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Sunday, June 15, 2014

Op/Ed: Does Voting for Detroit's 'Grand Bargain' Deal Make Financial Sense for City Retirees?

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How many times have you been told something is good for you, when in reality it might not be. Pressure to suppress doubt can become overwhelming. Especially when nearly every elected leader, print, broadcast media resource, plus some fellow citizens boast loud as one can hear or read -- do this or else.
Part Two of Independent Underground News & Talk continual Op/Ed Series on "Detroit Grand Bargain" Deal and City of Detroit Retired pensioners. Review Part One of our series at this link.

The Economic Basis of Careful Review For or Against "Detroit's Grand Bargain" Deal

City of Detroit retirees are facing a life transformation choice. Whether proposed cuts are 4.5% or 30% in monthly pension, any reduction in revenue has real life consequences.

Utilities, fuel oil, car repairs, food. rent or mortgage obligations normally are not negotiable with creditors to reduce by 4.5% or 30% in view of the debtors monthly income has decreased. In fact, according to the Bureau of Labor Statistics (BLS) May 2014 report:
"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment. 
The indexes for gasoline, shelter, and food all rose in April and contributed to the seasonally adjusted all items increase. The gasoline index rose 2.3 percent; this led to the first increase in the energy index since January, despite declines in the electricity and fuel oil indexes. The food index rose 0.4 percent for the third month in a row, as the index for meats rose sharply."
Let's break these numbers down a bit. From April 2013 to April 2014 all items: Food, Utilities and Shelter, Medical Care, Airline Fares, New Vehicles, Used Cars or Trucks, and Recreation rose 2.0%. During the previous period of study - March 2012 - March 2013, BLS cites the Consumer Price Index rose, "1.5 percent increase for the 12 months ending March." Thus, the average cost of living increase from March 2012 to April 2014 in prices for basic consumer goods, necessaries and services rose 3.5%."

Detroit Retirees are being asked to reduce monthly annuity income by 4.5% or more, but notwithstanding eliminate any future cost of living pension adjustments over the course of their lifetime.

How Demand Curve Right Shift Must Factor into City of Detroit Retirees' Decision Making Process

Inflation is defined economically as, "an general increase in prices and fall in the purchasing value of money," In a capitalistic financial structure such as the United States is built upon, generally when demand increases due to a scarcity of resources, prices for goods and services rise in collation.
"Inflation may be normalizing a bit faster than we thought," the Wall Street Journal quoted Laura Rosner, U.S. economist at BNP Paribas. "It’s still too early to assume this will persist, but it certainly raises the risks of higher inflation at year end than we are currently forecasting."
Normally, the Demand Curve equilibrium shifts sharply to the right when suppliers of heat, gas, electricity, medical, transportation, food, mortgage and lease companies increase the charge for customers to obtain a product, good or service. Irregardless of the consumers ability to pay.

Profits gained from this form of inflationary revenue are used to pad earnings statements of public corporations traded on Wall Street and to pay Executive Officers higher salaries - while consumer personal monthly income drops.

A graphic based example of the Demand Curve Shifting Right is below:

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"A shift in demand to the right means an increase in the quantity demanded at every price. For example, if drinking cola becomes more fashionable demand will increase at every price," Economics Online UK.
In retrospect, what City of Detroit retirees are being asked to do is reduce guaranteed monthly pension income and cost of living increases - effective to support future revenue projections of corporations -- who survive in a capitalistic American economy by increasing prices. Retirees voting to cut this earned benefit are not only doing harm to themselves but likely future benefactors of public pension income.

The Dangerous Nature of Disregarding Michigan's Constitutional Public Pension Guarantee 

Michigan's Constitution of 1963 contains ratified language effectively underwriting the State's obligation to pay retirees debts owed, after providing a set number of years of sweat equity to a governmental resource.
"Sweat equity shares are a means by which business owners can reward employees’ contributions in the company’s success by issuing them shares of stock as a bonus, and as an incentive to help retain key personnel," Heather Cuthill of explains.
Michigan's plus all local and county units of government received benefits of the former workers for a set number of years. This is defined as Sweat Equity.

Unionized contractual agreements are normally how promises made to retirees were solidified. Furthermore, Section 9, Article 24 of Michigan's Constitution provides maximum clarity for if the agreements were made in good faith.
"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 thereby. 
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities."
The langauge was conferred in Michigan's founding document on January 1, 1964.

