Bankruptcy Is Not The Answer For The People Of Detroit


AFL-CIO Executive Council Statement

Last week, Michigan Governor Rick Snyder authorized the Emergency Financial Manager (EFM) for Detroit, Kevyn Orr, to race to file for Chapter 9 bankruptcy so he would beat a state judge ruling that this action violated the Michigan constitution, which says that public employee pensions should not be diminished or impaired. 

The AFL-CIO will continue to support our City of Detroit active and retired members in their fight to maintain dignity on the job, a safe workplace, fair wages and benefits for their labor, and against cuts in the pensions they have paid for and earned.  We call on President Obama, Congress, and the leadership of Michigan to stand with us and with the people of Detroit. 

Bankruptcy must not be used as a tool to impoverish City of Detroit workers or retirees. City workers have already made severe concessions to keep the city afloat.  They are not to blame for Detroit’s financial problems, yet they have been making sacrifices all along the way to help the city out. 

Corporations have time and time again used the harsh laws of bankruptcy to abrogate the rights of workers and take away pensions working people earned through decades of labor, while  leaving other, more privileged parties—from CEO’s to bondholders—with their fortunes intact.  

Today, we see this behavior on a massive scale in the coal industry, where Peabody Coal created a whole company, Patriot Coal, for the purpose of going bankrupt and taking away retirement security from tens of thousands of miners.  

It must be noted that Kevyn Orr, who is now proposing massive cuts to the pensions Detroit workers have earned, worked for the law firm Jones Day, which is currently representing Peabody Coal in its bankruptcy proceeding and which is pushing to severely cut the retirement security of the retired coal miners after a lifetime of backbreaking work in their mines. 

Every step of the way, the citizens of Detroit were told they had to give up their right to democratic representation by giving power to an Emergency Financial Manager in order to avoid bankruptcy.  Now that bankruptcy has been filed anyway, it is clear that either state control has failed, or that Governor Snyder and his hand-picked emergency manager appointee were not honest about their intentions in the first place. 

In fact, Mr. Orr’s decision to file for bankruptcy can be taken as confirmation that he was hired, secretly and ahead of a declared financial emergency, because he is a bankruptcy expert. 

While telling a state court that bankruptcy was not imminent, Governor Snyder was aware that the opposite was true.  The Governor authorized the City’s bankruptcy filing on July 18 when he realized that the court was likely to issue an order protecting retirees' pension rights under the Michigan Constitution. 

Governor Snyder has a track record of ignoring the will of Michigan’s citizens.  Just weeks after Michigan voters repealed a law establishing the position of emergency financial manager, the Governor and the state legislature re-adopted a similar law.  Now just a few months later, the Governor has hastily authorized a bankruptcy in an effort to bypass the state’s judicial branch and its constitution. 

Neither Governor Snyder nor Mr. Orr have shown good faith in this matter.  Mr. Orr said publicly that he has “bent over backwards” to work with constituencies in Detroit, but this is not true.  While Orr did have significant discussions with bondholders prior to the bankruptcy filing, despite many requests Mr. Orr has not had a single meaningful discussion with the unions representing the overwhelming majority of Detroit’s employees.  No good faith.  No bargaining – even though the law requires it prior to bankruptcy. 

The city’s current workers are not responsible for the city’s economic state.  In fact, they are working more for less to keep the city running.  Many are risking their lives to protect Detroit’s citizens using old, broken and rundown equipment – which puts the lives of the protectors and the citizens at risk. 

Retired men and women in Detroit are not responsible for the city’s economic state.  They paid their share into their retirement systems – which by all independent measures were in good financial health – that are now likely to be pilfered to pay Wall Street firms as bondholders in bankruptcy.  

Mr. Orr’s claim that Detroit’s pension liabilities account for $3.5 billion of the city’s debt is more than three and a half times as much as reported by the Retirement System of the City of Detroit’s actuary, and raises serious questions about how objective — let alone neutral — he will be in submitting a restructuring plan to a bankruptcy court. 

Yet bankruptcy and the suspension or reduction of pension payments would result in profound hardship for workers, retirees, and their families.  It appears that Governor Snyder and EFM Kevyn Orr are pushing Detroit into bankruptcy to gut the modest benefits received by Detroit’s retired public service employees. 

Rather, the fault lies with corporate CEOs who relentlessly sought out foreign shores for higher profits at the expense of fair wages and safe working conditions for American workers, while avoiding paying the taxes that would have strengthened Detroit.  

And the fault lies with Governor Snyder, who slashed the city’s share of state revenues by tens of millions of dollars. 

Bankruptcy is not the answer for Detroit.  It will only make Detroit’s problems worse and accelerate its race to the bottom. 

It is estimated that bankruptcy will cost Detroit more than $100 million in lawyer and “professional” fees, including massive fees paid to Mr. Orr's law firm. That money could be used to make the citizens safer, restore parks and libraries, and meet the general obligations of the city.  

Detroit’s bankruptcy will lead to higher borrowing costs not only for Detroit, but also for cities throughout Michigan as the bond market rightly casts doubt on the state’s willingness to intervene to assure the credit worthiness of its towns and cities. 

Bankruptcy also sets a dangerous precedent.  Those who would profit from the collapse of the public infrastructure of American cities see in these troubling circumstances an opportunity to benefit at the expense of the American worker.  Their toxic vision for profit above all else must not shove aside one of America’s bedrock values: that all American workers deserve to be treated justly and with dignity. 

The time is now for responsible, powerful action. 

First, we call upon President Obama and Congress to commit to an immediate infusion of federal assistance for Detroit, and to demand that the federal financial commitment be matched by the State of Michigan. 

Second, we call upon Governor Snyder to make whole the city of Detroit, which saw its share of state revenues slashed by $66 million from 2011 to 2012 by his hand.  In total, state aid to Detroit has been cut by $160 million since 2002. 

The 12 million members of the AFL-CIO will fight for the workers in Detroit, and for the financial health of this great American city.  We will not let Detroit’s proud residents, our sisters and brothers, become the pawns of corporate profiteers.

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