Will Banks Gain Will Workers Lose In Detroit Bankruptcy?

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(Click on Voting claims chart to print chart; or view it in larger detail.)

Retirees object, to attend 6th Circuit hearing, Cincinnati Wed. July 30; planning meeting Mon. July 28 11 a.m. N’Namdi’s Highland Park

15,624 worker ballots counted; what happened to the rest of retirement systems’ 32,000 members?

5th Amended Plan filed subsequent to vote; no re-vote scheduled 

It’s not over yet—trial forthcoming as banks refuse “pennies on the dollar,” demand payment in full; UBS, BOA want entire $2.4 billion

Historic sell-out by retirement systems, unions who recommended “YES” vote in ballot mailings, meetings 

By Diane Bukowski 


July 25, 2014 

Retirees protest bankruptcy at courthouse Aug. 19, 2013

DETROIT – Despite celebrations in the skyscrapers of Wall Street and the U.S. regarding Detroit bankruptcy active and retired employee votes announced July 21, allegedly in favor of huge pension and health care cuts, the sordid story is not over yet.Detroit remains far from a resolution of its state-imposed bankruptcy. Major banks and bondholders have rejected the plan, insisting that they be PAID IN FULL.

According to figures released by Kurtzman Carson Consultants (KCC) of El Segundo, CA, Detroit police and fire workers and retirees voted to approve the 4th Amended Plan of Adjustment (POA) by 82 percent, general workers and retirees by 73 percent, and holders of Other Post Employment Benefits (OPEB) by 88 percent. (See chart above.)

Meanwhile, Emergency Manager Kevyn Orr, claiming to represent the City of Detroit, filed a FIFTH AMENDED PLAN OF ADJUSTMENT July 25 subsequent to the vote, with no plans for a re-vote. (See link below story.)

Cecily McClellan speaks at MayDay protest against bankruptcy in downtown Detroit May 1, 2014.

Burning questions on the validity of the July 21 vote still remain. Among them is the fact that only 15,626 pension ballots were counted, although the retirement systems have approximately 32,000 members.”We knew that they had used dirty tricks (misinformation & disinformation) to influence the vote,” said Cecily McClellan of Detroit Concerned Citizens, Active Employees, and Retirees (DCCAER).

“Thousands did not vote, some did not receive ballots, over 3200 ballots were incorrect, employees were allowed to re-vote and now we find out that 6.75 interest has been added to the claw-back/recoupment amount, THAT WAS NOT DISCLOSED. THIS IS EGREGIOUS and could invalidate the vote or at minimum require a recalculation and reducing the claw-back, if objected to.”

Appeals Judges Gibbons, Kethledge, Stranch

She said DCCAER is meeting Mon. July 28 at 11 a.m. at N’Namdi’s at 12150 Woodward to discuss filing new objections. They will also plan a trip to Cincinnati Wed. July 30 for the Sixth Circuit Court of Appeals hearing on objections filed by unions and retiree systems to U.S. Bankruptcy Judge Steven Rhodes’ ruling that Detroit is eligibile to file Chapter 9 bankruptcy. Part of that ruling is that public pensions are fair game for attack despite state constitutional protections.The hearing is set for 1:30 p.m, before Appeals Court Judges Julia Smith Gibbons, Raymond M. Kethledge, and Jane Branstetter Stranch. Bibbons was originally nominated to the federal bench by Pres. Ronald Reagan, then to the Sixth Circuit by Pres. George Bush. Kethledge was nominated by Pres. George W. Bush. Pres. Barack Obama nominated Stranch, who went through lengthy confirmation hearings before taking her seat.

It remains to be seen if any or all of the appellants will continue their cases. Tina Bassett, representing the Detroit General Retirement System, told VOD that if its members vote “Yes” they will withdraw their appeal. Click on  US Sixth Circuit Oral Arguments Detroit Bankruptcy for listing of appellants. As of July 28, all but the three public safety appellants had withdrawn, according to inside sources. The hearing is still scheduled; the Court is to rule whether Detroit was indeed eligible for bankruptcy. If it rules it was not, the entire bankruptcy, including confirmation proceedings, will be thrown out.

Many workers, including members of the court-appointed Official Committee of Retirees, such as Michael Karwoski, have already filed new objections, addressing legal issues that should prevent plan confirmation. (See links below.)

Jean Vortkamp is at left behind Monica Patrick (in red jacket) during blockade of Homrich water shut-off facility July 18, 2014.

