Detroit is broke, and as we learned yesterday afternoon, the broken city has filed Chapter 9 bankruptcy. If accepted by the courts, it will allow city leaders to restructure their debt. But who gets to do the restructuring?
When General Motors went belly up, we learned bankruptcy really isn’t bankruptcy when President Obama and the federal government gets involved. New rules were made up out of thin air to protect the in-house union employees. Benefits and pensions that normally would be on the table were pretty much left intact in favor of cuts elsewhere. Those negotiations put outside companies like Delphi in a really bad situation, and the salaried employees over at Delphi lost between 30 and 70 percent of their pensions. Will the feds get involved in Detroit?
I’m wondering how much control government union employees will have during Detroit’s Chapter 9 process? I’m willing to bet union leadership will step in immediately and start off with “our health benefits and pensions are off the table.” You see, those contracts were negotiated in good faith by the unions and just because the city screwed up their finances, it should not mean the lowly employees who work hard and depend on those pensions are hurt. It’s not their fault!
In many ways, they are right. It’s mostly the city who agreed to absolutely non-sustainable contracts that are a big part of the destruction of Detroit. Those contracts are certainly not the only problem, but making financial and benefit promises 20 to 40 years in the future is the stupidest thing a business, municipality or government can do. Nobody has a crystal ball, and Detroit like many other cities and towns across this nation have been making promises for decades.
Why did they make these promises? It was simply to enrich themselves with power and cash decades ago, and kick the can down the road.