJ that this early litigation was an important step, both in training a spotlight on the library retirees’ concerns and helping pave the way for any appeals process that may become necessary.
“If you didn’t make the challenge than you won’t get a seat at the table,” said Jim Gibson, who retired last March at age 63 after 28 years with DPL.
The nine day federal trial started Oct. 23 and ended on November 13, with filings on whether the city had negotiated in good faith with creditors, according to the Detroit Free Press. A decision is expected shortly. In its filing, the American Federation of State, County and Municipal Employees asked U.S. Bankruptcy Judge Steven Rhodes to submit his decision to the U.S. Court of Appeals for the Sixth Circuit because the question of good faith bargaining hasn’t been sufficiently addressed in prior cases.
If the city wins the case, a debt-restructuring plan would probably be presented to the court sometime around Jan. 1. Kevyn D. Orr, the city’s state-appointed emergency manager, has said repeatedly in press reports that underfunded pensions account for about $3.5 billion of Detroit’s debt, and large cuts will be required to balance the city’s books. (He also said in June that pension rights are “sacrosanct” under the Michigan constitution, something that, according to Reuters, U.S. Bankruptcy Judge Steven Rhodes asked him to clarify during the trial.)
Unbalancing the checkbook
Balancing the city’s budget may unbalance the budgets of a lot of Detroit citizens, library employes included. One city proposal estimates that pensioners will receive about 16 cents on the dollar.
“There’s a lot riding on this,” said Wells. “I get calls all the time from former colleagues and people who worked for a long time. I have nothing to tell them right now. The unknown is really the fear.”
“There’s that anxiety of, ‘How are we going to cope,” said Laurie Stuart, president of UAW Local 2200, which represents many library employees and has worked to champion retirees’ efforts to keep their pensions intact.
For years, Stuart said, DPL employees viewed the pensions as a significant perk negotiated in good faith over the years, almost certainly at the expense of other attainable salary increases. “This was not expected,” Stuart told LJ. “We all thought our pensions were secure.”
Gibson, who managed six separate departments during his tenure with DPL, said he retired earlier than first planned because he saw Detroit’s bankruptcy proceedings as inevitable and he wanted to begin receiving his pension, which amounts to about $2,100 a month. “I’m more concerned for the police and the firemen because they have no Social Security,” Gibson said of the struggle to keep retirement benefits whole.
Asked if he did indeed retire at the right time, Gibson said, “It’s unknowable.”
Health costs rise
As the case unfolded, DPL retirees were given a new financial headache to cope with. The city recently notified them by mail of significant hikes in their health insurance costs. About 28,000 current and retired employees were affected.
News of the increase in healthcare costs was another body blow in an already tense year for the retirees. Those interviewed for this article described living on fixed incomes with little or no room for unexpected costs. This has only added to their determination to fight any attempt to cut into their pension benefits.
“It’s consuming for me to think about, and it’s starting to get me more and more angry,” said Whitson, who was forced to leave DPL on a permanent medical disability after coping with some severe back ailments, including “two failed back surgeries,” one of them a spinal fusion procedure. She spoke of needing a variety of monthly prescriptions, whose co-pay will jump from $5 to $20 once the new costs take effect.
“We could ride out this health care problem,” said Whitson, who has emerged as a public face of the city’s retiree population, granting numerous print and TV interviews. “Every American is going through this. It’s in flux for everyone. We understand that. But to now be threatened with our livelihood the way we are [with the pension cuts] … to me that is unforgivable.”
Wells, too, spoke of his financial preparation before retirement. Meticulously balancing his pension and other income against anticipated monthly expenses, Wells said he was confident of managing financially for his retirement years. But now, he said, fears of having his pension slashed and the recent health-care cost increases have upset this math. “Now they’re moving the goalposts on me,” Wells said.
At DPL, business as usual
DPL is not without its own financial problems, but the city’s bankruptcy has not adversely affected its day-to-day operations, Executive Director Jo Anne Mondowney told Library Journal. Ninety percent of its revenue is raised through millage, she said, although a shrinking tax base and steadily declining property values have forced severe budget cuts. There were branch closures in 2011, amid a series of system-wide controversies, and Mondowney said more belt-tightening is expected down the road. “We are not certain what’s going to happen,” she told LJ.
Mondowney admitted that some vendors who regularly do business with DPL have expressed concern over the city’s bankruptcy, and how it will the library’s financial health. “Rightly so,” she said. But Mondowney said DPL is committed to maintaining business as usual.
“Detroit is a fighting city,” Mondowney said. “The people here fight for what they believe in. They fight for their life, believe me.”
In spite of their worries, former DPL employees largely agreed. Stuart told LJ that DPL has always been viewed as an example of a proud institution the city can still offer its residents. “We’re trying our best to do quality public service,” Stuart said.
And Gibson said the library system has changed its mission in recent years, mostly as a reflection of patrons’ changing needs in a deteriorating urban environment. “The library wants to serve its public,” Gibson told LJ, but “the public they saw walking through the door,” particularly at Detroit’s main branch, was no longer not focused on historical archives and research; patrons mostly wanted access to computers for job searches and other practical tasks.