Reuters reports the city of Detroit may get help from the state to deal with their $18 billion of debt and emerge from the biggest municipal bankruptcy in U.S. history. The money, however, will come with strings attached. The Michigan House of Representatives introduced legislation on Thursday which would outline the conditions and oversight which will be required for the state of Michigan to provide money to Detroit.
Money to save pensions depends on $816 million pledge
At issue is whether Detroit’s city officials will be able to keep their pensions or whether they will have to take massive cuts. As it stands, pensions cannot be saved without an estimated $816 million which has been pledged to ease the impact of pension cuts on retired city workers and to avoid a sale of city art work.
Some of the money has been pledged by Philanthropic foundations and the Detroit Institute of Arts, but the remainder must be collected from the state of Michigan. Michigan Governor Rick Snyder has asked lawmakers to approve more than $350 million in Michigan state money to cover the balance.
If approved by the Michigan legislature, Michigan would make one payment of $195 million, and spread the remainder of the payments out over the next few years. The governor has argued the money could be repaid to the state’s “rainy day fund” over the next twenty years from money generated from a national settlement with U.S. tobacco companies.
Michigan commission to track Detroit’s finances
The legislation would also allow a commission, made of seven members, to review and manage Detroit’s financial situation. This plan is similar to one imposed on the city of New York in the 1970s when the Big Apple was faced with a financial crisis.
The proponents of the commission argue that Detroit needs accountability and change. They also think the reforms could help “deliver long-term and long-lasting solutions.” No one knows for sure who would be included on the commission, but we do know it will not include state-appointed emergency manager Kevyn Orr, whose term is scheduled to end in September.
Other changes offered by the legislation include approval for all collective bargaining agreements with unions and an end to pension plans for city workers. Retirement plans would be converted to 401k plans, allowing the workers to invest some of their own money into their retirement packages.
The bill has support from both Republicans and Democrats, and many are encouraged that officials at the state level are willing to help pensioners. But this agreement also points to a level of scrutiny that most believe is needed to help the city in the future. Most believe the bill will move quickly during the coming weeks through a transparent committee process.
Unions continue their fight against Detroit pension plan
Detroit Fire Fighters Association and the Detroit Police Officers Association continue to struggle with the city and have not been able to reach an agreement. Those close to the struggle noted, “an agreement is unlikely in spite of exhaustive efforts by the parties and the mediators.”
Other unions such as the Detroit Police Lieutenants & Sergeants Association and the Detroit Police Command Officers Association have entered into tentative settlements with the city. Bond insurance issues also remain. Several groups are working with Kevyn Orr to finalize deals while others including Syncora Guarantee and Financial Guaranty Insurance Co have not made any agreements.
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