Michigan governor backs plan to give bankrupt Detroit $350M

LANSING, Mich. (AP) — 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.
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
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.
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.
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.
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.
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.
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.
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
"Nothing is certain in a bankruptcy until a bankruptcy judge tells you it is and an appeals court
affirms it," Nowling said.
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.
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.
Associated Press writer Ed White in Detroit contributed to this report.
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