CHICAGO -- Research firm Municipal Market Advisors questioned the feasibility of Detroit's recent pension settlements, warning that the proposed cuts are so minimal the bankrupt city could end up back in Chapter 9.
Detroit last week announced new deals with its police and fire retirees that call for no pension cuts and a roughly 60% reduction in the annual cost-of-living increases. A deal with the city's general employees calls for 4.5% pension cuts and elimination of their COLA increases.
MMA, in a comment in its weekly outlook released Monday, called the agreements "generous" and said they invite skepticism over the city's net benefit from Chapter 9.
"It seems that most of what has been planned for creditors could have been achieved outside of bankruptcy minus the resource diversion, cost, and reputational tarnish to the state and its municipalities," MMA said.
MMA notes that the low pension cuts are due partly to a deal with the state and private foundations that will bring in an additional $816 million, as well as to the "classic public pension fund financial maneuvers" of raising projected investment returns and assuming that recent market gains will continue.
"The opportunity of the city to obtain relief from its legacy liabilities seems to have been squandered," MMA said. "This, plus uncertainty over recurring revenue, raises doubts regarding the future fiscal stability of the city and its ability to avert reentry into Chapter 9."
