Overview
As City of
Detroit officials struggle to reduce the city government's deficit and
provide essential services, a key fiscal consideration concerns the
city's liability for future payments. These costs include legacy costs
for unfunded pension and other post employment benefits (OPEBs) for city
government employees; the annual cost of pension obligation
certificates; the principal, interest, hedging and other costs
associated with bonded debt; and other contractual obligations of the
city.
At June 30, 2010, all
funds of the City of Detroit had $6.4 billion of outstanding bonded
debt, including $5.2 billion attributable to the Water and Sewerage
system, and over $600 million of other future obligations. Included in
the $6.4 billion of outstanding bonded debt was $1.0 billion of general
obligation debt, which equates to debt of about $1,400 per resident of
the city. There will be $467.7 million of interest due on this $1.0
billion of principal; including principal and interest on general
obligation debt equates to more than $2,000 per resident. The city had $1.5 billion of outstanding pension
obligation certificates and other unfunded costs associated with
personnel totaling $5.6 billion: $481.5 million of unfunded actuarial
accrued liability (UAAL) in the General Retirement System, $134.2 of
UAAL in the Police and Fire Retirement System. Because pension
obligation certificates were used to fund the pension systems, the
General Retirement System was 87.1 percent funded and the Police and
Fire Retirement System was 96.6 percent funded on June 30, 2010 (the
General system was 65.8 percent funded and the Police and Fire system
was 79.5 percent funded if the value of the pension obligation
certificates was excluded).
Detroit also had $5.0 billion of UAAL for other
post employment benefits, but the city continues to pay these
liabilities on a pay-as-you-go basis. If the city had made the annual
required contribution to fund OPEBs on an actuarial basis in fiscal
2009-10, it would have allocated $313.9 million, rather than the $149.7
million actual payment; an additional $164.2 million would have been
paid from city accounts to fund future liabilities, reducing the amount
available for current operations. Nonetheless, the city government's
future liability for non-pension benefits promised to city retirees is
about $7,000 per resident.
Continue reading the Report------------
Orr meets with Detroit pension reps
July 10, 2013 2:22 PM By Associated Press Excerpts below
-Representatives of Detroit's active and retired public workers met behind closed doors today with the city's state-appointed emergency manager, who is seeking huge cuts in pension benefits and health insurance to avoid the largest municipal bankruptcy in U.S. history.
-Some bankruptcy experts say the session could be the tipping point that leads to an unprecedented bankruptcy. The city's retirement system is underfunded by $3.5 billion. The city's budget deficit is about $380 million. Orr has said long-term debt could surpass $17 billion.
-Orr and his restructuring team met last month with about 180 bond insurers, pension trustees, union representatives and other creditors on concessions needed to keep Detroit out of bankruptcy.
His team said then that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them. Underfunded pension claims likely would get less than that.
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