The "Money" is not at all convinced that Detroit is toast. Several prominent speculators are already salivating over opportunities in a city designed to hold 2 million that currently holds 700,000. See here:
John Battelle (Twitter, @johnbattelle), Founder, Executive Chairman and CEO of Federated Media, and also Founder of OpenCo (hosting a Detroit startup event on September 11), believes that the spirit of the community will lead people to rally and become better.
I believe Detroit is a shining example of how the people and innovative companies of a city are routing around bureaucracy and old thinking to re-imagine what can happen when a community pulls together around shared values.
Bankruptcy Creates Certainty
Peter Allen , Founder and President of Peter Allen and Associates, an expert in the Ann Arbor, Michigan property market and adjunct University of Michigan faculty member, believes that the bankruptcy will restore a sense of certainty to the Detroit real estate market after years of uncertainty. "Uncertainty is bad for real estate with its long term investment horizon," Allen said. "Banks and investors need to see 3-5 years out with reliability."
In fact, Allen is bullish on Detroit right now despite the bankruptcy filing. "Now is a better time to invest in Detroit than two days ago. And it was a fantastic investment time even then." So, people who are paid to know, argue that there is value in Detroit, even now. Who are we to argue?
Walter Burien's Comments:
Scott:Good read, all 8-sections.
I make the following suggestions:
1. An example of 30-years projected income to hold in mirror view of their "30-year+" of projected liability. That switches the view clearly from the red into black.
2. Per actuarial pension projections, keep in mind the "factors used". If an employee is making 50K a year now, they project out what he will be making in 30-years at retirement and what the extra benefits (medical / health care) will cost at the time of retirement. So, the actual funding today is based on that projection. The employee making 50K is now allotted a pay scale at retirement of say for example 200K per year and maybe a benefits cost (medical / health care) at retirement projected of say 30K per year, or a projected allocation from the fund at time of retirement to have a base amount that will "generate" the payout 30-years from now. Some of the standards they use is that 80% of the employees will make it to the 30-year retirement point. Most funds pay out 80% of employee's last years pay also. So, the guy making 50K today at retirement: 200K + 30K = 230K at 80% of last year's pay = 184K or at a 10% rate of return from the fund an allocation of base revenue to be 100% funded for that one (1) employee of $1,840,000 (1.84 million). Now if they changed the actuarial projected rate of return to 5% that would mean a base figure of $3,680,000 (3.68 million) to be 100% funded. Here in changing the actuarial projection of rate of return from 10% if being fully funded, at a stroke of a pen to 5% they are now 50% underfunded. Did you just have one of those: "Oh, Damn moments?" Now multiply that by 7,000 or maybe 15,000 employees.. Talk about an investment power-base..
3. If you look at the last 10-year average employee contributions and taxpayer contributions to the pension, the total almost meets payouts. The 10-year average investment return now added did not make up the difference but generated well in excess of the payouts. If the difference "in the shortfall" over the difference between contributions and payouts was made from the fund's balance if "No investment return other than 1%" was coming in, the difference being paid from the standing balance would take place on a cash and carry basis "indefinitely" with minor adjustments in contributions made to keep the balance in line and performing as needed.
Bottom line? What has developed over the decades is not about paying employees at retirement, it is about the power-base of investment capitalization growing and thus utilized. The grease on the skids there is the game of wealth generated for the inside players and the employees just being a distant thought strictly as the justification to maintain the power-base..
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