“Of course I don’t believe this yes vote,” said objector Jean Vortkamp. “ There were so many issues with the voting process and just the general corruption of the whole bankruptcy. I watched Carol Neville in court. She represents the “Official” Retiree Committee and she is from Dentons Law Firm. In court when they were talking about the interest on the clawbacks and how that was not made clear in the ballot and other literature to ALL retirees, the judge TWICE asked her if the retirees were seeking relief. She did not answer yes. She did not ask for a revote. Afterwards she told me their ‘hands were tied.’ REALLY?”

Later, outside the courtroom, Neville also told retirees that action by Denton’s would “derail the bankruptcy,” exactly what Detroit workers, retirees and residents need.

Secret “mediation” sessions are continuing in front of U.S. District Court Chief Judge Gerald Rosen regarding bids to privatize the city’s most valuable asset, the Detroit Water and Sewerage Department. Mayor Mike Duggan, under Emergency Manager Kevyn Orr, is dismantling large portions of the rest of the city, through initiatives such as the Blight Removal Project (a/k/a “Black Removal Project”) directed by billionaire developer Dan Gilbert.

Did city workers do this to themselves or were their ballots dumped? 

Vortkamp called on voters to check the accuracy of their ballots, listed in Exhibit G, starting at page 61, of the KCC voting report. She suggested that voters use the amount of their claims, indicated on the ballots, to identify their vote. She said those she polled found their votes were accurately reported.

(Go to http://www.kccllc.net/detroit/document/1353846140721000000000038, save report as a PDF document, then search claim amount exactly as shown on ballot, using binoculars icon at left of PDF.)

The final totals do not include 28 pages of ballots, approximately 1,400, that were invalidated, for alleged late receipt, lack of signatures, and votes of abstention. There was no oversight of the counting process, although KCC says it “allowed” representatives of the Detroit retirement systems to review their counting procedures in June. KCC is a firm that Jones Day, the architect of Detroit’s bankruptcy filing as well as a similar effort in Puerto Rico, has used many times in previous situations.

The historic sell-out by the city’s retirement systems and unions, who recommended a “YES” vote on the POA to their membership lists, which those who favored a “NO” vote did not have access to, may be another factor in the vote total. This sell-out, which wiped out decades of advances for public employees and union members, will be further addressed at this story’s conclusion.

Major banks, bondholders reject POA, demand $8.3 billion plus from city 

UBS AG and Bank of America were among chief perpetrators of the mammoth LIBOR rip-off.

But city workers and retirees were not the only ones to vote on the POA. Major creditors like United Swiss Bank (UBS), Bank of America, and its virtual subsidiary SBS Financial rejected the POA 100 percent.Astonishingly, these banks, who are facing lawsuits across the world for fraudulent practices garnering trillions in profits, are holding out for payment in full of over $2.4 billion on the city’s 2004-05 Certificates of Participation (COPs) debt. Detroit EM Kevyn Orr termed that debt “void ab initio, illegal and unenforceable” in a bankruptcy court lawsuit, which U.S. Bankruptcy Judge Steven Rhodes has yet to hear.

Holders of impaired Detroit Water and Sewerage Department bond claims rejected the deal by a large margin, meaning they are demanding payment of over $2.3 billion. Added to secured DWSD bonds, the city will be paying a total of $4.7 billion in water-related bond debts.

Last year, Bloomberg reported, “[DWSD]’s $659.8 million June bond sale let it pay more than $300 million to banks, including JPMorgan, to end interest-rate swap agreements while raising its borrowing cost. The utility, with 1,978 employees, plans to fire four of every five workers, while debt service has climbed to more than 40 percent of revenue, internal documents show.”

In 2011, Wall Street raked in over $211 million in fees on another water bond sale, despite DWSD’s historic AAA credit ratings.

Water shut-offs 15-day “pause” called victory, but may be diversion

Protesters prepare for arrest at Homrich water shut-off facility July 18, 2014.

Meanwhile, EM Orr launched a major drive to shut-off the water of Detroiters who owe more than $150 over 60 days. Under pressure from activists who blocked the Homrich Wrecking facility from which the shut-off crews leave, and a national protest against shut-offs July 18, DWSD agreed in bankruptcy court July 21 to a temporary 15-day “pause” in shut-offs while it disseminates information to Detroit customers on how they can get assistance to pay their bills.

How to stop water shut offsMany view this as a significant victory, even thanking Judge Rhodes for intervening. It did show that mass mobilization could partially affect the plans of the rulers. However, emphasis on this “pause” obscures the truth of the city’s intentions and also diverts attention away from the disaster that the bankruptcy as a whole means for the city.

