May 25, 2023
By Bill Osmulski
In the push to pass the Milwaukee bailout plan, false narratives about Detroit’s 2013 bankruptcy continue to find their way into the debate.
Detroit declared bankruptcy in 2013 after years of failed reforms. Milwaukee is facing its own day of reckoning due in large part to its unsustainable pension system. Some Republican lawmakers are desperate to save Milwaukee from facing the consequences of its own irresponsible fiscal policies. They’re pushing a plan that would allow Milwaukee to levy a special 2% sales tax to make its pension payments, in addition to a larger shared revenue check from the state.
The Claim: “When Detroit went bankrupt, the pensioners got about 48 cents on the dollar.”
In a recent hearing, a proponent of the bailout claimed pension checks were cut by over half in Detroit when that city declared bankruptcy.
“When Detroit went bankrupt, the pensioners got about 48 cents on the dollar. Now, I work 30 years as a firefighter in the city, I don’t know what my pension is – I’ll throw $4,000 out there. Okay, I’m enjoying my retirement. I worked hard all my life. Now, all of a sudden, I’m getting $1,600? No social security. We could all joke this is one way to solve our labor issue. These guys would all be going back to work. That’s not fair.”
None of that is true. Not even close.
Five years after Detroit’s bankruptcy, the Detroit News reported “General workers endured a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase. The pensions of police and firefighters weren’t cut but an annual 2.25 percent cost-of-living adjustment was reduced to about 1 percent.”
Around the same time, the Detroit Free Press also reported, “Police and firefighter pensioners did not see upfront cuts to their pension checks. But they saw their 2.25 percent annual cost-of-living adjustments reduced to about 1 percent.”
Additionally, the MacIver Institute reached out to the Mackinac Center in Michigan. Its director of fiscal policy, James Hohman, said the speaker “is probably tossing in [Other Post-Employment Benefits] into the calculation, though they are not pensions nor were they contractual rights.”
The Facts: “General workers endured a 4.5 percent base cut in pensions… The pensions of police and firefighters weren’t cut.”
Media accounts from Detroit focused on city retirees who are under the age of 65 and struggling to find affordable Obamacare plans. The minimum age for Medicare is 65 and the minimum age to begin collecting full social security is 66, which is why workers without government pensions rarely retire before age 65.
Also, keep in mind, Milwaukee city pensions are far more generous than Wisconsin state pensions. On average, Milwaukee pensions are 10.6% higher than Wisconsin pensions, according to the Wisconsin Policy Forum. They also have a shorter vesting period and lower employee contribution requirements. A hypothetical 4.5% cut would still be 5.7% higher than the average state pension.
Previously, Wisconsin lawmakers claimed if Milwaukee went bankrupt it would have devastating consequences for the entire state. The MacIver Institute, again working with the Mackinac Center, quickly debunked those claims. Detroit’s bankruptcy had no impact on the state’s credit rating, and it did not result in a loss of population or industry.
Although their claims about Detroit’s bankruptcy are repeated debunked, Wisconsin lawmakers supporting the Milwaukee bailout are undeterred. Fortunately, as the MacIver Institute repeatedly demonstrates, the truth is not difficult to find.