Bills Propose $195 Million Payment To Detroit From State’s Savings Account
By David Eggert, Associated Press
LANSING (AP) – Lawmakers introduced legislation late Thursday to use about $195 million from Michigan’s savings account to help shore up bankrupt Detroit’s pension funds and prevent the sale of valuable city-owned art, as long as the state has continued oversight over city finances for decades to come.
The aid would be paid in a lump sum and is meant to join contributions from private foundations and the Detroit Institute of Arts as part of Detroit’s strategy for exiting the largest public bankruptcy in U.S. history. The plan has backing from legislative leaders and Gov. Rick Snyder, but its passage is no sure bet in a bailout-averse, Republican-controlled Legislature.
The bipartisan 11-bill package in the House incorporates parts of the restructuring plan proposed by Detroit’s state-appointed emergency manager but also adds extra conditions.
A seven-member commission that would include the governor and Detroit’s mayor along with other state leaders and appointees would oversee the city’s finances, budgets, debt issuance and revenue estimates for at least 20 years after emergency manager Kevyn Orr is gone.
The proposed commission is modeled after long-standing state oversight of New York City, which had a fiscal crisis in the 1970s.
The panel could nullify city contracts above $750,000, along with labor contracts. The city couldn’t give new hires better benefits than state employees have, and new employees would be switched from a pension plan to a 401(k) plan once recently negotiated five-year collective bargaining agreements expire.
It wasn’t immediately clear what effect the move would have on the pension funds in the long run, given that fewer employees would be participating.
While Orr’s plan requires the preservation of a 10-year millage in Wayne, Oakland and Macomb counties to support the art museum, the legislation would prohibit its renewal in 2023. The museum gets $23 million a year from the property tax.
House leaders outlined the bills to rank-and-file members late in the day.
“There’s certainly concern about the (state) money. But there’s also concern about making sure that this never happens again,” said House Speaker Jase Bolger, R-Marshall. “Right now, I think our members are trying to wrestle with that balance. There was a lot of interest in a concept of a settlement, and that’s what this is.”
Bolger has said in the past that unions should also contribute to the settlement; he hasn’t pegged a specific amount. He said Thursday that “it would be very difficult to see how we move forward without their participation.”
Snyder, a Republican, said the legislation would help to more quickly resolve the bankruptcy so that Detroit is known for its “renewal” and not its struggles.
The state’s saving account, called the Budget Stabilization Fund, which now has $580 million, would be repaid with annual $17.5 million withdrawals from Michigan’s tobacco settlement over 20 years.
That would save about $40 million in financing costs, said Rep. John Walsh, R-Livonia, who will lead legislative hearings starting Tuesday, when Orr is expected to testify.
The legislation would provide for a separate investment committee to oversee Detroit pension funds.
“If there (are) periods of time of fiscal health and reporting and compliance, the committee could go dormant. When the reporting shows there’s a problem again, the committee could reactivate,” Walsh said of the panel that would handle city finances.
Walsh plans to hold two to four committee hearings on the bills and then call a vote in two weeks, if there’s enough support.
Under recent deals, police and fire retirees wouldn’t lose pension benefits, but their annual cost-of-living allowance would be trimmed to 1 percent. Other city retirees would see a 4.5 percent pension cut and the elimination of cost-of-living payments.
No money from the state, foundations or the DIA would be given if 30,000 retirees and city employees reject the pension changes after ballots go out this month. Detroit’s bankruptcy plan would have to be approved by Judge Steven Rhodes by the end of September.
Rep. Fred Durhal Jr., D-Detroit, has called for some state oversight of the city post-bankruptcy. He declined to weigh in Thursday, though, saying he wanted to read the specifics of the legislation. But he added: “I’m still very positive about us being able to do this. I think it’s something that absolutely needs to be done,” Durhal said.
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