Detroit Faces Looming Pension Cliff

It’s a train wreck waiting to happen — that’s what Detroit City Councilmember Scott Benson tells Crain’s Detroit Business about the city’s upcoming pension cliff. In two years, the city will have to start making regular pension payments again for the first time since Detroit’s 2013-2014 bankruptcy. Right now, it looks like those payments will be more than $200 million or almost 20% of the city’s total budget. Those payments would be a source of dread for the city even in the best of economic times, but last year also brought with it a deadly pandemic that shut off huge sources of revenue. 

Listen: How the pandemic worsened Detroit’s post-bankruptcy budgeting woes.

Guests

Annalise Frank is a City of Detroit reporter at Crain’s Detroit Business. Frank has a new piece in Crain’s titled, “On the cliff’s edge: Detroit’s decade-long break from pension payments is coming to a close. Will it be ready?” 

Frank says pension payments were a huge part of the debt that required attention during the bankruptcy proceedings. “Pension debt was the biggest chunk of obligation that the city had to deal with during the bankruptcy … basically, pensions would have been totally decimated if it wasn’t for the Grand Bargain,” says Frank. Regarding the cost of living adjustments that were largely reduced and in some cases eliminated entirely, Frank says “it’s not as bad as it could been but it has certainly hurt people in a real way.”

Chad Livengood is a senior editor at Crain’s Detroit Business, who covered Detroit’s bankruptcy extensively in 2013 and 2014. “Over time, these pension funds have decreased in value in part because the Grand Bargain — as grand as it was and as celebrated as it was … it has not been enough to keep up with the burn rate,” says Livengood of the impending cliff and ongoing hardships felt by many who were impacted by the bankruptcy. Livengood adds that “these pension funds are in worse financial shape now than they were when the city went into bankruptcy.”