Retirees Should Wisely Weight All Sides Despite Peer Pressure to Vote for "Detroit's Grand Bargain" Deal

Not only are leaders, so-called experts and in some cases fellow City of Detroit Retirees are being touted out as voices of reason - encouraging pensioners to disregard economic priniciples and historical golden rules of financial prudence; Michigan's Legislature recently reached a rare consensus among Republicans and Democrats - affirming a complete disregard of the words contain in Article 9, Section 24 of the States' Constitution.

Praised as "Detroit's Grand Bargain" deal, legislators on both side of the aisle rushed media resources prepared to promote what can easily be termed as propaganda, without offering any concurrence dissent.
“It makes pensioners as whole as possible and protects the Detroit Institute of Arts from having its artwork seized and sold off,” state Sen. Tupac Hunter, D-Detroit, said on the Senate floor Detroit News Reporter Chad Livengood wrote June 3. 
“There’s really no value for someone to vote no,” Snyder said at a Capitol press conference. “They’re putting themselves at risk,” the Detroit News article cited.
No value in voting no, Governor Rick Snyder (R) cited. Except the legendary son of Former Mayor Coleman Young -Coleman A. Young II, House Representative David E. Nathan and Rep. Mary Robinson all of Detroit, voted no to the "Deal" in Lansing for sound reasons.

Young II took to the Senate Chambers' Floor for nearly eleven minutes expressing displeasure with the 'Grand Bargain Deal' citing historical evidence of promises made by the State of Michigan, not kept.

Ironically, while Retirees are being actively lobbied by some authority figures and the media to vote affirmatively to cut constitutional guaranteed pension annuity revenue -- state residents in recent weeks were denied to vote on other important measures: fixing Michigan's crumbing road infrastructure and increasing the State's Minimum Wage index.

On Wednesday, June 11, "A plan to ask voters to approve a 1% sales tax hike to help fix Michigan's roads has been defeated in the state Senate," wrote Michigan Radio reporter Jake Neher. The proposal was expected to raise about $1.3 billion a year if approved by lawmakers and voters. The resolution failed by a wide margin, 14-24. It would have needed 26 'yes' votes to pass." 

A week earlier, a citizens' ballot initiative to raise Michigan's minimum wage to $10.10 an hour by 2017 and index wage increases thereafter to the inflationary cost of living increases was effectively silenced by a less generous legislative compromise to raise the states' lowest tier wage to $9.25 a hour by 2018.
"The Republican-controlled Legislature moved rapidly Tuesday to boost Michigan’s minimum wage 25 percent, to $9.25 an hour by 2018, and short-circuit a possible election issue in November, and Gov. Rick Snyder quickly signed it into law, Detroit News reporter Gary Heinlein wrote May 27. The House voted 76-34 and the Senate voted 24-12 late Tuesday afternoon to raise the state’s current $7.40 minimum in four stages. The first boost, to $8.15 an hour, would take effect in September, then up to $8.50 at the beginning of 2016, $8.90 in 2017 and $9.25 in 2018. 
"Snyder dodged questions at a news conference Tuesday about the impact of fast legislative action on a $10.10 minimum wage ballot proposition. Supporters of the bill say because the ballot proposal changes existing law — which will be replaced by the new law upon Snyder’s signature — the Raise Michigan proposal will be moot," the Detroit News affirmed. "That’s why Sen. Morris Hood, D-Detroit, voted against the legislation and made the only floor speech in the Senate following the vote. “This circumvents their right to put it on the ballot,” he said.
Effectively twice in the previous two weeks, Michigan Citizens were rebuffed opportunities to increase the states' minimum wage to a rate closer in line with U.S. Consumer Price Index inflationary hikes, and decrease their overall accounts payable costs in fuel along with personal automobile wear and tear costs - by fixing the States' crumbing infrastructure.

Yet, City of Retirees are being lobbied to agree in unison on a reduction in monthly annuity income, despite as it appears the States' Constitutional guarantee is the likely best choice to be had.

What If The Future Holds A Different Result While a Yes Vote Eliminates Civil Tort Actions Forever

What if in a October like electoral surprise, its' found that a robust pot of revenue existed for the City of Detroit in May, which could have secured all future debts owed to retirees? What happens if retirees have voted to cut guaranteed pension income before the revenue happenstance is affirmed.

What is the peril consequences of retirees in States across our great nation containing similar annuity income guarantee language if Detroit retirees vote not only to cut their monthly pensions and future rights to tort civil actions on this issue, hereby effectively making other states language of this nature null and void?

We will explore in our next Op/Ed Article on City of Detroit Retirees Face Life Altering Choices next Sunday, June 21, 2014.

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