Today was the deadline for Detroit retirees to vote on the city’s bankruptcy restructuring plan, known formally as a “plan of adjustment.”
The California firm tallying the votes had to receive them by today.
All creditors get to vote on the plan of adjustment. But pensioners’ votes are particularly key—especially when it comes to the future of the “grand bargain.”
That’s the deal to use more than $800 million in public and foundation money to minimize pension cuts, and protect the Detroit Institute of Arts’ collection from being sold to pay off creditors.
Emergency manager Kevyn Orr has warned that if pensioners don’t approve the plan, they face much more severe cuts--—possibly up to 34% for general system pensions.
The grand bargain would protect police and fire retirees from any direct pension cuts. General System retirees would take a 4.5% cut.
Both groups stand to lose some additional benefits. They’ve already lost their city-sponsored health insurance.
Detroit retiree Juanita Hernandez says she considered the odds—and just thinks there’s too much risk attached to a “no” vote.
“I think our best interest is to accept what’s on the table,” says Hernandez, “because tomorrow they may withdraw it, and we end up with a lot less. And there are many retirees who depend on that retirement check to survive.”
Former Detroit City Council member and city retiree Sheila Cockrel is even more enthusiastic about the grand bargain, calling it “the best of all worlds.”
“What the grand bargain does is create a platform for shared sacrifice,” says Cockrel.
Most retiree groups and unions have endorsed the plan.
But not everyone agrees. Some retirees are still pinning their hopes on a lawsuit that challenges any pension cuts as a violation of Michigan’s state constitution.
Judge Steven Rhodes has already ruled that federal bankruptcy court can trump state law. A retiree committee is appealing the decision—but the suit will automatically be dismissed if retirees approve the grand bargain.
And even if a majority of both groups do vote yes, its future is still far from secured.
Some other major Detroit creditors, most notably bond insurers, argue the deal forces other creditors to take much steeper losses, violating Chapter 9 bankruptcy rules that mandate all creditor classes receive “fair and equitable” treatment.
Cockrel says next month’s plan of adjustment trial will be “critical” to the rest of the city’s bankruptcy case. Rhodes will ultimately decide the plan's fate.
In the meantime, results of the creditor vote should be made public within the next two weeks.