Latimer stressed among other issues that DWSD would focus on those whose water is “illegally” turned on. Many Detroiters have bought water keys at hardware stores to to provide this life and health essential for their families. Will they be charged and jailed?

Even a Homrich security guard said during the second blockade, “Water should be free.”

There was no discussion of a ban on water shut-offs as a threat to the public health, like that which exists in Great Britain and other countries. As Judge Rhodes listened to DWSD Deputy Director Darryl Latimer describe plans July 21, DWSD bondholders were discussing bids for privatization of DWSD, in a closed mediation session upstairs from them. Most experts agree that privatization leads to higher rates.

Orr: water shut-offs essential to city “re-structuring”

Detroit EM Orr plans to gut the city's neighborhoods.

Orr has already said that the shut-offs are an essential part of Detroit’s “re-structuring” plan, which includes “downsizing” city neighborhoods devastated by foreclosures. Many residents whose water is shut-off are forced to leave their homes, further adding to the number of abandoned structures.Demolition of 70,000 residential buildings, the elimination of 40 percent of the city’s streets lights under the Public Lighting Authority, and cutbacks in provision of waste removal services are on Orr’s agenda.In addition to the water bond pay-offs, the city will also be paying other secured debts as indicated in the claims payment chart, to the tune of $1.3 billion. The astounding $2.4 billion on the COPS claims being demanded by the creditors adds to the mammoth bill, which currently amounts to $8.3 billion and counting, as the city seeks to resolve other claims.

The Plan of Adjustment specifies that all debts shall be priority items, meaning they will be paid off before the provision of essential city services.

Betrayal of workers by retirement systems, unions: Vote YES 

While Puerto Rican unions are preparing for a general strike to counter a similar Jones Day-initiated austerity plan for their country, no such militant alternatives have been raised by the leadership of the nation’s unions, the retirement systems, or other organizations.VOD has been campaigning for months in favor of three tactics: a general strike, a boycott of major Michigan-based businesses, and a mammoth national march on Detroit, not on Washington or Lansing, where Detroit residents have no allies.

Detroit protester at mass rally against PA 4 in Lansing, April 13, 2011

Ballots specified in part, “If you accept the Plan, you are voting to approve a release of any claims that you may have against the State, the City, and other entities in connection with the loss of part of your pension. . . By accepting the Plan AND if the Initial Funding Conditions are satisfied or waived, you will be forever releasing any rights you may have against the State or other nondebtor parties. . . .Specifically, this release would release all claims and liabilities arising from or related to the City, the chapter 9 case . . . the Plan and exhibits thereto, the Disclosure Statement, PA 436 [the Emergency Manager law] and its predecessor or replacement statutes, and Article IX, Sec. 24 of the Michigan Constitution.”

That constitutional provision reads: “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby. Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.”

At least 24 other states have similar protections for public pensions in their constitutions.

However, the Detroit General Retirement System, the Detroit Retired City Employees Association (DRCEA), the Detroit Retired Police and Firefighters Association (DRPFFA), and Denton’s LLP, which has been paid $4.8 million in city tax dollars to represent the bankrupty court-appointed Official Committee of Retirees, all issued letters to their membership lists recommending a “Yes” vote.

AFSCME, the UAW and other unions did not issue such letters but gave tacit consent by not recommending a “No” vote.

“It was the best we could get” was the universal refrain. That’s been the excuse since the mid-1970’s, when unions in this country first began making wholesale concessions in both the private and public sectors.

Where have such concessions gotten cities like Detroit? Detroit no longer has an employment tax base to speak of, having lost most of its auto plants and most of its public workers as the Detroit Public Schools and the City of Detroit were privatized piece by piece, or outright dismantled. The militant founders of this country’s unions considered them only a transitional step to eventual true workers’ power, the takeover of the “means of production” and government functions by the workers and poor themselves, to be operated for the people, not for profit.

The attack on Detroit, its workers and its residents, is all the more profound because Detroit is the nation’s largest Black majority-city, the birthplace of the union movement, and later the founding city for .

groups like the League of Revolutionary Black Workers, the Dodge Revolutionary Union Movement, and important nationalist groups. It is an absolute travesty of historic proportions that the nation’s alleged “leaders of the people” have taken no effective action to stop the dismantling of Detroit

Related documents:

DB Michael Karwoski objections

DB Michael J Karwoski legal objection