Reverse-Mortgage Rule on Surviving Spouse Tossed by Judge
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Stockton, Calif., unveiled its plan to exit bankruptcy by raising taxes and paying some creditors less than they are owed while maintaining its pension obligations to city employees, Bloomberg News reported on Saturday. Under the proposed plan of adjustment posted yesterday on Stockton’s website, bondholder Franklin Resources Inc. would have the option of settling with the city or taking control of a park and two golf courses that were pledged as collateral for $35.1 million the company is owed. The city says that it can only pay $500,000 of the $2.9 million it owes every year on the bonds. Stockton has “the outlines of a negotiated settlement” with creditor Assured Guaranty Corp., which insured $164.7 million in bonds that the city has said in the past it cannot fully repay.
A top SEC official said yesterday that the U.S. Securities and Exchange Commission's scrutiny of public pension liabilities will not let up any time soon, Reuters reported yesterday. Pension disclosure will be "a continuing and very significant theme of the SEC," said John Cross, head of the SEC's Office of Municipal Securities. The SEC has cracked down on pension and disclosure problems, hitting Illinois in March with charges for not adequately informing investors about the liabilities. The SEC had brought similar charges against New Jersey in 2010. Both states settled the charges without admitting or denying them. The SEC has also caught Harrisburg, Pa., and Miami in its regulatory net for allegedly making misleading statements and omissions in bond documents. The Pew Center on the States has reported that bigger cities faced a collective pension liability of $217 billion in fiscal 2009, while states had a shortfall of $757 billion for retiree pensions in fiscal 2010.
The White House will send a group of top officials to Detroit today to offer millions in assistance for knocking down empty buildings, hiring firefighters and adding buses to the city fleet, Reuters reported today. The federal aid has been tapped from a variety of existing programs and is part of a patchwork of grants complementing investments by the city, state and private foundations. "We're going to continue to support the efforts under way in Detroit and ensure the federal government is an active partner in supporting the revitalization of the city," said Gene Sperling, director of the White House National Economic Council, who has led federal discussions with Detroit on how best to help. Sperling and cabinet officials will discuss the plan at a meeting with Michigan Governor Rick Snyder, Detroit Mayor Dave Bing, the city's emergency manager Kevyn Orr, members of the Michigan congressional delegation and other leaders. The plan includes about $150 million to tear down dilapidated properties and revitalize blighted neighborhoods. Some of those funds will come from the federal government, with other funds coming from the city, state, businesses and the Ford, Kresge and Skillman foundations.
Detroit's emergency manager proposed freezing pension benefits for some current city workers starting in 2014 and will launch a two-month probe into the city's dysfunctional and error-prone handling of employee benefits, Reuters reported yesterday. A copy of Kevyn Orr's proposal was released by one of Detroit's two pension boards yesterday, the same day the city's auditors posted a report that shed light on how Detroit overpaid benefits, including unemployment compensation for almost two years to 58 people who never worked for the city. The report also raised the question of whether there was fraud in doling out some unemployment claims. The auditors' review of nearly two years of unemployment compensation claims found that 13 percent were likely fraudulent and another 36 percent were highly questionable and required investigation. In his pension proposal, Orr would close the general retirement fund, which represents non-uniform city workers, to all future city workers and freeze it for current workers as of Dec. 31. The city would replace the pensions with 401(a) and 457(b) retirement plans.
Detroit’s municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, the New York Times DealBook blog reported yesterday. The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter. Available records suggest that the trustees approving the payments did not discriminate; nearly everybody in the plan received them. Most of the trustees on Detroit’s two pension boards represent organized labor, and for years they could outvote anyone who challenged the payments. Since June, Detroit’s auditor general and inspector general have been examining the pension system for possible fraud or malfeasance, and their report is expected to be released today.
The bankrupt city of Stockton, Calif., will present a draft plan on Friday to adjust its debt while it keeps negotiating with bondholders, a lawyer for the city told Reuters on Tuesday. Stockton's city council will review the draft next week and a final version could be filed with the bankruptcy court on or shortly after Oct. 4, marking a milestone in the city's efforts to put its finances in order, attorney Marc Levinson said. Levinson later told Bankruptcy Judge Christopher Klein during a hearing on Stockton's chapter 9 municipal bankruptcy case that it was not clear whether agreements with bondholders would be part of the plan. But Levinson added he was hopeful ongoing confidential talks with Stockton's capital markets creditors will lead to agreements with them.
Bankruptcy Judge Steven Rhodes denied a request by a car accident victim who wanted his case against the city to move forward despite an automatic stay that affects lawsuits while Detroit is under chapter 9 protection, the Detroit Free Press reported today. Michael Beydoun filed a motion Aug. 8 seeking relief from the stay for his judgment. He won a $2-million award in his lawsuit that the city appealed. The matter is pending before the Michigan Supreme Court. On Sept. 10, Beydoun’s lawyer argued that the city acted in bad faith by filing for bankruptcy to avoid paying the judgment award. Jeffrey Ellman, a lawyer for the city, said the totality of the city’s debts and not any one issue drove the city to file for bankruptcy. The city also argued that “allowing the continuation of actions such as this would undermine the protections of the automatic stay and jeopardize the city’s efforts to restructure.”
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Bankruptcy Judge Steven Rhodes granted a motion by Detroit to delay a hearing on a controversial deal between the city and banks aimed at ending interest-rate swap agreements, Reuters reported yesterday. In his order, Judge Rhodes said that the hearing that had been slated to start on Tuesday will be adjourned to a date to be determined. The ruling came after Detroit earlier yesterday requested the court give it additional time to negotiate with bond insurers, retirees, pension funds and some bond holders who objected to the city's deal with swaps counterparties Merrill Lynch Capital Services and UBS AG. The city aims to end the swaps at a discount and free up casino tax revenue used as collateral for the swap agreements. The city could use casino revenue, which totals as much as $180 million a year, in debtor-in-possession financing that would enable Detroit to settle with swaps counterparties and provide more funds toward the city’s financial recovery.
http://www.reuters.com/article/2013/09/23/usa-detroit-swaps-idUSL2N0HJ1…
In related news, Bankruptcy Judge Steven Rhodes scheduled a hearing for Oct. 2 to consider the NAACP’s argument that its ongoing challenge to the state’s emergency manager law should be allowed to proceed outside of bankruptcy court, the Detroit Free Press reported today. The Michigan and Detroit chapters of the NAACP joined with Donnell White, Thomas Stallworth III, Rashida Tlaib and Maureen Taylor to file a lawsuit in May seeking to overturn the emergency manager law as unconstitutional because it infringes on voter rights. Their lawsuit, filed in May in the U.S. Eastern District Court of Michigan, was immediately delayed by Detroit’s bankruptcy case. The plaintiffs told Judge Rhodes that their lawsuit should be allowed to proceed because they are “not seeking any damages, contractual claims or similar related relief that would implicate the city’s finances.”
http://www.freep.com/article/20130923/NEWS01/309230078/NAACP-Kevyn-Orr-…