Detroit’s Corruption Helped Bring the City Down

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Detroit’s unions have been railing against the banks, claiming banks destroyed Detroit and the unions. That’s a straw man. Excessive payments to unions by city pension trustees was unprecedented. The city’s pension trustees and the unions helped bring down the city.

Detroit’s municipal pension fund trustees made payments to retirees, active workers, et al well beyond reasonable limits and they did it for decades, costing the dying city billions of dollars. Some of the payments were called the ’13th payment’. This is according to an outside actuary.

The payments included ‘bonuses’ to retirees, supplements to active workers, cash to families of deceased workers who didn’t have enough time on the job to secure a pension, and so on. The payments were not disclosed on annual reports, suggesting deception.

The total excess payments ran to more than $100 million in some years. Sometimes the pension fund trustees poured more than twice as much as required into the retirement funds and they would not have had to do that if they only made the specified payments.

So much money had been drained from the system by 2005, double payments weren’t enough partly because of dwindling revenues.

They turned to the bond market in 2005 in desperation but did not reveal the excess payments when they sold the bonds.

The city borrowed more than $1.44 billion in a failed attempt to save Detroit but didn’t bother to tell the banks that they made these extra ‘bonus’ payments.

This corruption and cronyism eroded the financial health of the pension system.

The city council had to approve the payments made by the trustees but they were under the impression the money was there. One former councilman said it would have been impossible to try and buck the trustees.

Now you and I can pay for this bad deal.

The pension fund trustees and their lawyers were unavailable to discuss the excess payments. Read more at NY Times

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