Revealed: Detroit Gave $2 Billion in Undisclosed Union-Brokered Bonuses

Revealed: Detroit Gave $2 Billion in Undisclosed Union-Brokered Bonuses

on Sat, 28 Sep 2013

A stunning new actuary report on Detroit's pension implosion has revealed that Detroit trustees doled out nearly $2 billion in undisclosed holiday "bonuses" to Detroit workers and retirees negotiated by the city and its unions.

Internally, officials called the bonuses "13th checks."

"People were having a hard time, living hand-to-mouth, and we thought we would give them some extra," Detroit pension trustee spokesperson Tina Bassett said.

Almost everyone received a bonus. "Most of the trustees on Detroit's two pension boards represent organized labor, and for years they could outvote anyone who challenged the payments," reports the New York Times.

Financial journalist Megan McArdle, writing for Bloomberg, says the findings left her "speechless" and that "it's hard to overstate how bad this is."

The Times asked Detroit's independent auditor general from 1995 to 2005, Joseph Harris, what legal authority Detroit trustees used to issue the holiday bonuses. "My understanding was, it had to be approved by City Council, and the council was under the belief that the money was there--that the pension funds were earning the money--with the consideration that in bad times the city would be making up the difference."

Harris added: "I hate to say that. Ultimately the fund has to be funded by the taxpayers."

The union-brokered $2 billion bonus revelation comes as President Barack Obama sent a White House delegation led by Attorney General Eric Holder to Detroit on Friday to announce a $320 million aid package.

The timing of the unfolding bonus scandal creates a politically liability for Obama, as in 2012, Obama declared that his leadership kept Detroit from going bankrupt.

"We refused to throw in the towel and do nothing. We refused to let Detroit go bankrupt. I bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way," said Obama. 

Detroit, which has $18.5 billion in long-term debt obligations, is the largest municipal bankruptcy in U.S. history.