Report: Detroit's Pension Fund Liabilities Not to Blame for Bankruptcy

November 21, 2013 | | Crain's Detroit Business |

Pension fund liabilities are not to blame for Detroit's descent into Chapter 9 bankruptcy protection, according to a report released Wednesday by Demos, a public policy advocacy group.

Detroit's bankruptcy was caused by a decrease in tax revenue due to a population decline and long-term unemployment, “not an increase in the obligations to fund pensions,” said Wallace C. Turbeville, a Demos senior fellow, and the author of “The Detroit Bankruptcy” report.

Other contributing factors included a decrease in revenue sharing by the state of Michigan and “risky derivatives financial deals” sold to the city by Wall Street firms, Turbeville wrote.

Further, Kevyn Orr, Detroit's emergency manager, estimated the city's long-term debt is $18 billion, a figure the report said is “highly inflated and in large part, simply inaccurate.”

Orr calculated that underfunding totals about $3.5 billion for Detroit's two public pension plans, the $2.8 billion Detroit General Retirement System and the $3.5 billion Detroit Police and Fire Retirement System.

Turbeville's report said the figure is “an estimate, very different from the certain liability of a financial debt, based on calculations that use extreme assumptions that depart from most cities' and states' general practices.”

Read the full reportThe Detroit Bankruptcy