Is bankruptcy court in your city’s future?
The small Detroit suburb of Hamtramck has asked the state of Michigan for permission to file for bankruptcy. The facts leading up to this request are something you soon may be seeing all across the country.
It seems that the city will run out of money in February. It began running million dollar deficits ten years ago, due, in large part to union contracts.
City workers were entitled to annual wage increases at four times the inflation rate and eight paid weeks of vacation each year. That’s in addition to 15 paid sick days, three paid emergency leave days, three paid personal days and one paid birthday.
With no co-pays or deductibles, the city’s health costs have risen almost 40% this year, and, pension costs have risen 36%. The city is currently paying $600,000 a year in bond payments resulting from Michigan’s earlier attempt to keep Hamtramck out of bankruptcy.
So, the city has cut non-union employees and payroll, and then turned to the unions for concessions to keep it afloat. The unions answer…no.
Well, you might say, I don’t live in Hamtramck, so why should I worry. Read on.
Municipalities nationwide are running a $574 billion unfunded pension liability, on top of $3 trillion in state unfunded liability. Philadelphia’s pension fund is set to run dry in 2015 and Boston’s in 2019. Chicago’s fund will be broke by 2019 when over half the city’s revenue will be dedicated to pensions. [emphasis supplied]
It would appear that while the average American citizen is continuing to tighten his or her belt, the government union employees are oblivious to the impending danger. Even with a dramatic turn around in the economy, bankruptcy may well be the only option for Hamtramck, and, perhaps your city as well.
3 Comments
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The question for you SOS is what happens to these union contracts in the event of the city going into bankruptcy. If this negates the contracts and forces the unions and the city employees to grow up and join the rest of the citizens in this economy, let it happen. The unions and their members have got to stop being the social sector of NO.
GdavidH,
If the city goes into bankruptcy, the city has the right to either accept or reject any outstanding contracts. If a contract is "accepted" everything proceeds under that contract as if nothing had happened.
If a contract is "rejected", then the contract ceases to exist, and, as an example, the city is no longer obligated to do what the contract calls for.
So, the city could "reject" the union contract, and, would no longer be obligated to pay anything under that contract.
At that point, the city would probably begin negotiations with the union for a new contract. And, whatever the parties agreed to would need the approval of the bankruptcy court before the new contract takes effect.
So in a logical world the contract would most likely be rejected, considering these contracts are what is driving the city TO bankruptcy. If, God willing, the bankruptcy court does not act like a typical puppet arbitration board who exactly loses?
Perhaps a kick in the reset button is what alot of towns and cities could use. It's not as if all the gubmint union employees will all quit their jobs, even if their jobs start to resemble private sector jobs, with private sector benefits, and private sector perfomance requirements.