February 20, 2018

STEALING A CITIES WEALTH AND THEN RAISING TAXES: Detroit’s Bankruptcy: What Happens to Pensions, Taxes and City Services

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The basic plan goes like this. In 1937 the Federal Tax Code was changed by Congress to allow State Cities to File for Bankruptcy, which had been prohibited up until that time.

Under the U.S. Constitution, the Federal Government and States were not subject to Bankruptcy. So a change was made that somehow changed the State Chartered City Status that somehow separated it from the State and Federal Government System.

This is how Words and Laws are used warp reality. Cities are part of the State and the State is part of the Government, Period! It’s really that simple.

But when Citizens have no voice and no power, any kind of crazy, no sense rules and laws can be passed by those in control. And those in control, do not have to be members of that Country. In Minority Rule Governments, you need only control a few at the top in key positions of power.

The Plan has always been to Force Cities and States into Bankruptcy and make them Wards of the Bank. A simple change of the Tax Code will allow States to follow suit, and themselves become ‘Wards of the Bank’.

The only answer of course is a Majority Rule form of Governship. How we get there, is a work in progress.

But the True Democracy Party is a beginning. 🙂


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Detroit’s Bankruptcy: What Happens to Pensions, Taxes and City Services

by FOXBusiness Jul 20th 2013


Detroit made history Thursday as the largest American city in history to ever file for Chapter 9 bankruptcy protection. The once vibrant city rooted in auto manufacturing and music finally fell victim to its dire financial situation, with between $18 billion and $20 billion in debt.

While city emergency manager Kevyn Orr says it will be “business as usual” in Detroit, experts say residents may be impacted in three major areas–pensions, city services and tax rates.

The Pension Problem

The city has yet to confirm how pensions will be impacted, although there have been suggestions that pensions will be reduced, says Bob Tomarelli, IHS Global Insights economist. The wildcard in the situation is the fact that the Michigan state constitution has a provision which some union leaders say bars pension cuts.

The provision says “the accrued financial benefits of each pension plan and retirement system in the state and its political subdivisions shall be a contractual obligation which shall not be diminished or impaired thereby.”

“The next question here is what does the judge do? The provision seems pretty clear cut, but a judge can rule that they can cut pensions,” Tomarelli says.

There are an estimated 30,000 retirees who are currently receiving pensions, he says, and an estimated $9.2 billion in pension debts.

Pensions potentially have some major changes ahead, says Alison Fraser, Heritage Foundation senior fellow and director of government finance programs.

“They are already in lawsuits with the pension programs themselves,” Fraser says of the city. “It’s unclear what the legal questions are when you go into bankruptcy. There is some possibility pensions will be redone in some way, and it will be very difficult for those who area already retired on those pensions.”

Overall, Fraser believes bankruptcy was the right way to go, as the city was irresponsible with its finances and the process will allow Detroit to restructure its debt.

City Service Cuts

Orr says the filing is the “first step toward restoring the city” and that it will be business as usual in Detroit.

“He says the lights will stay on, but it depends on what haircut the creditors will take on secured bonds, and knowing if and how much pension payments will be cut,” Tomarelli says. “They then decide how much money will be cut and saved on public services.”

Detroit has lost a massive number of residents over the past half century, and now is home to around 700,000 citizens, post-auto bailout and Great Recession. Tomarelli says if the city cuts public services, it would likely be less appealing to potential residents.

“People are still leaving Detroit at a faster rate than they are Michigan,” he says. “If there is a great reduction in services, it may be a less attractive city to live in.”

Tax Hikes on the Way?

Detroit’s current tax rates are 2.4% for residents, 1.2% for non-residents and 2% for corporations and Fraser says a hike would be the wrong way to go post-bankruptcy.

“Detroit already has high taxes,” she says. “It’s difficult for cities to levy taxes, but they do.”

If taxes are hiked on the heels of cuts to city services and pensions, she says it’s a recipe for disaster.

“They shouldn’t try to squeeze every last dollar out of city businesses and residents-that is really the key,” she says. “Will residents flee, or will it remain stable?”

