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Bankruptcy Not the Answer, Saving Detroit, Saving the Country

Saving Detroit is a Step Towards Saving America.


Bankruptcy Not The Answer, Saving Detroit, Saving the Country

Three Statements

Bankruptcy is Not The Answer For the People of Detroit

By AFL-CIO Executive Council
Via ZNet
July 27, 2013

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.

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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.


We Are All Detroit

Statement of Committees of Correspondence for Democracy and Socialism

We all have a stake in the outcome of the power grab and bankruptcy of Detroit. The move to rob pensions from some 30,000 active and retired city workers and the selling off of property owned by the people of Detroit – city parks, public services and works of art at one of the most celebrated museums in the country – is a threat to us all.

The contract between the city and its workers to fund a pension plan is no less valid as contracts between the city and its corporate partners. Bond speculators' losses should not be covered by workers' retirement income.

No pension fund in the country will be safe. Next will be Social Security. Using the same rationale – that we can no longer afford to sustain a “greedy” middle class – the basis is laid for the complete shredding of the social contract between capital and labor won in bloody struggles of the last century.  The right to income security in old age, health care, civil rights and voting rights, collective bargaining and the promise of a rising standard of living, good housing and education in return for productive labor that creates all wealth is being torn apart.

Democracy hangs in the balance. Republican Gov. Rick Snyder and the Republican-controlled State Legislature refused to follow the will of the people of Michigan who overturned by a 58% margin the law used to take over cities with a so-called Emergency Financial Manager.  The patently illegal and unconstitutional measure gives power to EFMs – unelected Czars – to strip mayors and city councils of all authority, including their salaries, tear up union contracts and sell off public assets, services and property at bargain basement prices.  Flint, Pontiac, Benton Harbor, Ecorse, Allen Park, Detroit – six cities and three school boards in Michigan – are now under dictatorial EFM rule. All except Allen Park have majority African American populations. These cities are largely former auto manufacturing centers deserted by GM, Ford and Chrysler in pursuit of race-to-the bottom profits. More than half of the 1.5 million African American population of the state are now under rule of an unelected EFM czar.

The Governor and legislature thwarted the public’s will on the EFM referendum at the same time they enacted the anti-union Right-To-Work (for less) law in December, a measure to further weaken unions and drive down wages. This and other reactionary legislation passed over the last several months in Michigan, as in other Republican controlled state governments, has been orchestrated by the corporate funded right-wing ALEC, the American Legislative Exchange Council.

The banks will be the big winners in bankruptcy. Detroit’s EFM, Kevyn Orr, will guarantee it.  His law firm represents the banks that hold Detroit’s debt.  The debt figures themselves are politically contrived and exaggerated.  The Governor has denied Detroit $220 million in tax revenue-sharing and other funds earmarked in President Obama’s first term stimulus package. Instead, the money was used to balance the state’s budget while blaming city leaders, mainly African American, for budget shortfalls and “mismanagement.” The UBS AG bank – which pled guilty to interest rate-rigging in a U.S. Justice Department lawsuit – lent the city $1.5 billion in 2004 in a predatory scheme, causing two defaults after the 2008 financial meltdown. The defaults triggered debt ratings to plunge and interest rates to rocket.

The city’s tax base has been decimated with the loss of over half of the city’s population due to the auto industry’s near total abandonment of the city. With an unemployment rate in double digits, 50% of young people have no jobs and no prospect of getting one because there is no public transportation out of the city where the jobs are located.

A power grab and theft of this magnitude assumes that the country will not care that a predominantly African American city – the largest black majority city outside of Africa – is plundered. This is a pilot project for finance capital, a test run for every other city and town in the country.

The Committees of Correspondence for Democracy and Socialism stands with unions, community and religious organizations, and all the people of Detroit who are fighting back.

We stand with the AFL-CIO, the nation’s largest federation of labor unions, which issued a statement on July 25th calling on President Obama and the Congress to make an immediate financial transfusion to Detroit. Additionally, the AFL-CIO calls on the State of Michigan to give comparable financial support to Detroit, the largest of Michigan’s cities.

In solving the budget crisis, we the people must demand of our President and Congress enactment of legislation to revitalize our urban centers in the interest of the working class, not the banks. In the face of corporate irresponsibility, we must have a government-sponsored jobs program to rebuild the nation’s infrastructure and our urban centers, develop new manufacturing industries to transition to a green, sustainable environment for the future of our children and our planet. We urgently need it for Detroit and for us all.

July 27, 2013


Saving Detroit is a Step Towards Saving America.

“If Detroit fails it will hurt our nation as a whole. It will send a message to minority and urban youth that their futures are as hopeless as they seem and the country doesn't care. It will add to a national atmosphere of hopelessness and decay. And we will have missed an opportunity to turn the tide for America's cities.”
National Nurses United
July 26, 2013

Saving Detroit is a Step towards Saving America. Writing in Huffington Post, Richard Eskow makes a convincing and impassioned argument for Detroit pensioners, many of whom are threatened by that city’s prospective bankruptcy.  “The Federal government should bail out Detroit city worker's pensions so that retirees can be paid in full,” wrote Eskow.  “[M]orally and practically, there's no reason why a rescue … - or a Federal guarantee behind the city's pension plan - shouldn't be on the table…. It wouldn't be a bailout. It would be an investment.”

But will the forces of “Too-Big-to-Fail” America extend the same courtesy to working-class retirees?

Detroit is run today by a corporate overseer. Eskow points out that the law which created that position, doing-in Detroit's self-governance, was the product of a campaign carried out by ALEC and funders like the Koch Brothers.  “Its purpose,” wrote Eskow, “is to reconfigure our democracy and our economy so that they serve the wealthy and powerful even more efficiently.”

The retirement security of working Americans - especially union pensions, Social Security, and Medicare -  is a very high-profile target of corporate America, what Eskow terms ‘the austerity crowd… designed to break the public’s belief in the social contract.”  The bankruptcy filing in Detroit, which targets that city's union pensions, is “part of this broader agenda,” said Eskow.   Detroit will be the first, of many, he argues, unless the city and its workers are defended.
The city of 700,000 -- once it was 2 million -- is over 80 percent African-American and a Mecca of black culture.

The fifth anniversary of the financial crisis will be marked in September and we should all be reminded that Wall Street traders and the executives who set their agendas triggered the collapse, not the pensioners who counted on an honest deal.  Wall Street continues to make out-sized profits and avoid responsibility for its dirty dealings, as the financial fallout goes unabated.

Among those not facing losses: banks and other investment groups holding Detroit bonds.  “Many of their investments are insured,” reported Eskow.

“If Detroit fails it will hurt our nation as a whole. It will send a message to minority and urban youth that their futures are as hopeless as they seem and the country doesn't care. It will add to a national atmosphere of hopelessness and decay. And we will have missed an opportunity to turn the tide for America's cities.”