July 18, 2012 / 5:19 PM / 7 years ago

UPDATE 4-Detroit mayor cuts pay and benefits as crisis bites

* Pay cuts, other savings implemented immediately
    * "Tough day for all of Detroit" - mayor
    * Refinancing bond for $137 million still key

    By Bernie Woodall
    DETROIT, July 18 (Reuters) - Detroit's mayor imposed 10
percent pay cuts on city workers and found other savings from
benefits on Wednesday in a bid to save the city's cash-strapped
coffers $102 million a year.
    "This is a tough day for me, a tough day for city workers
and a tough day for all of Detroit," Mayor Dave Bing said in a
statement. "However, it is a necessary day - but it's still a
tough day."
    Detroit has been hard hit by a steep drop in population,
years of severe budget deficits and escalating employee costs.
    "The city can no longer borrow, hoping to cover this deficit
pending. Without action the city will shut down," Bing said.
    A rescue deal in April gave the state of Michigan more
control over Detroit's finances and suspended its requirement to
negotiate with unions, allowing Bing to impose the new contracts
even though the city council rejected the plan on Tuesday.
    Detroit Chief Financial Officer Jack Martin said the cuts --
which are effective immediately - and a planned $137 million
bond for refinancing were vital to keep the city's finances
alive. The bond issue, initially planned for June 27, was
postponed until August.
    "If we don't do this ... we will be out of cash
approximately Oct. 15," Martin said.
    Local governments across the United States are struggling to
maintain services as their revenues shrink, a delayed effect of
the country's deep recession. Detroit's financial troubles  were
particularly severe due to a steep fall in population and lower
revenue for large auto firms such as General Motors.

    Unions said that the new contracts could spell more trouble
for the city. If Bing wants to attract business to Detroit, the
cuts to fire and police workers are particularly wrong-headed,
said union leader Dan McNamara, president of the Detroit Fire
Fighters Association.
    Response time to fires in the city will continue to
deteriorate, said McNamara, saying the city would shut 15 of its
66 fire companies as part of the cost-cutting proposals.
    "I wonder how the insurance companies are going to respond
to this," he said.
    Just over half of the $102 million expected annual savings
will come from healthcare benefit cuts. Some $2.5 million in
salaries previously paid to full- and part-time union officials
must be reimbursed, a city's statement detailed.
    Other measures include reductions in an hourly shift pay
premium, while additional days off, bonus vacation days have
been eliminated. Merit increases are also scrapped except for
police. Transfers and promotions which used to be based only on
seniority will become more selective and will factor in
education levels, expertise and performance, the city added.
    "I know this represents a hardship and sacrifices for many
city workers," said Bing's statement. "But as I've said before,
I must make the best decisions for all Detroiters."
    Prior to the cuts, the city's projected budget deficit stood
at $197 million and its long-term debt at $7.9 billion.
    One of the city council members who voted against the plan
Tuesday, JoAnn Watson, said Bing was balancing the budget on the
backs of city workers who had already sacrificed enough while
demanding less from Wall Street creditors.
    Representatives of some of the 48 unions for the city's
nearly 11,000 workers accused Bing of taking advantage of the
city's financial crisis to impose new work rules and pay cuts
without negotiations.
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