Detroit Spent Billions Extra on Pensions [View all]

[Nye Bevan]

Detroit’s municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, according to people who have reviewed the payments.

The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter.

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When asked on what legal authority the trustees made the payments, Mr. Harris said, “My understanding was, it had to be approved by City Council, and council was under the belief that the money was there — that the pension funds were earning the money — with the consideration that in bad times the city would be making up the difference. I hate to say that. Ultimately the fund has to be funded by the taxpayers.”

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And then the city’s contributions were not enough. So much money had been drained from the pension fund that by 2005, Detroit could no longer replenish it from its dwindling tax revenue. Instead, the city turned to the public bond markets, borrowed $1.44 billion and used that to fill the hole. Even that did not work. In June, Detroit failed to make a $39.7 million interest payment on that borrowing — the first default of what was soon to become the biggest municipal bankruptcy case in American history.

http://dealbook.nytimes.com/2013/09/25/undisclosed-payments-cost-detroit-pension-plan-billions/?_r=1&

Disgraceful. Without this kind of malfeasance Detroit probably would not be in the awful position that it is in today.