For thousands who spent their lives working for the city of Detroit, the main issue is their pensions.
Will they be cut? And if so, by how much?
Whatever happens eventually may have implications that stretch far beyond the Motor City. Though clearly in terrible shape, Detroit is far from the only city with severe financial problems.
U.S. Bankruptcy Judge Steven Rhodes sent shock waves statewide last Dec. 3, when he ruled pensions could in fact be cut.
Before that, many believed the Michigan Constitution made it impossible to eliminate benefits retired workers had earned. However, the judge thought otherwise.
“Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy,” he said.
What the Michigan Constitution says on the subject is this: “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired.”
That seems straightforward - but did the authors of the constitution, which was narrowly adopted by the voters in 1963, really mean that pensions could never be reduced in a crisis?
Well, guess what. The man responsible for that clause is alive, well and insistent that he and his fellow framers of the Michigan Constitution never thought that it would ever be legitimate to short anyone on their pension.
“Absolutely not!” said 77-year-old Jack Faxon, these days the headmaster of the International School in Farmington Hills, a multilingual academy that he founded in 1968.
“We argued over a lot of issues, but that wasn’t controversial at all,” said Faxon, who was the youngest elected delegate to the 1961 Constitutional Convention, or Con-Con.
“Getting people to agree that pensions should be protected was like getting them to agree that Sunday is Sunday.”
Faxon was a 25-year-old government teacher in Detroit Public Schools when he was elected a delegate to the Con-Con. Soon afterwards, the head of the Detroit teachers’ retirement system came to him and said public service pensions should be protected.
He agreed, drafted something and took it to experts.
“The language in the Michigan Constitution was first reviewed by a professor, then Charlie Joiner, who (later) became a federal judge, and finalized by Bill Cudlip, who was then the senior attorney at Dickinson, Wright,” a major Detroit law firm.
“So if they all agreed that it was air-tight, then that’s a very strong endorsement of my interpretation,” Faxon said.
Federal law, however, always trumps state law, when the two conflict. Implied in Judge Rhodes’ ruling on pensions is the idea that since bankruptcy law is federal, it overrules any state law.
Yet the ruling that pensions could be cut was solely Judge’s Rhodes’ interpretation. Faxon, who later served in the Legislature for 30 years, mostly in the Senate, thinks his ruling should be appealed and should be overturned.
Meanwhile, Gov. Rick Snyder is trying to put together a deal to add $350 million in state funding to a similar amount raised by private foundations. The idea is to shore up the pension funds and save the Detroit Institute of Arts from the possibility of having some of its collections sold to satisfy money the city owes its creditors.
Nobody knows if Snyder can get the Legislature to agree. Former State Sen. Faxon has an interesting perspective on that as well.
He was, he says, the reason the Michigan Legislature began to fund the arts back in the early 1970s. Always a fervent arts supporter, and a member of the Senate Appropriations Committee, Faxon one year inserted a line-item grant for $25,000 for the Detroit Institute of Arts into the budget. Those were good economic times.
Nobody objected, so “that was followed by another line-item grant of $176,000 the following year and around half a million the third year.” That eventually led to an agreement between then-Detroit Mayor Coleman Young and then-Gov. William Milliken for broader state funding of arts and cultural institutions in Detroit, “the halcyon years,” as Faxon called them.
Not surprisingly, he also thinks the idea of selling even a single painting from the DIA is crazy. “Buying art was never seen as an investment,” like buying a high-tech stock, “but as a permanent asset to enhance the environment of the city.”
Faxon also thinks the way the bankruptcy is looking at the pension fund crisis is wrong. “What matters is not the total amount, the billions the actuarial tables say we own, but ensuring there is enough cash flow,” to cover current obligations.
He doesn’t deny Detroit is in trouble. But he notes that for many years in its glory days, Detroit sent far more money to Lansing than it ever got back. Now, he thinks it is the state’s turn to help.
“I know how politics works,” he told me last week.
“But I think it is incredible that with a state surplus (approaching) a billion dollars the state remains silent when, for decades, Detroit supported the rest of the state.”
Jack Lessenberry, who teaches journalism at Wayne State University, is Michigan Radio’s senior political analyst, an ombudsman and writing coach for the Toledo Blade and former foreign correspondent for and executive national editor of The Detroit News. He was named Journalist of the Year in 2002 by the Metropolitan Detroit Chapter of the Society of Professional Journalists.