Government unions broke Detroit. And unions ??? over their most stringent objections ??? are going to play a significant part in fixing it.
U.S. Bankruptcy Court Judge Steven Rhodes ruled on Monday that Detroit ???was and is insolvent??? and thus eligible to become the largest city in American history to declare bankruptcy. Bankruptcy means everything ??? including reductions to the pensions and benefits of the city???s public-sector unions ??? can be part of returning the city to financial solvency.
It???s only fair. The city was spending 40 cents of every dollar it took in on what Kevyn Orr, the emergency manager appointed by Gov. Rick Snyder to oversee the process, called ???legacy debts??? ??? pension obligations and other benefits. And that number would have increased to 65 percent within four years. Contributions from the city budget to the various union pension programs incerased 140 percent just from 2008 to 2011. Orr correctly termed this ???unsustainable.???
Businesses who are owed money by the city did not fight the bankruptcy. They understand a haircut is coming and stand ready to do their part. The unions, said Rhodes, have been a ???stone wall??? when it comes to cooperating.
Indeed, within hours of Rhodes??? ruling, the American Federation of State, County, and Municipal Employees Union Local #25 appealed. Its representative, Edward McNeil, said that was always the plan, despite Orr???s pleading that ???both our creditors, none of whom filed an objection to our elegibility, but equally important, our labor partners ??? come forward with us and to take this opportunity, even in the process of litigation and appeals, to try to get at the sorely needed reform…???
Orr said his team will work through Christmas and file its plan of adjustment in the first week of January. He hopes for a plan on which all agree, but he is prepared for a ???cram down??? that provides unions with less than they want but as much as is reasonable to give them.
And if the unions??? intransigence thus far is any indication, the definition of ???reasonable??? will be litigated.
Several weeks ago, the Police Officers of America became the first and only of Detroit???s 48 unions to agree on labor terms for a new collective bargaining agreement. The rest, so far, refuse to accept the reality that things are going to change.
Indeed, many have dug in their heels. AFSCME???s bosses have funded a promotional campaign to make the city???s union retirees the face of this issue. This should not be resisted. They are a big part of the issue, and that part needs to be discussed.
Going forward, thanks to Rhodes??? ruling, it will be easier for cities to declare bankruptcy and place retirees??? pensions at risk. Unions need to understand negotiating outrageous contracts, as they did in Detroit, places their most vulnerable members at risk if ??? and, increasingly, it will be a matter of ???when,??? not ???if??? ??? those cities go bankrupt.
And, as Detroit residents know well, the suffering goes far beyond reduced pensions for public-sector union workers. It goes to services not delivered, quality of life not maintained, and, in the case of Detroit, the potential loss of one of the great publicly owned art collections. The Detroit Institute of Arts claims ???one of the largest, most significant art collections in the nation.??? Its top 500 piecies are, together, worth about $2 million. All of that may be sold to satisfy the city???s debts, although art advocates also have pledged to litigate.
The question of whether a city needs to own a huge and valuable art collection in the first place is perhaps one for another day. But it is a significant community asset the city has spent decades assembling. And it all figures to be lost by the profligacy of city officials bound to union organizers for their elections and union bosses not being able or willing to see beyond their own paychecks.
It can???t be done with higher taxes. More than 60 percent of the city???s population already has fled, and more would leave if taxes for non-existent services were increased. The art collection is a valuable city asset that, once gone, will never return ??? in other words, a one-time solution (and only about 70 percent of that; the unfunded liabilities total $3.5 billion) to a permanent problem.
Bankruptcy deals harsh circumstances, but it also provides an opportunity to address real problems. And the notion of government unions working to elect city officials who then set their salaries is one that must be addressed. Without reform, it won???t be long until Detroit and a lot of other cities wind up in the same situation.
Aloysius Hogan is Senior Fellow in Labor Policy for The Competitive Enterprise Institute (cei.org), a free-market public policy organization in Washington.