Today, Detroit officials laid out a plan for exiting the largest municipal bankruptcy in U.S. history. I thought this was an interesting article/event since our professor is a frequent visitor to Detroit for auto conferences, and since I do not know of any city this big in America going bankrupt at least in my lifetime. Detroit plans to do this by cutting pensions for non-uniformed retirees by nearly 1/3 and by paying bondholders .20 on the dollar for every dollar owed to them by Detroit. Also, they will cut pensions for firefighters and police officers by 10%.
On the other hand, the city is proposing $1.5 billion in expenditures over the next 10 years on capital improvements. I do not know how much this is compared to the pension cuts, because I could not find the details of the plan online. But I feel that spending that goes to people who have already worked and earned their pensions should come before spending to ensure the possibility of future workers in Detroit.
I realize that these capital investments are necessary to ensure future economic activity in Detroit, but if I were a worker who was depending on this pension money I would not want money going towards future improvements before prior obligations were fulfilled. After all, people can go work in different cities, but it is much harder for someone 70 years of age to go find a new job because the money they had planned their retirement around isn’t coming in anymore.