City of Hamilton report reveals impact of U.S. Steel bankruptcy
Only weeks before U.S. Steel Canada (USSC) is set to appear before Superior Court seeking approval for the off-loading of its Hamilton operation, the city released a stark report indicating the potential impact of the company’s bankruptcy.
City councillors commissioned an economic impact study on a worst-case scenario for the U.S.-based steel producer, which filed for bankruptcy protection under the Companies’ Creditors Arrangement Act in the fall of 2014.
According to the report, about one in every 72 Hamiltonians are U.S. Steel Canada pensioners who stand to lose upwards of $4,000 per year if the bankruptcy leaves a significant pension funding shortfall, as expected.
Should U.S. Steel's bankruptcy plan shutter its doors, the company would only be able to afford to pay 73.4 per cent of its
pensions, city staff noted.
As the plant continues to restructure, pensions and benefits are currently being paid to the company’s 1,743 employees as well as its more than 7,000 pensioners.
Ontario has in place a fail-safe for private sector companies unable to fulfill pension obligations — the Pension Benefits Guarantee Fund, which provides protection, subject to specific maximums and exclusions, to Ontario members and beneficiaries of privately sponsored single-employer defined benefit pension plans in the event of plan sponsor insolvency.
The Hamilton report also noted that without the projected cost-of-living adjustment (typically factored in at around two per cent), those pensioners could stand to lose about $100,000 over the next 25 years.
As well, in 2014, $71 million was the total annual minimum pension and benefit contributions USSC had to pay out.
That compares to the $76.2 million that is available in the provincial pension benefit guarantee fund — something city staffers cautioned would be insufficient in the years to come.
Being a steel town, Hamilton’s city council saw the benefits of a hypothetical report, said the study’s author, Graeme Brown, who works in Hamilton's planning and economic development department.
Brown added it was a rare undertaking for a civic body.
"I don’t think there’s a whole lot of past precedence at the municipal level," he said, adding that compiling much of the data involved consultations with employee and pensioner groups, as well as like stakeholders.
"Without that, this report wouldn’t be as helpful or informative," Brown said.
"It all depends on your ability to undertake an investigation. So, if we had to outsource it: Would what we ultimately got out of it be worth whatever it cost us to do it?"
Though the report is completely hypothetical, it gives the city a leg-up on possible recovery or mitigation methods, or even to approach the provincial and federal governments for support should it come to that, Brown said.
"A lot of the potential risks associated with that kind of closure or ceasing of operation, the city already has programs and services in place because we’ve deemed some of the risk associated with those activities as things that the city has an onus to mitigate," he said.
The battle with the Pittsburgh-based steel company has been fraught ever since it bought out the former Stelco plant in 2007, according to the United Steelworkers union.
"Steel is an important part of Hamilton," said Gary Howe, president of local 1005, which represents employees at the Hamilton facility.
"There's a lot of people that get their pension and benefits from U.S. Steel and, you know, those are the people that built the company.
"A lot of people see that U.S. Steel made a lot of promises when they came in and bought us — and people are pretty disappointed with the way they’ve dealt with us," he added.
"When U.S. Steel bought us, some of us were saying, 'Well, I hope they didn't just buy us to buy out the customer base.' Decisions were made in Pittsburgh, they weren't made in Hamilton."
Howe likened USSC's bankruptcy proceedings under the Companies' Creditors Arrangement Act to "legalized theft," saying the court legitimized the taking away of something owed to employees.
"The people that worked at Stelco, part of their ‘deferred wages’ was when they would work for benefits. So, you know, working in the coke ovens on a night shift on a Saturday — they did that because they knew when they retired, they’d get benefits. That’s part of the deal."
Of particular concern for the Steelworkers is benefits will not be paid out to employees disabled or injured as a result of the job.
Howe himself said he was diagnosed with cancer 15 years ago, as were the two men he worked closest with.
"There’s an increased cluster for cancer," he added. "I see all kinds of people who have got sick from working there, so the benefits are important."
Hearings at the Superior Court begin this week and U.S. Steel Canada is expected to propose its much anticipated "sale and restructuring or recapitalizing" program.