The future of Detroit's pensioners at stake

Updated: Saturday, August 3, 2013
The future of Detroit
KALAMAZOO, Mich. (NEWSCHANNEL 3) - It's a question financially troubled cities all over the U.S. are going to be paying close attention to, as Detroit tries to figure out who gets what in the wake of its declaration of bankruptcy two weeks ago.

What happens to the city's pensioners--those 23,000 people, with more to come--who rely on their monthly checks for survival?

Tom Van Howe has more in tonight's edition of Tom's Corner.

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When we on this side of the state think about Detroit, it's all too easy to remember the excesses and the decades of perceived political obstinacy flaunted by its leaders.

From individual limousines for school board members to the costly criminal behavior of former Mayor Kwame Kilpatrick.

We tend to think, 'Well, you guys created the mess you're in; you let it happen. You fix it.'

And by virtue of the deafening silence from Lansing and Washington on the issue of bailouts, we aren't alone.

But none of the 23,000 former city workers who rely on pensions now, nor any of the 9,000 or more who will be retiring someday with pensions as a key ingredient to their plans for a secure retirement had anything to do with the mismanagement that resulted in where things stand today.

They were police officers, firemen, linesmen, secretaries and so on. They worked for the city and as part of the package was the promise of retirement income. And its not as though the payouts are exorbitant. Police and fire: $30,000 a year.

Other city employees: about $19,000. Not enough to live a life of leisure with exotic vacations three times a year. But, its enough to help them live their lives with dignity.

And more than anything else—it was promised to them.

So now the city of Detroit may try to take that promise back.

The city owes a mind-bending $20 billion. It's trying to find ways to settle those debts for pennies to the dollar, but it would be an ethical blunder to do the same to pension recipients.

Detroit's Emergency Manager, Kevyn Orr, says the long-term pension liability is about $3.5 billion. And according to news reports, the city was a hundred million dollars short on its contribution to the pension fund.

Last year alone. Again—that's not the fault of the pensioners.

Attorney General Bill Schuette has jumped into the fray pledging to  defend the pensioners' constitutional right, under state law, to receive what they have coming. If Schuette is successful in making that argument stick, he'll become a hero to lot of people who have, perhaps, never heard of him.

But whether it remains merely a moral obligation, or an ironclad legal one; it's crystal clear the city of Detroit doesn't have the money.

And that means its going to fall to us—to you and me—the State of Michigan, to help make good on a multi-billion dollar promise the city of Detroit, on its own, cannot keep.

Why? Because, at the bottom line, we're all in this together, and  it is the right thing to do.

In this corner...I'm Tom Van Howe.

Business News

Last Update on August 29, 2014 17:14 GMT

CONSUMER SPENDING

WASHINGTON (AP) -- U.S. consumer spending fell in July, with a drop in auto purchases accounting for most of the weakness. Income growth also slowed in July.

The Commerce Department says consumer spending edged down 0.1 percent last month after a 0.4 percent increase in June. It was the first decline in spending since January. Income growth slowed to a 0.2 percent rise in July, the weakest showing in seven months.

The fall in spending came primarily from a decline in auto sales, which took a breather in July after posting big gains in recent months, although spending in other areas was also weak.

Consumer spending accounts for 70 percent of economic activity, so it needs to recover for the economy to keep its momentum in the second half of the year.

CONSUMER SENTIMENT

WASHINGTON (AP) -- U.S. consumer sentiment ticked up in August, driven by greater optimism about jobs, rising incomes, and increasing wealth. The increase largely occurred among higher-income groups.

The University of Michigan says its index of consumer sentiment rose to 82.5 from 81.8 in July. Still, it has barely risen in the past year.

Consumers have sent mixed signals in recent months. The Michigan index has fluctuated between 80 and 82.5 since December. A measure of consumer confidence by the Conference Board rose this month to nearly a seven-year high. And yet Americans cut back their spending in July.

Nearly 60 percent of households in the top third of income earners say they are financially better off this month, the Michigan survey found, compared with only 36 percent in the bottom two-thirds.

US-FIAT-CHRYSLER

DETROIT (AP) -- U.S. investors should soon be able to buy stock in Chrysler for the first time in seven years.

Italy's Fiat and Chrysler are merging to form Fiat Chrysler Automobiles. Fiat says Friday that an ongoing tally of investors suggests there is not enough opposition to derail the deal.

Earlier this month, Fiat shareholders approved combining the companies. But Italian law gives dissenters the right to cash out. Fiat has said that if investors offered more than 500 million euros ($650 million) in shares, the merger would be off.

Fiat SpA will announce the final tally by Sept. 4. So far the maximum number of shares to be cashed is below the cap.

Shares of Chrysler haven't been publicly traded since 2007 when it was still combined with German automaker Daimler.

REYNOLDS AMERICAN-LORILLARD

RICHMOND, Va. (AP) -- Federal regulators are putting Reynolds American Inc.'s planned $25 billion takeover of rival cigarette maker Lorillard Inc. under the microscope.

The nation's second-biggest tobacco company said Friday that the Federal Trade Commission has asked for additional information as part of an antitrust review of the deal.

In July, Reynolds announced the deal to combine two of the nation's oldest and biggest tobacco companies, creating a formidable No. 2 to rival Altria Group Inc., owner of Philip Morris USA.

Reynolds markets Camel, Pall Mall and Natural American Spirit cigarettes. Lorillard sells Newport, Maverick and Kent cigarettes.

The companies plan to sell the Kool, Salem, Winston, Maverick and blu eCig brands to Imperial Tobacco Group for $7.1 billion to ease regulatory concerns about competition.

HEALTH OVERHAUL-TAX FORMS

WASHINGTON (AP) -- The federal agency that brought you the glitchy HealthCare.gov website has a massive new project.

If the Health and Human Services department has trouble this time, that could delay tax refunds for many people.

Complicated connections between the new health care law and income taxes will start to surface in 2015.

HHS has to send millions of people who got health insurance tax credits this year a new tax form that's like a W-2 for health care. It's called a 1095-A.

If they're delayed beyond Jan. 31, people who got coverage through the new insurance exchanges may have to wait to file their taxes -- and collect their refunds.

Some tax preparation companies are worried.

The Obama administration says it's on task, but won't provide much detail.

EUROPE-ECONOMY

BRUSSELS (AP) -- Inflation has fallen to an annual 0.3 percent in August for the 18 countries that use the euro, underlining the shakiness of the continent's economic recovery.

Eurostat, the EU statistics agency, says the figure is down from 0.4 percent in July, as expected by market analysts.

Core inflation, which excludes volatile food and energy, sent a modestly brighter signal as it rose to 0.9 percent from 0.8 percent.

The eurozone economy showed no growth in the second quarter as fears about the Ukrainian crisis weighed on consumers and investment decisions.

The European Central Bank has warned that inflation expectations are worsening and says it will add more stimulus if needed. Many analysts are predicting the bank will launch large-scale purchases of financial assets to pump more money into the economy.

BRAZIL-ECONOMY

SAO PAULO (AP) -- Brazil's government says the country's gross domestic product contracted 0.6 percent in the second quarter compared with the previous three months, sending the country's economy into a recession.

The government's IBGE statistics bureau said Friday it was the second consecutive quarterly contraction of the economy.

In the first quarter of the year, GDP was reported as having grown 0.2 percent. But that figure was revised downward to minus 0.2 percent.

The IBGE says the country's GDP stands at 1.27 trillion reals ($567 billion).

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