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A socialist newsweekly published in the interests of working people
Vol. 77/No. 46      December 23, 2013


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(front page)
Detroit gov’t bankruptcy
targets workers’ pensions
Protects interests of rulers and their bond market

Reuters/Joshua Lott
Purpose of Detroit government bankruptcy is to protect interests of capitalist class. Losses of propertied bond-holders will be kept to a minimum, followed by debts to other capitalist creditors. Decline of Detroit, among eight U.S. municipalities that filed for bankruptcy since 2010, has accelerated with deepening of worldwide crisis of capitalism.

A federal judge Dec. 3 approved the Detroit city government’s bankruptcy filing, giving the go-ahead to impose severe cuts to public workers’ pensions as part of “restructuring” the city’s $18 billion debt. Interest payments on most municipal bonds held by big capitalists and their financial institutions will take the smallest hit.

A few hours after the judge’s ruling, the Illinois state legislature, comprised overwhelmingly of Democratic Party politicians, passed a bill cutting future and current retirees’ pensions across the state. In Chicago, Mayor Rahm Emanuel, a Democrat, called for implementing even stiffer cuts.

Detroit is the largest city to have ever filed for bankruptcy in the United States. It is also the eighth municipality to do so since 2010, amidst the financial consequences of the worldwide slowdown in growth of production and trade.

Among the other seven bankruptcy filings, five were approved: Stockton, Mammoth Lakes and San Bernardino, Calif.; Jefferson County, Ala.; and Central Falls, R.I. Rejected were Harrisburg, Pa. and Boise, Idaho.

The function of bankruptcy courts is to “restructure” unpayable debts in a way that protects the interests of the capitalist class. In these cases, the overriding concern is maintaining confidence that propertied holders of local government bonds can continue to count on being paid in full and on time. This guides judges’ decisions on whether filings are accepted, and if so how they are implemented. Losses to bondholders, particularly of the strongest capitalists among them, is minimized, while maximum burden is foisted on working people.

The city of Detroit, like all U.S. government bodies, finances operations in large part through selling municipal bonds. Nationwide, the total amount of such bonds has mushroomed in recent years to some $4 trillion today. This is one aspect of an expansion of various forms of debt that have mounted, as capitalists seek avenues of greatest profit during a period of growing economic crisis.

Detroit, with some $18 billion in long-term debt outstanding, is among the weakest strands in a web of indebted city governments around the country. More than $3.5 billion is owed to the Detroit pension fund for 10,000 current employees and 20,000 retirees, along with about $6 billion for retirees’ health care.

Financial manager appointed

Last March, Mich. Gov. Rick Snyder, a Republican, appointed Kevyn Orr, a Democrat, to be Detroit’s emergency financial manager with broad powers above those of elected legislative bodies. In July the city filed for bankruptcy, with plans to pay only a fraction of the $3.5 billion owed to pension funds.

Some $7 billion in secured municipal bonds are untouchable, while some “general-obligation” bondholders holding $530 million in debt may have to take substantial “haircuts.”

Working people in Detroit have been hit hard under the capitalist economic crisis. Its employed population numbers less than half of what it was in 2000. The official unemployment rate in August was 17.7 percent, more than double the national rate, and 60 percent of children live below the official poverty line.

Among the consequences of the economic slowdown has been a contraction in the U.S. auto industry, which accelerated the crisis in Detroit, the historic center of auto production. Between 2000 and 2010, the city’s population decreased by 25 percent, following a half century of steady decline. Today the population stands at 700,000, down from 2 million in 1950.

Property tax revenue for the city government has shrunk when real estate values took a second dive starting in 2005, following a decades-long decline that lasted into the mid-1990s. In 2005-2006 the government issued $1.44 billion in debt as part of a complex financial transaction that essentially amounted to betting workers’ pensions on rising interest rates. Sharply falling interest rates added to mounting debt. More debt was issued and ever larger proportions of revenue spent just to meet rising bond payments.

Shortly after the bankruptcy filing the American Federation of State, County and Municipal Employees filed a lawsuit challenging it, saying a state constitution provision guarantees public workers’ pension funds. A state county judge agreed, but this was subsequently overruled by federal Bankruptcy Judge Steven Rhodes several months later.

In their drive to make workers pay for their budget crises around the country, the propertied rulers have yet to encounter formidable resistance from the organized labor movement and the working class.

The one place in recent years where government workers put up a fight that was strong enough to show the possibilities of inspiring a fighting social movement based in the working class was the seven-day strike by 26,000 public school teachers in Chicago in September 2012. In its anti-union drive, the city administration’s demands included pension cuts, lengthening the workday, school closures and layoffs without recall rights. Strike support rallies in downtown Chicago drew thousands of workers from a wide range of unions.

Under pressure from the courts and city government officials, union representatives voted to suspend the strike, as Mayor Emanuel threatened to impose a court injunction against the teachers’ union.

In a growing number of cities and states the lack of an adequate response has brought into focus the consequences of a decades-long course of the top labor officialdom of collaboration with the bosses and their government. In the case of public workers, it has taken the distinct form of direct political and financial support to politicians, usually from the Democratic Party, in hopes of reciprocation in union contracts. Today the reciprocation is absent and a large proportion of anti-union offensives are in fact being led by Democratic city administrations from New York to Chicago.

In Illinois, Gov. Pat Quinn, a Democrat, signed into law Dec. 5 a comprehensive bill passed by the legislature two days earlier cutting future and current retirees’ benefits. It raises retirement ages for workers aged 45 or under by up to five years to age 60, shrinks cost-of-living increases for retirees and caps the size of pensions. Illinois’ state pension system covers about 200,000 retirees and more than 350,000 current government employees.

“The next challenge for lawmakers in the state will be to address the woes of Chicago,” wrote the Financial Times Dec. 4. It faces “its own nearly $20 billion unfunded pension liability” the “worst funded system of any major U.S. city.”
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