COMMENTARY

A light shines at the end of Detroit’s fiscal tunnel

4/25/2014

DETROIT — Suddenly, for the first time since Detroit’s dreary bankruptcy process began last year, there seemed a real chance that the city might emerge from its fiscal woes in a way that didn’t leave pensioners penniless, or destroy the Detroit Institute of Arts.

Nothing is certain. The process could easily break down, and creditors could yet come after the museum’s art.

Everything depends on the GOP-controlled Michigan Legislature, which has been anything but friendly to Detroit. For the deal to work, lawmakers will have to contribute $350 million to shoring up city retirement coffers. That will not be an easy sell.

First the good news. The office of Detroit emergency manager Kevyn Orr announced April 15 that the city had reached agreement with negotiators for both major city pension funds.

Previously, Mr. Orr had indicated that most retirees faced benefit cuts of 26 percent — and worse if they attempted to fight the city’s offer. Police officers and firefighters would see a smaller cut in their pensions, because their fund is in better shape.

In the end, the deal turned out to be vastly better for the city’s 32,000 pensioners. Public safety retirees will face no pension fund cuts, though they agreed to cap cost-of-living adjustments at 1 percent. Negotiators for former employees covered by Detroit’s general retirement system agreed to a 4.5 percent cut.

However, the agreement depends on a grand bargain that has been backed by Michigan Gov. Rick Snyder. That bargain calls for a special pool of money — more than $850 million — to be created to shore up the pension funds and save the city-owned art museum.

The terms of the complex deal call for the money to be raised from three major sources. The pension funds would then agree to drop lawsuits against the city and accept the cuts.

The pensioners would not object to the Detroit Institute of Arts being spun off from the city into a separate entity that would be safe from the city’s creditors, some of whom insist they want art sold to satisfy their claims. Financial experts say any attempt to sell the art would be certain to spur lawsuits and ruin the museum’s attempts to raise funds, probably forever.

These arrangements would have to be approved by U.S. Bankruptcy Judge Steven Rhodes, who has hinted that he would not approve pension cuts he found to be too harsh.

Private foundations reportedly have done their part, pledging more than $400 million toward the settlement. There seems to be little worry that supporters of the DIA will fail to come up with their promised $100 million in pledges.

But the Legislature also needs to come up with $350 million. The Republicans who control that body are not known for their sympathy to Detroit or its problems.

Governor Snyder, whose main theme has been trying to attract new business to rebuild Michigan’s economy, supports the grand bargain. He has repeatedly argued that the state needs a healthy and functional Detroit to seem like a good place to do business.

But his fellow Republicans in the Legislature don’t all feel that way. Some think Detroit and its problems have nothing to do with them, or their constituents. Many see the city as a hellish place, brought low by corruption and bad management.

Other lawmakers may fear punishment from GOP primary voters if they are perceived as using tax dollars to help Detroit.

House Speaker Jase Bolger may be one of these. He comes from an affluent town on the state’s western side. Last week, he said he wouldn’t allow a vote on the Legislature’s share of the bargain unless Detroit unions agreed to “material” economic sacrifice as well.

But the speaker refused to say how much that might be. Nor did he say whether he would agree to the deal if unions somehow agreed to kick in money they may not have.

This gambit may be an attempt by the GOP leader to sabotage the bargain without paying a political price, by provoking the unions to torpedo the agreement. Or it may be political posturing before an eventual agreement.

The governor has every incentive to get this done. He faces what may be a tough re-election challenge in November. Mr. Snyder has a strong interest in having Detroit’s bankruptcy done, or nearly so, before voters head to the polls.

And Mr. Orr is expected to be gone by the end of September. But both events are still a long way away.

● On a personal note, I apologize to any readers who got spam email messages from me last weekend. My account, unfortunately, was hacked.

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade’s ombudsman, writes on issues and people in Michigan.

Contact him at: omblade@aol.com