by Mary Williams Walsh.
The following was written by Mary Williams Walsh, who recently joined News Items as its managing editor. Prior to joining News Items, Mary worked at The New York Times, The Wall Street Journal and The Los Angeles Times. She covered Detroit during its first adventure through municipal bankruptcy. She’s back with an update.
In bankruptcy ten years ago, Detroit negotiated sweeping reductions of its debt. Every creditor took a hit, even retired city workers, who were, as a group, the city’s biggest unsecured creditor.
The retirees had been promised both health insurance and pensions, but their health plan was completely unfunded, and city politicians had been using their pension system as a slush fund for years. It was billions short.
The pensions were not exorbitant, but Detroit’s police and fire fighters could retire in their 50s, sometimes even their 40s. The extra years made the benefits costly—even more so because they compounded at 2.5 percent annually.