Detroit reached its first deal with a retired workers group on Tuesday over pension and healthcare benefits and was close to a deal with its two pension funds, giving a major boost to the city's plan to exit bankruptcy in October.
Momentum for the city's plan to adjust its $18 billion debt burden was building after Detroit last week won court approval for a crucial settlement over interest rate swaps and reached an agreement with bond insurance companies over the treatment of voter-approved general obligation bonds.
Under the deal with the Retired Detroit Police and Fire Fighters Association announced by U.S. Bankruptcy Court mediators on Tuesday, pensions for retired police and fire workers would not be decreased, but cost-of-living increases would be cut in half. A separate voluntary employee beneficiary association plan or VEBA will be established for retiree healthcare, according to a court statement.
The deal, which is contingent on more than $800 million in contributions for retirees from foundations, the Detroit Institute of Arts and the state of Michigan, marks the first between the bankrupt city and one of its retired worker groups. The association of retired police and fire workers has about 6,500 members, the statement said.
Meanwhile, George Orzech, chairman of Detroit's Police and Fire Retirement System, said the pension deal taking shape with the city's two retirement systems would increase the assumed investment rate of return for the funds.
"We have agreements on several of the points,'' Orzech said.
Deal with pension funds may be close
Any deal that Detroit incorporates into its plan to adjust its mountain of debt and exit bankruptcy will be subject to voting by city workers and retirees, but Orzech expressed optimism a negotiated plan can win member support.
"I believe the majority of retirees out there and some active folks believe I have their best interests at heart,'' Orzech said.
He added that under the potential deal, the funds would drop their attempt to overturn a December federal court ruling that found Detroit was eligible for the biggest municipal bankruptcy in U.S. history.
A spokesman for Detroit Emergency Manager Kevyn Orr did not respond to a request for comment.
Amy Malsin, a spokeswoman for law firm Dentons, which is representing a court-appointed committee for Detroit retirees, declined to comment. Tina Bassett, a spokeswoman for Detroit's General Retirement System, said fund officials "are still negotiating in good faith and hope to be able to announce something soon.''
Late on Monday, Detroit in a court filing noted that "significant modifications'' have been made to its plan to adjust $18 billion of debt and exit bankruptcy. In the response filed in U.S. Bankruptcy Court to a slew of objections raised by city creditors over a key supporting document for the city's plan, Detroit said it had reached settlements over interest rate swaps and the treatment of voter-approved general obligation bonds.
The city also said it has withdrawn a proposal to create a regional water and sewer authority.
"Because of these modifications and amendments to the amended disclosure statement, the city believes that many of the arguments raised in the objections have been resolved or otherwise addressed or mooted by the terms of the second amended plan and second amended disclosure statement,'' Detroit's filing stated.
Creditors appear to heed judge's plea
Judge Steven Rhodes, who is presiding over the Detroit case, approved the swaps settlement on Friday and advised creditors that ``now is the time to negotiate'' with the city.
The city's filing also said it has adjusted some estimated percentage recovery figures, and the city has increased the assumed annual rates of investment returns for its two pension funds to 6.75 percent from a previously proposed 6.25 percent and 6.50 percent.
Orzech said the higher percentage works for his fund, which is currently earning almost 14 percent so far this year.
The city on March 31 revised a plan it initially filed in February and Orr told Reuters last week he plans to file a second revision in bankruptcy court this week.