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Detroit bankruptcy could affect north country communities

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CANTON — Detroit’s bankruptcy will have an impact on other fiscally stressed communities, such as St. Lawrence County, although the effects might be more subtle than obvious.

The most significant outcome so far of Detroit being allowed to enter bankruptcy was a federal judge’s ruling that pensions of city employees and retirees could be cut and treated as any other contract despite Michigan being one of seven states — New York is another — that have specific clauses in their constitutions that protect public employee pensions.

“The pension crisis is the next big thing,” said St. Lawrence County Legislator Kevin D. Acres, R-Madrid. “We have to face up to the fact the employees have to be more responsible for their own retirement. It has to be addressed now.”

New York’s pension system is in better shape than Detroit’s because it is fully funded.

“That’s one of the reasons why we pay such exorbitant rates,” County Administrator Karen M. St. Hilaire said.

Rebuilding the fund after the 2008 recession has been a big-ticket item for government. Legislation changing retirement benefits to Tier 6 was signed in 2012 that calls for new employee contribution rates based on their annual compensation.

New York’s retirement system ranks 17th overall, which shows strength for the time being, Mr. Acres said.

“That doesn’t mean anything for the future,” he said.

Public employee unions are nervous about the less clear-cut ramifications of Detroit’s bankruptcy.

“There’s obviously a lot of reasons for concern in this ruling,” said Stephen A. Madarasz, statewide director of communications for the Civil Service Employees Association. “The issue is not the pensions. It opens the door to areas that we were previously comfortable couldn’t be undermined. This goes well beyond public employee pensions.”

Government promises are what is at stake, and a shift in the political climate, Mr. Madarasz said.

“It raises some serious concerns about government being able to walk away from its obligations,” he said. “Any politician who walks away from accountability does so at their own peril.”

The state already has indicated it is backing away from some of its commitments, such as its a proposal to shut down inpatient services at the St. Lawrence Psychiatric Center, Mr. Madarasz said.

“It’s kind of an abandonment of services that people need,” he said. “We’re very concerned.”

Detroit’s bankruptcy also could make lenders more hesitant to lend municipalities money, but St. Lawrence County Treasurer Kevin M. Felt said interest rates on borrowing most likely will depend on individual bond ratings.

“If you have a decent bond rating, you’re going to get a decent rate,” he said.

Moody’s Investors Service downgraded St. Lawrence County’s credit rating from A3 to Baa1 in 2012, partly because of its declining fund balance and uncertainty over whether it would ever collect state-tribal compact funds that were owed.

Mr. Felt said he hopes that receipt of some of the compact money, additional revenue from an increase in the sales tax and a five-year plan that reduces property taxes more than 14 percent in 2014 and keeps them at the 2 percent tax cap for the following four years will persuade Moody’s to bump up the county’s rating a notch.

“My hope is that with the increase in the sales tax and the plan to keep property taxes stable, we might have more optimism,” he said.

While Detroit’s bankruptcy may have indirect ramifications, it certainly will act as a wake-up call, Mr. Felt said.

“I think it’s just going to open up more eyes,” he said.

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