DETROIT – Retired Detroit bus driver Art Vardiman recently received a computer disk in the mail that contains hundreds of pages of documents. He also got a six-page blue ballot about cuts to his pension and a white one about health insurance. A 25-page notice explains why the changes are being proposed in Detroit’s historic bankruptcy.
Vardiman, 63, keeps it all in a box near an easy chair in his living room. Confusing? He would rather steer a full coach through rush hour traffic in downtown Detroit than try to make sense of it all.
“Picture a person 70 to 80 years old,” said Vardiman, who retired 10 years ago. “You think they’re going to go through all that? It’s tough.”
But he and thousands of others must try to make sense of the legalese and complexities of the largest public bankruptcy filing in U.S. history and cast votes that will affect how much they will earn for the rest of their lives.
Detroit’s bankruptcy is at a critical stage after the Michigan Legislature last week approved a $195 million lifeline to help prevent steep cuts in Detroit’s pensions and the sale of city-owned art. With Gov. Rick Snyder expected to sign the measure this week, attention now turns to the tens of thousands of creditors, especially 32,000 active, former or retired employees, who have until July 11 to vote on the city’s plan to shed $18 billion in debt and become solvent again.
The stakes are great – and painful. General retirees – trash haulers, mechanics, janitors, clerks – would see a 4.5 percent cut in their pension and the elimination of annual inflation payments. In addition, some who received generous annuity returns from the pension fund, even in awful market conditions, would be forced to give back as much as 20 percent. Detroit insists the cuts will be even worse if the plan is rejected.
“I’ve been talking to retirees all over the country: Oregon, Arizona, Florida – all over. The whole process is completely alien to a lot of people,” said lawyer Carole Neville, who represents a group that negotiated on behalf of Detroit retirees.
“The bankruptcy. The vote. What is this CD/DVD I got in the mail?” she said. “We have a hotline to help people, and we have gotten a lot of calls and emails.”
The bankruptcy process is an unusual course where not every vote is equal. Creditors are in certain classes, and their individual vote is weighted depending on the size of their financial claim in the case.
“It’s not easy to explain,” Neville said.
Public forums about the voting process have turned hostile with people venting about the financial sacrifice. The average annual pension for police and fire retirees now is $32,000, while most other retired city workers get $19,000 to $20,000.
Don Taylor, president of the Retired Detroit Police and Fire Fighters Association, which has about 7,000 members, said any early confusion among his members faded after more information was shared. It helps that police and fire retirees are being treated more favorably than others. Their annual cost-of-living increase is being shaved to 1 percent, not eliminated, because their pension fund is in better shape.
“Their pensions are not being reduced. It’s the best possible outcome from the circumstances,” said Taylor, a retiree who voted yes. “They may glance through this stuff, but I don’t think anybody is going to read the entire thing.”
The CD has hundreds of pages on Detroit’s strategy to get out of bankruptcy and a long narrative about how the city got there: decades of declining population, poverty, blight and severe mismanagement. The information also can be read on a website.
“This stuff is a little complex,” acknowledged Detroit’s state-appointed emergency manager, Kevyn Orr, a bankruptcy expert who took the city into Chapter 9 last summer with the blessing of Snyder.
“A lot of this is going to be intuitive and a leap of faith,” he said. “The basic difference is, ‘You get this if you vote yes,’ and ‘You get this if you vote no.’ That’s pretty straightforward.”
Vardiman, the former bus driver, is voting no. He would prefer to try to persuade an appeals court that pensions can’t be touched in bankruptcy.
“This is not my fault,” he said, referring to Detroit’s financial woes. “They need to come up with a better plan.”
Anthony Sabino, a bankruptcy lawyer who teaches business law at St. John’s University in New York, said all the material is necessary, whether read or ignored, because each creditor has a legal right to essential information as the case nears the finish line.
“The letter carriers are getting a workout dropping all this off,” he said.