DETROIT (AP) — A judge overseeing Detroit’s bankruptcy
again rejected a deal Thursday to end a crippling financial agreement
with major banks, dealing a blow to officials who want to put the issue
behind them as they work on a broader plan to get the city out of
Chapter 9 in the largest public filing in U.S. history.
Judge
Steven Rhodes turned down a $169 million compromise, saying "it’s just
too much money." He had rejected a $230 million deal on the same grounds
in December.
Meanwhile, in Lansing, Gov. Rick Snyder met with
state lawmakers to discuss the possibility of putting money aside to
shore up Detroit’s pension plans and prevent the sale of city-owned art,
days after foundations committed $330 million to the effort.
In
2009, Detroit pledged a critical revenue source, casino taxes, as
collateral to avoid defaulting on pension debt payments. The city locked
itself into high interest rates on bonds with UBS and Bank of America,
but the deal became extremely costly when interest rates plunged during
the recession. Rhodes called it "disastrous."
Nonetheless, the
judge turned thumbs down on the latest deal to unwind the transaction.
He didn’t offer his own number, at least not publicly, but encouraged
all sides to keep talking. He then cleared the courtroom to meet
privately with lawyers.
"It’s higher than the highest reasonable number. … By any rational analysis, it’s not close,"
Rhodes said moments earlier.
Detroit
had lined up a loan to pay for the settlement. Emergency manager Kevyn
Orr wants to get the "swaps deal," as it’s known, out of the way so he
can focus on proposing a sweeping plan to deal with the city’s long-term
debt of $18 billion.
Orr didn’t offer much reaction to Rhodes’
decision, although he was grateful to get the judge’s OK for a $120
million loan for city services.
"We will continue to work toward a resolution of the pension swaps," he said.
In
the capital, Snyder, a Republican, spoke with senators behind closed
doors about Detroit’s pensions. He may soon ask the GOP-controlled
Legislature to match the foundations’ contribution over a number of
years, possibly in his February budget proposal. Senate Majority Leader
Randy Richardville confirmed the talks but said no request has been made
to legislators, nor have they made any commitments.
Richardville said he was "cautiously optimistic" that a solution "will come forth sometime
in the near future."
"Detroit is hugely important to everybody in this state," he said.
National
and local foundations are committed to providing millions to prevent
the sale of city-owned art at the Detroit Institute of Arts and soften
cuts to pensions of Detroit retirees.
Orr has said two pension
funds are underfunded by $3.5 billion. A deal involving the state and
foundations would help retirees but probably wouldn’t alleviate all
their pain in a final plan to fix the shortfall.
The Community
Foundation for Southeast Michigan has been collecting money and pledges
from people outside Michigan. Foundation President Mariam Noland said
help from the state would be important.
"Having as much as money as possible to relieve the potential cuts on the pensions is … great
news," she said.
The
judge’s rejection of Detroit’s settlement with the banks was a
surprise. Two judges who acted as mediators in the Christmas Eve deal
even took the unusual step of publicly endorsing it in a Dec. 30 court
filing. The $169 million deal had included $4 million in other costs.
"This
settlement …
can best be captured and characterized by the
admonition, ‘Do not allow the perfect to become the enemy of the good,’"
wrote Chief Detroit U.S. District Judge Gerald Rosen and U.S.
Bankruptcy Judge Elizabeth Perris of Oregon.
___
Eggert reported from Lansing; Associated Press writer Jeff Karoub contributed to this report.
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