LANSING, Mich. – Michigan’s Republican-led House approved spending $195 million to help prevent steep cuts in Detroit retiree pensions and the sale of valuable art, a measure that would link the state with a broader deal designed to end the largest public bankruptcy in U.S. history.
By a bipartisan 74-36 vote, the chamber approved legislation Thursday contributing state funds to join $466 million in commitments from 12 foundations and the Detroit Institute of Arts. The pool of money would shore up Detroit’s two retirement systems while the city-owned art museum and its assets would be transferred to a private non-profit.
A state-dominated board could potentially oversee the city’s finances for at least 13 years, longer if the city’s books are not balanced. The oversight commission would go dormant in as little as three years if Detroit’s finances stay solid post-bankruptcy.
The House passed 11 bills, which now go to the Senate, which is also controlled by Republicans. The plan has the support of the Republican governor and legislative leaders, but its passage has been no sure bet in the bailout-averse Legislature.
Lawmakers stood and applauded after the votes, saying politics was put aside to help rebuild Detroit.
“Choosing to do nothing means putting billions of debt and uncertainty on our kids and our grandkids,” said Republican Rep. Al Pscholka of Stevensville, who noted his district is closer to Chicago than Detroit. “Michigan and southwest Michigan are in a strong position by settling this matter, by settling this bankruptcy.”
The legislation would transfer $194.8 million from Michigan’s savings account to an authority that would disburse the money to Detroit’s pension funds, if the bankruptcy judge later this year approves a restructuring plan resolving the city’s debts and other conditions are met.
The up-front state payment, the equivalent of $350 million spread over 20 years, would come from the state’s rainy day account and would be repaid with annual $17.5 million withdrawals from Michigan’s tobacco settlement over 20 years.
Bond insurers have pointed to the art collection — which includes Van Gogh’s “Self Portrait” — as a possible billion-dollar source of cash in the 10-month-old bankruptcy case. The city firmly opposes that and instead is banking on the separate deal brokered by mediators that would protect the art forever and limit pension cuts for approximately 30,000 retirees and city workers to no more than 4.5 per cent instead of as much as 34 per cent.
In voting against the bills, Democratic Rep. David Nathan of Detroit said he fears Michigan’s “takeover” of the city could go on forever.
“This bill tramples on democracy,” he said. “I don’t think anybody in this room would accept what you are asking the citizens of the city of Detroit to accept.”
Supporters of the legislation countered that it is modeled after oversight of New York City that began in the 1970s. Doing nothing is not an option, they said.
“Do you really want to open up the gates of financial Armageddon and see what’s on the other side?” said Democratic Rep. Harvey Santana of Detroit.
After the votes, Gov. Rick Snyder — a big supporter of the “grand bargain” — hailed the bipartisan support for the legislation. Except for a largely party-line vote for a bill not allowing the museum’s three-county property tax millage to be renewed in eight years, the 10 other bills were passed on votes ranging from between 74-36 and 105-5.
Conservative groups such as Americans for Prosperity oppose the state payment as wasteful.
“One thing that could be important for (the Senate) to look at is the margins that this passed with, to say there’s very strong support for it,” Snyder said.
By backing the deal, the governor and legislators are hoping to avoid a protracted bankruptcy and putting city retirees potentially into poverty, costing the state an estimated $270 million in social safety net costs over 20 years.
Republican Rep. Ken Goike of Macomb County’s Ray Township said his bill would give homeowners relief from paying taxes toward the museum in the future since they are being asked to help Detroit with state dollars. The museum and Democrats said it is outside the scope of the broader agreement and would wrongly deprive voters from deciding.
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