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Governor backs plan to give bankrupt Detroit $350M

Published: Wednesday, Jan. 22, 2014 8:32 p.m. CDT

(Continued from Page 1)

LANSING, Mich. – Michigan Gov. Rick Snyder is pledging to commit up to $350 million in state funds to help Detroit as the bankrupt city tries to shore up pension funds that are billions in debt and prevent valuable city-owned art from being sold.

The Republican joined legislative leaders on Wednesday to announce a proposal that would provide the money over 20 years, as long as a larger settlement is reached with labor unions and city workers concerned about pensions. The lawmakers acknowledged the plan may be a hard sell in the GOP-controlled Legislature, but they said it was better than a protracted legal fight in a city facing an estimated $18 billion in debt.

The governor was quick to say the money would not be a bailout, but rather a way to help Detroit quickly settle its bankruptcy and allow it to grow. He also noted the plan follows roughly $330 million that has been pledged so far by charitable foundations, largely in exchange for protecting works at the Detroit Institute of Arts that might otherwise be sold during bankruptcy.

"If Michigan's to be a great state again, we need Detroit on a positive path to success," Snyder said.

Snyder had initially warned Detroit not to expect any state money when the city filed for bankruptcy, a move he supported. What changed, he said, were mediators "doing good work" to bring the foundations and state together to help.

He noted that the money would either be diverted from tobacco settlement funds that Michigan receives each year or come from securitizing future payments to get a lump sum up front.

Snyder said the state aid would help minimize cuts to city retirees' pensions, particularly those with low incomes, but he declined to detail the impact for all 21,000 current retirees. He said details would come when the city's state-appointed emergency manager, Kevyn Orr, filed his plan to take Detroit out of bankruptcy with the courts. That filing is due by March 1.

Before Wednesday, the governor had been largely mum about any potential state aid, partly because discussions between the city and its creditors with federal mediators are confidential.

Snyder had privately gauged support among lawmakers last week for the plan – and he is facing politically tricky terrain.

Some legislators are worried that state financial assistance to Detroit could set a precedent if other cities collapse, while others have said they have their own spending priorities elsewhere in the state. Election-year politicking also could come into play, as some GOP lawmakers blame many of the city's more recent problems on a corrupt political culture in Detroit, where Democrats rein.

In Snyder's corner, however, are top Republican and Democratic leaders who agree it would be better to help resolve the bankruptcy now.

Republican Senate Majority Leader Randy Richardville, who is from Monroe in the southeast corner of Michigan, said the proposal was "very positive, and in general is being received that way."

GOP House Speaker Jase Bolger, from Marshall in the south-central part of the state, said winning approval for the plan "won't be easy." But he said lawmakers need to consider that Detroit could either be rebounding in a year or "still mired in bankruptcy, dragging down the full state, as the world sees Detroit when they think of Michigan."

Under the plan, independent fiduciaries would manage the pension funds going forward after concerns about mismanagement and corruption in the systems.

Orr, who was appointed by Snyder to take over the city's finances, has said two pension funds are underfunded by $3.5 billion. A deal involving the state and foundations – bringing outside aide to roughly $700 million – would help retirees but probably not cover all of their pensions.

"We now have an unprecedented commitment of public and private resources to help the city of Detroit fulfill its commitments to retirees and preserve one if its cultural jewels, the Detroit Institute of Arts," Orr said in a statement.

Orr's spokesman, Bill Nowling, said the plan announced Wednesday was "huge" but that challenges remain.

"Nothing is certain in a bankruptcy until a bankruptcy judge tells you it is and an appeals court affirms it," Nowling said.

Asked how the money could be earmarked for pensions when other creditors might want it, Snyder told The Associated Press that the state and charitable dollars amounted to incremental resources that, if no bankruptcy settlement is reached, "won't be available."

But the plan has its critics. Steve Spencer, financial adviser to one of the city's creditors, Financial Guaranty Insurance Co., said it conflicts with the long-term interests of Detroit and its creditors.

"We find it incredible that the city is being allowed to leave such a valuable art collection untouched when it can't provide basic services and is proposing to essentially walk away from its debt obligations," Spencer said.

Meanwhile, the judge handling the city's bankruptcy, Steven Rhodes, reminded lawyers during a hearing Wednesday that the clock was ticking toward a March 1 deadline for a broad plan to bring Detroit out of bankruptcy. In his strongest words yet, he urged the city and creditors to keep negotiating.

"Now is not the time for defiant swagger or dismissive pound-the-table-take-it-or-leave-it proposals," the judge said.

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Associated Press writer Ed White in Detroit contributed to this report.

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