Detroit Bankruptcy Deal Largely Spares Pensions

April 28, 2014 – In The News
Investor’s Business Daily

Michael A. Sweet was quoted in the Investor’s Business Daily article, "Detroit Bankruptcy Deal Largely Spares Pensions." Full text can be found in the April 28, 2014, issue, but a synopsis is noted below.

Detroit recently struck tentative deals with public-sector workers that largely spare pension costs in the city’s attempt to exit bankruptcy.

With pensions unscathed even as bondholders and banks are likely to take cuts, municipal bankruptcy’s promises have come under fire, leaving some to wonder if the battles in these cities have been worth it.

"If these cities come out of Chapter 9 without addressing pensions but still think they've addressed the underlying budgetary imbalance, that would make sense," said Michael Sweet. "But given what we've seen before it's going to be hard for them to continue on with the same pension structure and not find themselves in another hole as deep or deeper than they're in right now. The way pensions are structured is just not sustainable."

Sweet said that the city’s approach to pensioners show a realization of the political realities of a Chapter 9 filing. "No question that on the ground in a city like Detroit, the pensioners have all the support," he said. "This is Wall Street versus Main Street."

Municipal bankruptcy may be skewed so that bondholders have less incentive to fight than unions do, according to Sweet.

"The pensioners' job is to fight like hell for the best possible result for past, current and future employees," he said. "The bondholders are invested in bonds all over the country. They're looking at it from the outside."

"There needs to be a holistic approach to public sector pensions which acknowledges both that public employees work hard and have certain expectations and that local governments are having a really tough time paying what they promised to pay," Sweet said.