July 8, 2014 at 11:02 pm

Detroit reaches key labor deal with police union amid bankruptcy

Detroit — The city reached an agreement late Tuesday with a key police union that could speed the city’s exit from bankruptcy and shorten next month’s trial over Detroit’s debt-cutting plan.

Though negotiations toward a five-year deal continue, the city and Detroit Police Officers Association reached a tentative agreement on wages, health care, retention payments and pensions. The agreement, reached after nine months of talks, was announced by a mediation team headed by Chief U.S. District Judge Gerald Rosen.

Wage and other details were not released.

A person briefed on the deal said the police union won a significant “catch-up” raise for members after police officers accepted significant wage cuts in recent years. The pay increase was the toughest issue during lengthy talks between the city and the union. It’s not clear when a final deal will be completed, with minor issues like work rules still to be worked out, before a deal can be submitted to police for ratification.

“We’ve definitely come a long way from where we began but still have a long way to go,” union president Mark Diaz said. “It’s a huge leap toward coming to an agreement in very unconventional times.”

Diaz hopes by July 25 to finalize the tentative deal, which he said includes a pay hike but it is less than what officers were paid two years ago.

In a statement, mediators said they were “privileged to have played a role in assisting the parties to find common ground in reaching a resolution that reflects not only a fair agreement for the city, its residents and police officers, but which will also expedite and facilitate the city’s exit from bankruptcy.”

It is the latest in a string of deals with unions, pension funds and other creditors, and leaves a few holdouts, including several bond insurers, other financial creditors and the Detroit Fire Fighters Association. A source Tuesday said the firefighters union is close to a deal with the city.

The deal reached Tuesday comes two days before the end of voting by creditors on the city’s plan to restructure $18 billion in debt. Despite the looming deadline, the police union will urge members to vote yes on the deal, although it is likely most ballots already have been mailed to the California company handling the tally.

The settlement removes a hurdle with a key public safety group one month before U.S. Bankruptcy Judge Steven Rhodes presides over a trial that will determine whether Detroit can implement the debt-cutting plan.

Under the plan, past and present city workers would get a base pension cut of 4.5 percent and the elimination of annual cost-of-living increases, while police and firefighter pensioners would see their 2.25 percent annual cost-of-living-adjustment reduced to about 1 percent.

Detroit also wants to recoup up to $239 million from retirees whose optional annuity savings accounts were credited with interest earnings that exceeded the retirement system’s actual investment returns. Retirees contributed 3, 5 or 7 percent of their paychecks to the savings fund, which is separate from their lifetime pension benefits.

Some 12,000 members of the retirement system face reductions in their monthly pension checks of up to 15.5 percent through the annuity savings fund recoupment, or clawback.

The city’s bankruptcy team earlier reached several deals with retiree groups, pension funds, bond insurers and banks.

But bond insurers Financial Guaranty Insurance Co. and Syncora Guarantee Inc. have attacked the city’s plan as discriminating against bondholders and other unsecured creditors in favor of pensioners.

The city’s debt-cutting proposal includes a $660.8 million plan to soften pension cuts and shield the Detroit Institute of Arts collection. Detroit’s legal team counters that the “grand bargain” helps Detroit’s most vulnerable creditors and preserves a core cultural asset.

A majority of pensioners must vote in favor of the deal before Friday or the $466 million in private money over 20 years and the state’s promised lump-sum payment could go away, triggering deeper pension cuts.

“With this agreement, only a few remaining, albeit significant, disputes remain to be addressed between the city and its creditors prior to the bankruptcy court’s scheduled hearing on the city’s plan of adjustment, and the mediators pledge to re-double their efforts to resolve those remaining issues and reach meaningful agreements between the remaining creditors,” mediators said in a statement.

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Staff Writer Chad Livengood contributed.