Michigan House Approves Detroit Bankruptcy Funds

Michigan's Republican-led House approved spending $195 million to help prevent steep cuts in Detroit retiree pensions and the sale of valuable art, a measure that would link the state with a broader deal designed to end the largest public bankruptcy in U.S. history.

By a bipartisan 74-36 vote, the chamber approved legislation Thursday contributing 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.

A state-dominated board would oversee the city's finances for at least 13 years. The House passed 11 bills, which now go to the GOP-controlled Senate. The plan has the support of the Republican governor and legislative leaders, but its passage has been no sure bet in the bailout-averse, GOP-controlled Legislature.

"Choosing to do nothing means putting billions of debt and uncertainty on our kids and our grandkids," said Rep. Al Pscholka, R-Stevensville, who noted his district is closer to Chicago than Detroit. "Michigan and southwest Michigan are in a strong position by settling this matter, by settling this bankruptcy."

The legislation would transfer $194.8 million from Michigan's savings account to an authority that would disburse the money to Detroit's two retirement systems, if the bankruptcy judge approves a restructuring plan resolving the city's debts and other conditions are met.

The up-front state payment, the equivalent of $350 million spread over 20 years, would come from the state's rainy day account - called the Budget Stabilization Fund, it now contains $580 million - and would be repaid with annual $17.5 million withdrawals from Michigan's tobacco settlement over 20 years.

Bond insurers have pointed to the art as a possible billion-dollar source of cash in the 10-month-old bankruptcy case. But the city firmly opposes that and instead is banking on the separate deal brokered by mediators that would protect the art forever and soften pension cuts for thousands of retirees.

In voting against the bills, Democratic Rep. David Nathan of Detroit said he fears Michigan's "takeover" of the city could go on forever.

"This bill tramples on democracy," he said during debate. "I don't anybody in this room would accept what you are asking the citizens of the city of Detroit to accept."

After the votes, Republican Gov. Rick Snyder - a supporter of the "grand bargain" brokered by mediators in the bankruptcy case - hailed the House's bipartisan support for the legislation. Except for a largely party-line vote for a bill not allowing the art museum's three-county property tax millage to be renewed in 2022, the 10 other bills were passed on votes ranging from between 74-36 and 105-5.

Conservative groups such as Americans for Prosperity oppose the state payment as wasteful.

"One thing that could be important for (the Senate) to look at is the margins that this passed with, to say there's very strong support for it," Snyder said.

By backing the deal, the governor and legislators are hoping to avoid a protracted bankruptcy and putting city retirees potentially into poverty, costing the state an estimated $270 million in social safety net costs over 20 years.