Bolger (Courtesy: Michigan Legislature)
For decades, politicians for the city of Detroit and its pension boards made promises that could not be kept, and in some cases mismanaged taxpayer funds. Because Detroit is a legal subset of the state, the state bears some shared responsibility for these decades and its lack of oversight. That is why, through the emergency manager law, we sought to prevent this from happening again. All taxpayers face the risk of Detroit’s unfunded liabilities. Attorney General Bill Schuette has argued that the $3.5 billion in pension liability cannot be reduced.
This begs the question: Who would be forced to pay this tab? We cannot ignore a potential $3.5 billion threat to our kids’ and grandkids’ futures.
If this case were not settled, the proceedings and litigation would go on for many years. The legal fees for the first year alone hit $36 million. Many more years would mean many more millions. A “loss” in the bankruptcy case would cost taxpayers well over $3.5 billion in debt and well over $50 million in legal fees.
A full bankruptcy “win” for taxpayers would still cost those legal fees but resulted in a “cram down” of pensions and retirement benefits by the court. But this would inflict great harm to the honest men and women who dedicated their careers to Detroiters. This cram down of pensions could force thousands of Detroit retirees onto the taxpayer-funded social safety net, with a cost of $275 million to taxpayers over the next 20 years.
With the settlement plan approved by the House, taxpayers would settle the case and risk of liability for $195 million.
Full bankruptcy also would not have allowed for the long-term oversight and reform that accompanies the settlement. The long-term oversight will respect Detroit’s self-governance while protecting taxpayers, providing Detroit, like New York, the opportunity to exit active oversight through responsible leadership. For example, heading into bankruptcy, taxpayers were paying 40 percent on top of payroll toward pension promises; after the settlement, taxpayer funding will be limited to seven percent of payroll.
Detroit residents are Michiganians. And while legislators are elected by districts we are responsible for governing for all residents of the state. While it would be easy to point fingers and cast blame, and politically expedient to pit Detroit against the rest of the state, the people of Michigan deserve solutions over politics and results over posturing.
Thankfully, rather than partisan and geographic bickering, support for this plan comes from many sectors, with various groups coming to the table to forge a settlement to Detroit’s bankruptcy and a brighter future for our state. Nonprofit foundations came forward with a pledge of $366 million. The Detroit Institute of Arts pledged $100 million. The Building and Trades unions and UAW have joined these leadership efforts and pledged over $5 million to help retirees.
With the state’s contribution of $194.8 million, all of these groups will provide more than $800 million to help settle the unfunded liabilities, and help pensioners receive retirement income with reductions of approximately four percent instead of 27 percent.
The successes and failures of each municipality in Michigan and the people who live and work there are intrinsically linked. The full state of Michigan has felt the failures of Detroit, and residents all over Michigan will benefit from the coming success of Detroit.
It is frustrating to be left to deal with something that has gone unresolved for decades. But, Gov. Snyder had the courage and vision to face these challenges head-on. Judges Rosen and Rhodes are marshaling through the most complex challenge ever presented in bankruptcy court. Reps. John Walsh, R-Livonia, and Tommy Stallworth, D-Detroit, demonstrated the determination and pragmatism needed to forge a full solution.
State Rep. Jase Bolger, R-Marshall, is speaker of the House and represents Michigan’s 63rd District.