Pensioners In Detroit Are Screwed

So are over 100,000 creditors who are owed $18 billion.

First some quick facts.* Today only about 700,000 live there compared to 1.8 million in the 50's
* 40% of the street lights don't work
* The area of Detroit is bigger then San Francisco, Manhattan & Boston combined
* Currently 40% of the city budget goes for debt
* Detroit is paying for 9,700 city workers and 21,000 more that are retired
* Average pension for municipal employee is $19,000
Here's the long and short of it. When population is only about 30% of what the city once was, city income dried up while expenses didn't. Compound that with putting almost all your eggs in one basket by relying on the auto industry. An auto industry that had spread out beyond Detroit and left 100,000' s unemployed.

What About Pensions?
It is estimated only about 16 cents will be paid to those retired when all is said in done with the bankruptcy. Since $19,000 is the average pension, retirees could be looking at receiving only $253 a month compared to $3,040. Fortunately municipal workers also paid into Social Security. Not so fortunate are retirees from the police and fire departments who did not. They have to rely 100% on whatever pension amount remains after a bankruptcy agreement is reached.

What remains are the unvested workers and those who were fortunate enough to be converted over to 401k plans.. They and other workers will get the money back paid into annuity accounts. Which isn't much. Police and fire personnel paid only 5% of their income. As far as the 401k plans, Detroit never fully moved large segments of their municipal workers into them since it was first proposed in 1998. Even if a worker were one of the lucky few, a employee who had 10 years in had only about $18,000 transferred to their 401k from their prior pension plan with the city.

So no matter how you slice this, it's a financial disaster leaving over 30,000 workers screwed.

So What Are Some Solutions?
Unfortunately for these retirees there's none. Absolutely none! Food Stamps, welfare and HUD housing is their outlook for future. While Detroit sheds it's pension problem they will dumping it on federal taxpayers. Totally repugnant to those taxpayers who resent and oppose paying for municipal pensions. Sorry to tell ya, but there isn't any way around it. That just the way it will be. Bad for everyone all the way around.

Other government entities should learn a lesson here and start moving all public workers, including municipal and school employees, into 401k's or other private annuity options. State and city charters should change allowing workers into the Social Security program. To do otherwise will have a domino effect from city to city and state to state. Pennsylvania is facing this dilemma. The city of Allentown leased off it's water for 50 years, but has made little effort to move employees to such plans going forward.

What About Detroit Itself?
Five years ago I supported that idea that Detroit should bulldoze down whole blocks. The number of housing units should have been downsized to reflect the size of the population needing them. There's absolutely no reason to keep dilapidated abandoned homes. Many have become the victim of arson, crime and drug dealing.

Start over again with empty fields. By leveling them police won't have to patrol those former neighborhoods. Drug dealers and criminals won't have cover for their illicit activities. Water, sewer, street lights, streets & sidewalks, garbage collection and all the other city services would no longer be required. Thus easing the budget. Besides it looks like hell and no one wants to live anywhere near these disgusting neighborhoods anyway.

The next step is to sell off these prior properties to private investors. Pennies on the dollar if they have to. Then allow developers and businesses tax free status for whatever amount of years. Future income would be derived from workers salaries and new housing along with their attractive property tax rates. While it may not be as much as it was in the 50's and 60's it's about 1,000% more then they are getting now and having to maintain city services for with these burned out shacks.

The bottom line is this. Suburbs usually do better economically then large cities. The direction Detroit needs to go is toward suburbanizing their crummy neighborhoods. The city is too big with too few people. The automotive industry isn't coming back. The way going forward is with attractive wide tree lined streets and rebuilding it back up the way it all started.

Keeping in mind Detroit is larger then three other major cities (I mentioned above) should also be under consideration. This city is too large to be responsive to individual neighborhoods and their needs. I'd break city government into three or more separate mayors and councils. While many services still could be shared, government itself has become out of touch. If that weren't the case, it wouldn't find itself in the fix it now does. Bigger isn't always better.

A Quick Summary
(1) Downsize the housing units- Suburbanize
(2) Move employees off of city pension plans
(3) Create 3 or more separate government entities
(4) Create tax free zones for new businesses
(5) Federal government bailed out banks and corporations. They need to do that for these pensioners who got screwed. They can enable that via low cost housing, supplemental SNAP cards, Medicaid/Medicare and offering low cost/no cost loans. The alternative is to ignore them, sending a clear message when government promises to take care of the aged after a lifetime of work it means nothing. Government can't expect people to support it when the rug is pulled out from under them with promises made over a lifetime. If promises were never made that's one thing, but it's entirely another to bamboozle them in the last years of their life.

What young person in their right mind could trust such a government?
This sets a really bad example. The only reason this system works is people trust their government. Young workers pay into Social Security looking forward to the day the generation after them will one day help support them. Today's workers pay taxes relying on government to take care of needed services like fire & police protection as well as all the services we all need to rely on. Once that bond of trust is broken... well do I really need to explain what will happen?

Consider Detroit a microcosm to a far larger problem that looms ahead for all of us living elsewhere.

Uploaded on Jan 4, 2012
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