Canadian Manufacturing

Spate of deals could speed Detroit’s exit from bankruptcy

The plan still depends on more than $800 million from foundations, private donors and the art museum

April 28, 2014  by The Canadian Press

DETROIT—A tentative deal on major aspects of a contract between Detroit and some of its unions could help speed up the city’s long exit from bankruptcy.

The city and the Coalition of Detroit Unions, which represents more than 3,500 city workers, agreed in principle on “major aspects” of the five-year collective bargaining agreement, a court-appointed mediation team said in a statement. The coalition is comprised of the American Federation of State, County and Municipal Employees—the city’s largest—and 13 other civilian unions.

Terms of the deal were not released, but mediators said it will “provide an economically feasible agreement for the city as it emerges from bankruptcy.”

When bankruptcy Judge Steven Rhodes approved the city’s plan to pay $85 million to UBS and Bank of America for pension debt, he urged the city and other creditors earlier this month to reach more deals. It appears to have been taken to heart.


Since then, state-appointed emergency manager Kevyn Orr and his team have reached agreements with Detroit’s two employee pension funds and with retired police and firefighters on retiree pension cuts.

The flurry of agreements reached “are positive developments that will allow the city to exit from bankruptcy sooner and financially solvent,” Orr’s spokesman Bill Nowling told The Associated Press in an email Monday.

Union members still have to ratify terms of the collective bargaining agreement. Plus, roughly 30,000 retirees and city employees will receive ballots to vote on the pension deals ahead of a summer trial on Orr’s plan to restructure the city’s debt.

Under the pension deals, police and firefighters would see cost-of-living payment trimmed to about one per cent. Other city retirees would get a 4.5 per cent cut in their pension and elimination of the cost-of-living payment.

That agreement is possibly “the centerpiece” of Orr’s plan, said James McTevia, a turnaround expert and managing member of McTevia & Associates in suburban Detroit.

Orr has said Detroit’s unfunded retiree health obligations were about $5.7 billion, while unfunded pension liabilities were $3.5 billion.

“The largest amount is owed to the pensions and retirees,” McTevia said. “You know the plan ain’t going anywhere until they have made peace with those groups. That is a major step going forward. That means the largest groups have reached an agreement they believe will be satisfactory to the bankruptcy court.

“The smaller groups have got a greater incentive to fall in line and reach an agreement.”

The police and firefighters pension system remains in mediation on “a host of important issues and detailed language that must be resolved,” said Bruce Babiarz, a spokesman for the pension system.

But the success of Orr’s restructuring plan also hinges on $350 million promised by Gov. Rick Snyder that will help stave off the sale of city-owned pieces in the Detroit Institute of Arts. The money is part of more than $800 million from foundations, private donors and the art museum and would be used to bolster city pensions.

Orr will travel to Lansing on Tuesday and Wednesday to meet with Republican and Democratic legislative leaders.

House Speaker Jase Bolger said in a statement Monday that the tentative union agreement was “a good sign that both sides came to the table and worked constructively,” but Michigan and the unions face protracted legal battles and big legal bills if the bankruptcy isn’t settled.

Bolger, R-Marshall, wants the city’s unions to add money to the $816 million pot to help pensions while keeping city-owned art from being sold.

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