Questions over $350 million in Detroit’s pensions
Detroitâ€™s emergency manager Kevyn Orr took a victory lap of sorts at a bankruptcy conference in Washington, D.C. The Bond Buyer reported:
Detroit’s recovery will mirror the comeback of other major American cities like Miami, Washington D.C., and Cleveland, the city’s emergency manager Kevyn Orr said Friday.
Signs of Motown’s revitalization are already apparent, especially in the downtown area, where the occupancy rate is 97 percent and â€˜you can’t find an apartment,â€™ according to Orr.
The city continues to lose population, but at a slower rate than in recent years, he said. â€˜The reality is we’re probably at 685,000,â€™ Orr said of the city’s population, down from 700,000 in 2010. â€˜There’s been some shallowing of the population loss and there’s been some growth in some areas.â€™
Orr went on to praise the dozens of outside professionals who assisted him with the bankruptcy process and addressed the settlement he is working out with Detroitâ€™s two pension systems. The Bond Buyer again:
Taking the city into bankruptcy has helped it achieve settlements with major creditors and brought in an additional $800 million in state and private money for the city’s pensions, according to Orr.
A recent settlement that calls for 100 percent repayment of police and fire pensions and 95.5 percent repayment of general employee pensions is do-able because of higher recent market returns due to improved oversight of the pension funds, he said.
The stateâ€™s contribution to the Detroit pension settlement has not gone through a legislative process yet, and the form it would take has gone through several iterations. Chad Livengood of the Detroit News reports:
Gov. Rick Snyder said Thursday heâ€™s open to using one-time surplus tax dollars for the stateâ€™s contribution toward a fund to bolster Detroit pensions and settle the cityâ€™s bankruptcy. That action that would have to be endorsed by the Legislature.
Snyder has pledged $350 million over 20 years toward an $816 million fund designed to limit cuts to pensions and shield city-bought art at the Detroit Institute of Arts from being sold to satisfy creditors.
As Detroitâ€™s pension funds have pushed for getting the state money up front at a discounted present value rate, the state has begun exploring making a lump sum payment with borrowed money or surplus tax revenue, Snyder said.
Curiously, the level of funding in the Michigan State Employee Retirement System (MSERS) was only 60 percent at the end of 2012. Meanwhile, the governor has been pushing the state legislature to put money into Detroitâ€™s two pension systems that are funded at higher levels (approx 80 and 95 percent).
Here is the funding level for the state pension fund (MSERS) from the 2013 CAFR (page 43):
The state pension system was underfunded by $6.2 billion. The healthcare benefits promised to state retirees (OPEBs) were only about 4 percent funded, with unfunded liabilities of $8.4 billion. For just one state pension system, there are $14 billion of unfunded promises.
Finalizing the Detroit bankruptcy is important, but is it more important than funding the state pension system? Stay tuned.