Detroit, fighting its way through the largest public bankruptcy in U.S. history, has reached an agreement that preserves current pensions but cuts cost-of-living payments for retired police and firefighters.
The agreement, announced Tuesday, is the first major compromise between the city and any of its retirees as Detroit and its creditors try to find a way to deal with an estimated $18 billion in long-term liabilities.
The pact must be approved by the 6,000 members of the Retired Detroit Police and Fire Fighters Assn., whose leaders said they backed the negotiated agreement and by Judge Steven Rhodes, who is overseeing the bankruptcy case.
According to a statement released by court mediators, the agreement was reached "after intensive negotiating sessions."
"The mediators are privileged to have assisted the parties to find common ground in reaching a resolution that reflects not only a fair settlement for the parties, but also recognizes the years of faithful service and the important role the police and firefighter retirees have played in serving and protecting the city over so many years," the statement says.
The city had sought a 6% cut in current pensions and the elimination of the annual cost-of-living adjustments. Under the agreement announced Tuesday, pensions would not be cut. Cost-of-living increases, however, would be cut by about half, but they could be restored to full value depending on the returns on the pension fund's investments.
Tuesday's agreement is just a first step since it is tied to Detroit getting a $816-million rescue package from foundations, philanthropists and the state of Michigan under what is known as the "Grand Bargain." Gov. Rick Snyder has endorsed the state’s share of $350 million, but lawmakers are still weighing the package. Under the pact, the unions would give up their rights to sue over pension cuts.
The agreement covers a small portion of the city's estimated 32,000 retirees. Negotiations are continuing over the fate of other retired city workers' pensions.
Detroit emergency manager Kevyn Orr has proposed a 26% cut with no cost-of-living adjustment for retired general workers. Orr, who filed for bankruptcy on behalf of the city last July and has said he wants to complete the bankruptcy process by mid-October, is also proposing sizable cuts in employee healthcare benefits.
The parties have not been commenting on the confidential talks, being led by Chief District Judge Gerald Rosen and a team of mediators.
In addition to the city's unions, Detroit must contend with several major creditors, including bond insurers Financial Guaranty Insurance Co. and Syncora, which oppose the city's proposal to cut payments to bondholders.