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Fixing Public Pensions: The First Step in Detroit's Long Road to Recovery

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On the surface, Detroit may look like a lost cause--a bankrupt city facing a nearly insurmountable fiscal and social crisis.

Sure, the Motor City's problems are numerous. A depleted manufacturing base, population decline, urban decay, and a high crime rate are just a few of the high-profile problems facing this once proud American city.

There is one problem, however, public pensions, which caused the worst problems.

That also means that solving the pension crisis can jumpstart the city's rebuilding.

Above all, consider that Detroit's previous pension system, a system in place during the time that led the city to where it is today, allowed municipal employees to collect benefits that were not only unsustainable, but downright insulting to the taxpayers paying them. In some cases, employees were collecting - in pensions alone - more than the average income of the citizens of Detroit who were funding them.

Enter Kevyn Orr, Detroit's Emergency City Manager.

In March of last year, Orr was appointed by Michigan Governor Rick Snyder to oversee all of the city's financial operations.

In the time since Detroit declared bankruptcy, Orr has made tremendous progress.

Broadly speaking, he has established a wide-ranging, long-term financial plan that will bring Detroit out of bankruptcy if approved by federal bankruptcy Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case.

Specifically, Orr has frozen the previously mentioned pension plan. As a result, taxpayers are not financing these unconscionably expensive pension plans for current workers.

Under the new pension plan, employees will receive a specific monthly payment based on factors such as age, earnings history, and tenure. This plan satisfies both the unions' demands and removes the obligation of the taxpayer to bail out municipal employees if pension values drop. Moreover, Orr has successfully negotiated benefit agreements with both police and fire unions.

Orr gets it.

He went after pension debt, the city's biggest foe, and is now winning that fight. Simply put, his continued focus on pension reform is the solution that Detroit needs.

With that said, Detroit still faces a long, up-hill climb.

A State Budget Solutions report on municipal bankruptcy last July identified $15 billion in outstanding obligations and more than 100,000 creditors owed.

While there's no arguing that there's still a lot of work to be done in Detroit, for the first time in a long time, there is a tangible sign of hope.

For Orr's willingness to tackle tough issues such as public pensions - an issue, so many before him refused to address - shows that Motown is finally ready to take its head out of the sand and seriously address its problems head on.

Bob Williams is the President of State Budget Solutions, a non-partisan organization dedicated to fiscal responsibility and pension reform. Williams is a former Washington state legislator and gubernatorial candidate.