ARBOR OUTLOOK: Problematic pension promises stall Motor City

Published: Thursday, August 15, 2013 at 16:54 PM.

EDITOR’S NOTE: This is the second in a series on the impacts of the Detroit bankruptcy.

 

“Just a city boy … born and raised in south Detroit; He took the midnight train goin’ anywhere.” — “Don’t Stop Believin’ ” by Journey

 

Detroit’s financial problems included a downturn in the auto industry which decimated the local tax base, unsustainable public pension commitments, and poor pension investment management. Combined with municipal corruption, its finances became a tangled disaster. 

Public pension funds were partly managed by “consultants,” or friends of the mayor, who convinced the police and firefighter pension boards to invest heavily in disastrous real estate projects. One investment even directed funds toward a failed housing development in Sarasota. According to Bloomberg Businessweek, “Detroit’s general-employee pension fund and its police-and-firefighter fund … real estate investments dropped by 47 percent and 33 percent, respectively, over the four years ending June 30, 2012.” 

According to Riordan and Rutten of the New York Times, “Detroit’s municipal debt is around $18.2 billion … Employee pension and retiree health schemes account for $9.2 (over half) of the liabilities … Detroit consistently overestimated investment returns on its pension funds …”



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