Michigan Senate OKs $195 million for Detroit in governor-backed plan to end city’s bankruptcy

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LANSING, Mich. – Michigan’s Senate approved on Tuesday spending $195 million to help prevent steeper cuts in Detroit retiree pensions, linking the state with a deal designed to shield valuable city-owned art from being sold and resolve the largest public bankruptcy in U.S. history.

The Republican-led chamber voted 21-17 to contribute the 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.

Gov. Rick Snyder is expected to sign the legislation quickly after a required technical move by the GOP-controlled House, which passed the bills about two weeks ago.

By backing the deal, the governor and legislators in part are hoping to avoid a protracted bankruptcy and the potential for city retirees to fall into poverty, which could cost the state an estimated $270 million in social safety net costs over 20 years. They also say that Michigan as a whole cannot succeed unless its largest city is turned around.

“This is by far, in my opinion, the best that we’re going to be able to do,” said Senate Majority Leader Randy Richardville, R-Monroe. “It’s not for the city of Detroit. This money goes directly to the people that earned those pensions … who through no fault of their own are at risk.”

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 base pension cuts for approximately 30,000 retirees and city workers to no more than 4.5 per cent instead of as much as 26 per cent.

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. Under the plan, a state-dominated board could oversee the city’s finances for as few as three years or for decades, depending on whether its books are balanced.

Roughly 30,000 retirees and city employees are in the midst of a vote on the pension and art deal, and backers have said many were waiting until the Senate acted. Nine bills were approved, hours after the business community and retiree groups urged a Senate panel to OK the legislation.

“Honestly, it would be easier to recommend a fight to the end. But that is not in the best interest of retirees,” said Ryan Plecha, a lawyer for the Detroit Retired City Employees Association, who said members are seeing reduced health care benefits and sharply rising out-of-pocket costs and stand to see a 4.5 per cent pension cut and no cost-of-living increases. As part of the deal, retiree groups will withdraw pending lawsuits and release the state from future claims that retirees are owed their full pensions under the state constitution, Plecha said.

Before the Senate vote, some senators stood to criticize the legislation.

Sen. Coleman Young II, D-Detroit, said the bills would keep the city “under the rule of unelected cronies for Lord knows how long.” And Sen. Patrick Colbeck, R-Canton Township, pointed to financial problems in Wayne County — which includes Detroit — and other cities such as Flint and Highland Park.

“Are we going to dip into the rainy day fund to bail out all these communities?” he said. “We continue to box ourselves into dead-end solutions that lead to bigger government.”

But foundations supporting the agreement applauded the Senate’s move.

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Follow David Eggert at http://twitter.com/DavidEggert00

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