Detroit pension cuts face pushback from bond insurers
Detroit pension cuts as part of a city bankruptcy plan were approved by city retirees, but the plan is facing major resistance from companies that insure Detorit bonds and stand to lose millions. The Detroit pension cuts were approved after 60 days of voting.
Companies that insure Detroit bonds and stand to lose millions repeated a pledge Tuesday to aggressively challenge the city's bankruptcy plan, a day after retirees endorsed pension cuts and qualified for a bailout led by the state.
Syncora and Financial Guaranty Insurance said retirees and city workers are being given special treatment that's unfair to other creditors.
Pension cuts were approved in a landslide, according to results from 60 days of voting, which were announced shortly before midnight Monday.
General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. Some also have to repay a portion of generous annuity earnings from the last decade. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise.
The city said the cuts would be worse without $816 million in aid from the state of Michigan, foundations and the Detroit Institute of Arts. Money from the so-called grand bargain would prevent the sale of city-owned art and avoid deeper pension reductions.
No other creditors qualify for the money. Judge Steven Rhodes still would need to bless the deal after a trial on Detroit's overall bankruptcy plan, which starts Aug. 14.
"We are not surprised at the vote, given the grand bargain's illegal diversion of highly valuable assets to the very creditors who voted yes," James Sprayregen, an attorney for Syncora, said Tuesday. "We look forward to the confirmation hearing and demonstrating to the court that the plan cannot legally be confirmed given its unfair discrimination against financial creditors and other serious infirmities."
In a recent interview with The Associated Press, Sprayregen said Detroit is "giving us an essentially zero recovery."
Gov. Rick Snyder, who approved Detroit's bankruptcy filing a year ago and helped get state aid for pensioners through the Legislature, hailed the vote by retirees and city workers.
"It's a huge statement. ... I really appreciate them doing that. They are making sacrifices," he said.
Shirley Lightsey, 80, president of a retirees association, opposed pension cuts when the bankruptcy case began but said she switched when she became convinced the "city was broke."
She now hands out buttons that say, "You can't eat principles and uncertainty doesn't pay the bills."
Retired bus driver Art Vardiman, 63, voted no on the pension cuts.
"There's something screwy. I just can't believe it was a landslide," he said. "I guess I have to go out and look for a little job."