Detroit instead should look at its own problems and tackle them, including investigating its regulatory culture to see if it is encouraging new businesses to launch in the city.

“This should be a wake-up call to our federal government regarding pensions and entitlement programs,” Fraser says.

SOURCE: [ dailyfinance.com ]


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3 Questions on State Bankruptcy

By Jennifer Burnett, CSG Senior Research Analystkatkin

States face colossal fiscal pressures, including mounting public pension obligations that now represent a $1 trillion unfunded gap, according to the Pew Center on the States. That gap—combined with other mounting fiscal woes—has led to a national conversation about whether states should be allowed to file for bankruptcy.

That conversation has prompted state officials to react, most arguing that the mere existence of a federal law allowing states to declare bankruptcy would increase interest rates, rattle investors, raise the costs of state government, create more volatility in financial markets, and erode state sovereignty under the 10th Amendment to the U.S. Constitution. To help explain this complicated issue, CSG asked Kenneth Katkin, a law professor at the Salmon P. Chase College of Law at Northern Kentucky University, a few questions about bankruptcy and states.

1) Why can’t states use the federal bankruptcy system to reorganize their debt?

“There are two reasons why state governments currently cannot use the federal bankruptcy system to reorganize their debt. First, the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy.

The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.

“The second reason stems from the U.S. Constitution. The contracts clause of the U.S. Constitution prohibits state governments from ‘impairing the obligation of contracts.’ As originally understood and enforced, this clause prohibited state legislatures from passing any laws to relieve either private debt or the state government’s own debt. Beginning in 1934, however, the Supreme Court began to interpret the contracts clause more flexibly and not as an absolute bar to state debt relief laws.

Even under the flexible modern approach, however, the Supreme Court in 1977 reiterated that ‘a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money (on something else.)’ Thus, were Congress to amend the federal bankruptcy code to authorize states to repudiate debt, the Supreme Court would then need to decide the novel constitutional question of whether such debt repudiation would nonetheless violate the contracts clause of Article I, Section 10.”

2) What benefits would allowing states to file for bankruptcy provide?

“Bankruptcy is designed to give a ‘fresh start’ to debtors who enjoy no reasonable prospect of satisfying their financial obligations. It is difficult to predict all the consequences that would follow a state government’s voluntary entry into bankruptcy. Clearly, state governments that pursue voluntary bankruptcy would seek relief from certain debt obligations, particularly pension debt now owed to retired state employees and interest payments now owed to holders of state bonds. In bankruptcy, state governments also might seek relief from contract debt owed to vendors and contractors that have done business with the state. A federal bankruptcy court has the power to grant all such relief.

Like private parties who declare bankruptcy, a state government that declared bankruptcy would find it more difficult and more expensive to obtain credit in the future. Vendors would be justifiably hesitant to conduct business with the state unless they were paid in full for their work, in advance. Morale within the state government’s career work force could be expected to suffer. And although state legislators presumably would recoil at the loss of state government buildings or state parks or state vehicles to foreclosure, liquidation of some components of a bankrupt’s estate to satisfy creditors is an ordinary incident of bankruptcy.”

3) What steps would the federal government have to take to allow for state bankruptcy?

“To allow for state bankruptcy, Congress would need to amend the federal bankruptcy code to add state governments to the list of entities who may apply for bankruptcy. In addition, a state would need to amend its own state laws to authorize it to make application for federal bankruptcy. Finally, the United States Supreme Court would need to rule on whether the contracts clause of Article I, Section 10 of the United States Constitution prohibits states from declaring bankruptcy even if authorized to do so by Congress, or imposes any restrictions on the terms, conditions or circumstances under which state governments might declare bankruptcy.

If it chose to do so, Congress could require the Supreme Court to rule expeditiously on these questions.”
Kenneth Katkin teaches and writes in the areas of constitutional law, communications law, legislation, federal jurisdiction and entertainment law at the Salmon P. Chase College of Law at Northern Kentucky University. He received his law degree from the Northwestern University School of Law.

SOURCE: [ Capital Ideas ]