A new City Council report suggests federal pandemic relief funds can support Detroit retirees who are struggling to keep up with inflation and health care costs a decade after their benefits were slashed by the city’s bankruptcy.
Council Member Fred Durhal III said the report, created at his request by the Legislative Policy Division, is a “starting point” for conversations on providing relief to retirees. It proposes using American Rescue Plan Act (ARPA) funds for direct payments, housing aid or expanded medical coverage for retirees who are too young to receive Medicare. But federal spending restrictions have prevented the city from targeting relief to specific groups in the past, and Durhal is seeking legal opinions from the Detroit Law Department before moving ahead with a specific plan.
“Even if we used ARPA, there’s not enough dollars to write every retiree a check,” Durhal said, though he doesn’t yet have a plan for benefit amounts or eligibility requirements. “I don’t even think that’s what retirees are asking for. They’re urging us to at least use what is in our power to provide some relief. That’s what we’re trying to figure out.”
Mayor Mike Duggan’s administration has a plan to spend all $827 million in ARPA funds by summer 2025, but Duggan is cautious about using the one-time funds for things that aren’t allowed by the U.S. Treasury Department. The city is looking to hire a director of ARPA implementation to ensure compliance with federal regulations.
Chief Financial Officer Jay Rising said pension benefits programs are not likely permitted. ARPA dollars can’t be used for direct payments into the city’s pension fund, he said, and pandemic aid can only support people who were “disproportionately impacted” by the pandemic.
“The mayor has expressed an interest in investigating what type of supplemental benefits (for retirees) would be allowed under state law, but we believe it’s not prudent to be cute with the U.S. Treasury Department by trying to use ARPA for these types of enhancements,” Rising said in an email.
Rising declined to comment further on how federal restrictions prevent using ARPA for retiree benefits. Durhal said the council’s Budget Finance and Audit Committee will talk more in September about how potential retiree pension programs could be funded after the council returns from its summer recess. Durhal said it’s too early to speculate about what form the benefit would take.
“I don’t look at the administration as trying to shoot this down saying we can’t do that, but I think that is a word of caution in how we spend these ARPA dollars,” Durhal said. “One sentiment we share with the administration is that they want to help our retirees. They realize the sacrifice and how vulnerable the population is. We just have to find a way to get on the same page and make sure we are compliant with the spending of ARPA dollars.”
The Legislative Policy Division, which provides research and analysis to the City Council, argues retirees qualify as a “disproportionately impacted” group. Older retirees were more vulnerable to COVID-19 and lost health care benefits they would have relied on during the pandemic, the report states. Retirees who paid health care costs out of pocket “likely struggled to cover household costs,” especially as inflation caused cost of living increases.
“The pension and benefit cuts resulting from the (Plan of Adjustment) have placed many retirees in a financially precarious situation,” the report states. “The POA deprived retirees of the standard of living they earned through years of service to Detroit. In the years when retirees expected to be enjoying their retirement and spending time with their families, they are instead struggling to meet their basic needs.”
Police and fire employees had an annual 2.25% cost-of-living adjustment reduced to 1%. Non-uniformed employees had their pension benefits cut by 4.5% and lost the annual cost-of-living increases. Ninety percent of health care costs were eliminated during bankruptcy, leaving retirees who are too young for Medicare on the hook for health care coverage.
Losing the inflation adjustment caused shrinking retirement benefits, the report states. Retirees worked for decades under the assumption that they would receive pension benefits and had little reason to set aside retirement savings, it states.
“Detroit retirees are particularly vulnerable to increases in inflation and must make do with less each year,” the report states.
The average non-uniformed retiree receives roughly $1,665 from their pension each month while police and fire retirees receive $2,596, according to the report. The average cost of a one-bedroom apartment is $1,322 and the average mortgage costs $1,177.
Food costs increased 6% over the last year, according to the U.S. Bureau of Labor Statistics, while the price of other items increased 3%.
Duggan is considering using city funds to restore a 13th pension check that was typically sent to pensioners at the end of each year, according to a spokesman. The mayor told The Detroit News he also wants to increase cost-of-living allowances for retired police and firefighters.
State lawmakers appropriated $10 million in next year’s budget to boost health care payments to retired Detroit police and firefighters. Budget documents state the funds will help pensioners partly recover benefits that were reduced due to Detroit’s bankruptcy. Gov. Whitmer has not yet signed the budget into law.
“(Retirees) feel as if they have made the sacrifice relative to the bankruptcy and although there is a restoration plan that has been outlined, it is not expedient enough,” Durhal said. “They still find it difficult to meet their needs.”
The LPD report highlights how other cities used ARPA funds to respond to the impact of the pandemic on households and communities. Detroit created a $30 million ARPA-funded home repair program for low-income seniors and disabled residents, boosted with another $15 million in state funds.
Ann Arbor allocated $1.6 million to create a guaranteed income program that offers 100 low-income entrepreneurs $530 per month. Chicago is using $31.5 million to provide $500 monthly checks to 5,000 residents who are below the poverty level and experienced a pandemic-related hardship. Los Angeles allocated $35 million to provide $1,000 monthly checks to 3,200 families with children living in poverty.
Detroit has an estimated 27,000 retirees – a much larger pool of recipients compared to programs in other cities highlighted by the report.
Federal restrictions previously blocked Detroit from pursuing direct payments for residents that were overtaxed between 2010 and 2016. The Detroit Law Department argued the funds can’t be used on issues that predate COVID-19, which could also apply to the loss of pension benefits.
“These funds cannot be utilized for anything that existed prior to the pandemic,” Durhal said. “One could argue our retirees were vulnerable prior to the pandemic and that vulnerability has been exacerbated beyond the pandemic.”