Detroit Mayor Dave Bing announced last week that the city has reached a voluntary settlement with a union, resulting in a number of reforms.
The settlement, reached with the Detroit Police Officers Association, is expected to save the city $50 million over the next five years.
In addition to salary freezes, workers will contribute to their own retirement fund, in the style of a 401(k) plan, instead of receiving a set pension.
“[The agreement] shows that we are executing our plan to return the city to fiscal stability by reducing pension costs and doing so through hard work and tough negotiations,” Bing said in a statement.
Moody’s Investors Service praised the settlement in a brief report in its weekly credit outlook.
“By negotiating these reforms voluntarily rather than reverting to lengthy litigation or bankruptcy, municipalities such as Detroit are taking less costly steps toward longer-term fiscal health,” analyst Elizabeth Foos wrote in the comment.
“Without such cooperation, achieving similar results through receivership or Chapter 9 bankruptcy protection may come at a very high cost,” she said.
The action comes as cities cite pension contributions as a rising strain on their budgets, Moody’s said.
Central Falls, R.I., which owes $80 million in unfunded pension and health benefit obligations, filed for Chapter 9 bankruptcy after its receiver was unable to reach an agreement with union members.
