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Michigan Governor Proposes $350M For Detroit Pensions in Bankruptcy Deal

Wednesday, January 29, 2014
By Nora Macaluso

Jan. 22 --Michigan Gov. Rick Snyder (R) proposed that the state commit as much as $350 million over 20 years to help reduce losses for Detroit retirees and pension plans as the city goes through Chapter 9 proceedings.

Snyder, flanked at a Jan. 22 news conference in downtown Lansing by state Republican House and Senate leaders, characterized the plan as a “settlement” as opposed to a “bailout,” and said any aid would come with conditions, including a requirement for independent fiduciary management of the city's two pension plans.

“This is an incremental commitment to solve a problem,” Snyder said.

The announcement follows a pledge by a group of national and local philanthropic foundations to provide more than $330 million to fund Detroit pensions and preserve the Detroit Institute of Art's art collection (26 BBLR 114, 1/23/14). The Ford Foundation, Kresge Foundation and John S. and James L. Knight Foundation and others have set up a fund to collect additional contributions.

Tobacco Settlement
Funding for the state's portion of the aid could come from money Michigan received years ago from tobacco companies to settle claims or from a bond securitized by tobacco settlement dollars, he said. Using those funds would keep the aid out of the appropriations process, he said.

“The idea is not to harm other programs in order to do the settlement,” he said.

Snyder said the plan would help Detroit emerge from bankruptcy sooner rather than later, which “could have dramatic savings both in terms of dollars and time.”

Lawmakers will consider the plan “over the next few weeks,” Senate Majority Leader Randy Richardville (R) said. “There are some t's that need to be crossed, some i's that need to be dotted, but in general, I think it's something very positive,” he said at the news conference.

House Majority Leader Jase Bolger (R) said lawmakers need to “look at how we can work together to move Detroit out of bankruptcy as quickly as possible.” He said a “cash bailout” of the city would not be a workable solution, nor would a plan that would “burden taxpayers” with liability for Detroit's debts. “We are dedicated to working on this,” he said.

House Minority Leader Tim Greimel (D) said there isn't enough information to agree on the governor's request to expend state dollars, but he is encouraged by the willingness of Republicans and others “to have meaningful discussion on the situation in Detroit.”

“This is a complicated financial matter which will impact not only retirees and city residents, but the entire state and future generations. We owe it to all parties as we continue this process to practice the appropriate level of due diligence, and we look forward to continuing discussions,” he said.

Detroit Emergency Manager Kevyn D. Orr said in a statement that “the level of proposed investment by the philanthropic community and the state will go far in helping reach a timely and positive resolution of the City's financial emergency. A mutually agreed resolution to outstanding bankruptcy issues is the best way to help the city restore basic and public safety services to its 700,000 residents.”

Detroit filed for Chapter 9 protection in July 2013 (25 BBLR 1005, 7/25/13).

To contact the reporter on this story: Nora Macaluso in Lansing, Mich., at nmacaluso@bna.com

To contact the editor responsible for this story: Phil Kushin at pkushin@bna.com

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