The Detroit bailout money shuffle

The Detroit Free Press describes a clever little money shuffle designed to pump $100 million in federal taxpayer cash into union pension funds, while everyone studiously avoids using the word “bailout.”

The Obama administration and state officials are in discussions on a deal that would free up an additional $100 million to soften the blow to Detroit pensioners, two people familiar with the talks told the Free Press late Tuesday.

The two sources, who spoke on condition of anonymity because they weren???t authorized to disclose the information, confirmed that there have been talks about the federal government supporting a move by the state to give Detroit $100 million in federal money for blight remediation. That, in turn, would free up $100 million of the more than $500 million that emergency manager Kevyn Orr planned to spend for blight removal over the next 10 years. Orr could then use that money to reduce pension cuts.

The federal funds would come from the Hardest Hit Fund, a $7.6-billion Obama administration effort established in 2010 to help the 18 states most hurt by the housing downturn.

So as long as the money gets laundered through a fund designed to help those hurt by the housing downturn, it doesn’t count as the pension bailout it obviously is.  Evidently the housing downturn hurt far less than the creators of this fund anticipated, because the Free Press says only $2 billion of that $7.6 billion has been spent nationally, while only $94 million of the $498 million allocated for Michigan has been used.  That makes the Hardest Hit program an excellent candidate to be used as a slush fund for other purposes.

The Free Press explains why both President Barack Obama and Michigan’s Republican governor, Rick Snyder, must ensure this bailout money gets a stiff wash, tumble dry, and 24-hour martinizing before it goes to the unions:

Obama, not keen to set a precedent of the federal government sending money to cities or states with deep pension debts, has publicly said there???s no support for a bailout of bankrupt Detroit.

But Obama also has been under pressure from unions not to let retirees suffer in Detroit, a city that votes heavily Democratic.

Snyder, meanwhile, might risk a backlash in an election year from Republicans and outstate voters if he outwardly appears to be supporting a shift of more resources to the city.

Snyder already has pledged the state???s support to send $350 million to the city as part of the grand bargain to help rescue the Detroit Institute of Arts and bail out the pension funds.

The Hardest Hit Fund was originally supposed to “operate homeowner assistance programs, including those offering mortgage subsidies, home loan rescues, mortgage modifications, and principal debt reductions.”  Then $100 million of it was repurposed for demolitions, largely in Detroit.  (Shouldn’t it have been renamed the “Hit Harder Fund” when it became money for demolishing buildings, rather than rescuing homeowners?)  Now $100 million will be shuffled off to support pensions, which have nothing whatsoever to do with housing.

Fox News pegs the pension shortfall for Detroit city workers at $3.5 billion, which gives that $100 million in redirected housing assistance money a certain “drop in the bucket” quality.  There has been some discussion of hoovering further not-a-bailout money from tobacco settlement funds.  So much lovely slush out there, just waiting to be shoveled!

The Fox report includes this precious passage:

The Obama administration previously announced nearly $300 million in federal and private funding for Detroit, largely drawn from existing resources. The city filed for bankruptcy last July, citing $18 billion in unmanageable long-term liabilities.

“There is no bailout coming from Washington, but we continue to support the efforts by state and local officials as they work on Detroit’s revitalization,” the White House said in a statement Wednesday.

So as long as you don’t use the word “bailout,” it’s not a bailout.  Behold the awesome power of political rhetoric!

Reading further into the Fox piece, it sounds like union members may yet scuttle the deal:

The city has an $816 million pledge from foundations, philanthropists and Gov. Rick Snyder to shore up pension funds and prevent the sale of city-owned art as part of Detroit’s strategy for exiting the largest public bankruptcy in U.S. history.

The city reached tentative agreements to preserve pensions for retired police office and firefighters but cut monthly payments for other former employees, officials said Tuesday.

Retired police officers and firefighters would see smaller cost-of-living payments but no cut in pension benefits under the deal. Detroit’s other retirees, who have smaller pensions, would get a 4.5 percent cut and elimination of yearly inflation allowances under a separate compromise.

Retirees and city employees who qualify for a pension will get a ballot in a few weeks. If they don’t support the plan, the $816 million vanishes and deeper pension cuts are inevitable, Orr has warned.

Michigan House Speaker Jase Bolger, R-Marshall, who is supporting a plan to commit $350 million in state dollars to Detroit pensions, told The Associated Press the city’s unions should put money in the pot ??? and not just in the form of concessions from members.

“They have profited from these contracts. They have collected union dues. They should step forward and join in mitigating the effects of the bankruptcy,” he said.

Good luck with that, Speaker Bolger!  Why shouldn’t the unions just stand pat and wait for political pressure to mount until dollars are siphoned out of every loosely-administered fund in the land?  Concerns are always voiced about setting a bad precedent for local governments to expect state bailouts, or states to demand federal assistance.  Who seriously doubts that collapsing cities will be rescued by politicians armed with bags of tax money, with millions of votes as the reward?

The principle underlying all collectivist arrangements is specific benefits with diffuse costs – in other words, the beneficiaries are grateful for what they received, and know who to thank, while the poor chumps fleeced to pay for it all are barely aware of how much is being taken, let alone where it’s all going.  Send the money bouncing through a couple of slush funds first, and the process of obfuscation against the taxpayers is complete.  Meanwhile, who wants to be the governor, congressional representative, or President who tells a big city or vast bloc of pensioners to drop dead?

Individual pensioners want what they were promised through their working lives, which is perfectly understandable.  But when those promises prove to be unsustainable, the situation becomes a contest of political will between people who believe they’re entitled to their retirement money – their only source of income – versus taxpayers who have already been conditioned to believe they have no moral claim on their own earnings, and no clear idea of what government at every level does with the trillions it takes.  It’s not hard to pick the likely winner in that contest.