Michigan Senate approves $195 million for Detroit

6/3/2014

LANSING, Mich. — Michigan’s Senate approved today 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 nonprofit.

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 percent instead of as much as 26 percent.

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.