The Equity Factor

Detroit Emergency Manager Reverses Course On Pension Freeze

On Monday, Detroit Emergency Manager Kevyn Orr lifted a freeze on the city’s non-uniformed pensioners to give them a chance to negotiate their underfunded benefits.

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Detroit Emergency Manager Kevyn Orr quietly issued a freeze on non-uniform city pensions on December 31, leaving some 5,600 workers with a bitter New Year’s gift. But late on Monday, hours after the Detroit News first reported Orr’s freeze, he lifted it — at least temporarily — at the urging of U.S. District Judge Gerald Rosen, who is mediating the city’s bankruptcy negotiations.

Orr wants to give pensioners and unions a chance to negotiate in the mediation sessions what is said to amount to $3.5 billion in underfunding. The state-appointed emergency manager said that though he has halted the freeze on pensions, he can reinstate it at any time if mediation doesn’t reach an agreement. (The temporary freeze applied to the city’s general retirement fund, not to fire and police.)

“The city remains in a financial emergency, and to the extent that mediation can assist in finding a way to improve services for all of its 700,000 residents, then it is worth continuing,” Orr said in a statement. “But time is running short, and the city’s financial status remains dire. An additional delay without the prospect of a mediated solution threatens to further erode essential services and public safety.”

Detroit is in an uncharted and autonomous world when it comes to pension reform. Because the city has declared for Chapter 9, Orr can simply freeze pensions or slash benefits if he so desires. The pensions are strongly guarded by the Michigan state constitution, but the ironclad protection doesn’t hold up in bankruptcy court. Orr explained his reasoning behind freezing the non-uniform pensions, saying it “will enhance the city’s capacity to provide or cause to be provided necessary government services essential to the public health, safety and welfare in addition to rectifying the city’s financial emergency.”

There won’t be a resolution anytime soon, though. That Polar Vortex hovering over the Midwest has postponed today’s bankruptcy hearing until next week.

The Equity Factor is made possible with the support of the Surdna Foundation.

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Bill Bradley is a writer and reporter living in Brooklyn. His work has appeared in Deadspin, GQ, and Vanity Fair, among others.

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Tags: detroitequity factorunionspensionsbankruptcy

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