The Detroit Institute of Arts in Detroit (John T. Greilick / The Detroit News)
Lansing — Senate Majority Leader Randy Richardville said Thursday he’s “cautiously optimistic” the state of Michigan could contribute millions of dollars to a fund to bolster Detroit’s underfunded pensions and shield the city’s art collection from a bankruptcy fire sale.
A plan floated by Gov. Rick Snyder to lawmakers Wednesday would have the state commit as much as $350 million over 20 years to match financial pledges exceeding $330 million from nine private foundations to keep the art in Detroit and infuse cash into the pension funds, multiple sources briefed on the plan told The Detroit News.
Foundations and private donors have been pressuring the Snyder administration and Republican-controlled Legislature to help rescue the Detroit Institute of Arts’ city-owned masterpieces from a sale to satisfy unsecured city creditors owed an estimated $11.5 billion.
“I think people would be most understanding if we’re talking about protecting pensioners versus bailing out a city ... that couldn’t control its spending,” Richardville said in an interview. “This is no way, shape or form a bailout, giving money, charitable donations.”
House Speaker Pro Tem John Walsh, R-Livonia, also was optimistic Thursday the state could play a role in “softening the blow” to retirees who face the prospect of deep cuts in pension checks and health insurance benefits in Detroit’s bankruptcy.
“I’m hoping all of the stakeholders agree it’s best to resolve the bankruptcy quickly instead of having” protracted litigation, Walsh said.
The plan also got a general endorsement from Democratic Rep. Rashida Tlaib, who represents southwest Detroit.
“I’m fully in favor of anything that will protect the men and women who worked for the city for so many years,” Tlaib told The Detroit News. “Protection of the pensions is critical for fair and moral reasons.”
Snyder spokeswoman Sara Wurfel said Thursday the Republican governor held closed-door caucus meetings Wednesday with Republicans and Democrats “to start a dialogue and discussion with lawmakers” about state support of Detroit.
It was unclear Thursday whether Snyder would publicize the Detroit proposal during his fourth State of the State address tonight, though he is expected to give a status report on efforts to revitalize Michigan’s largest city. The speech begins at 7 p.m. during a joint session of the Legislature.
Since Detroit filed the largest municipal bankruptcy in U.S. history in July, the fate of pensions for 23,500 retirees and thousands of current employees has been one of the most contentious issues in the case.
When he authorized the bankruptcy filing, Snyder declined to shield the pensions from any potential cuts in the city’s debt-cutting process.
In declaring Detroit eligible last month for relief from its creditors, U.S. Bankruptcy Judge Steven Rhodes ruled retirement benefits are like any other contract that can be canceled in federal bankruptcy court.
Rhodes ruled federal law overrules the state’s constitutional protection of earned pension benefits, an argument Snyder’s emergency manager, Kevyn Orr, has been making since mid-June. Some legal experts have predicted the pension issue could end up before the U.S. Supreme Court, adding millions of dollars to the city’s legal bills.
Former U.S. Rep. Mark Schauer, this year’s presumed Democratic challenger to Snyder, said Thursday the governor has created a crisis for lawmakers by not exempting pensioners from the pain of bankruptcy.
“To punt it and leave it up to the federal bankruptcy court is not just shirking responsibility, but is violating the state’s constitution,” Schauer, D-Battle Creek, told reporters. “Rick Snyder started this fire and should put it out.”
In discussing Snyder’s plan in broad terms, one mid-Michigan Republican senator expressed concern about helping Detroit when there are growing needs for roads, schools and underfunded pension funds in Wayne County and other financially troubled cities.
“I think we have other areas of the state that are in danger of going bankrupt, and I’m reluctant to set a precedent,” said state Sen. Rick Jones, R-Grand Ledge.
Plan tied to tobacco money
Richardville and Jones would not disclose specifics of the plan Snyder pitched to the Senate GOP caucus.
But sources told The News the state could tap into a $250 million annual fund from the 1998 settlement with tobacco companies over smoking-related illnesses to finance the state’s commitment to the DIA and city pensions.
“I think that would be most palatable,” Richardville said of using tobacco settlement money.
According to a Senate Fiscal Agency analysis, Michigan has tied up its expected tobacco settlement money through the 2015-16 budget year. It has committed to payments on $1 billion in bonds to create funding for the 21st Century Job Jobs Fund, an economic development program created under former Gov. Jennifer Granholm and operated through the Michigan Strategic Fund; and debt service on a $415-million advance securitized to help balance the 2006-07 state budget.
The fiscal agency says additional money from tobacco settlement funds would become available in the 2016-17 fiscal year if state use of the money to bolster the 21st Century Jobs Fund ends as scheduled that year.
Annual payments to Michigan from tobacco companies once exceeded $300 million, but have declined in recent years owing in part to lower cigarette sales.
The state received $256 million in fiscal 2012-13, according to the fiscal agency.
The payments, which began in 2000 and continue in perpetuity, result from a 1998 master settlement between 46 states and four major tobacco companies over claims of costs for treating tobacco-related diseases. Other tobacco companies subsequently joined the settlement.
Richardville: Will unions contribute?
Richardville also suggested labor unions chip into the fund to bolster pensions for their members.
The Monroe Republican said the state has an interest in protecting the DIA’s cultural assets and suggested the Detroit collection could be shared with other museums across the state to get more buy-in from out-state legislators.
“I understand how important the DIA is to the culture of the city of Detroit,” said Richardville, who sponsored a bill last year that would prohibit any sale of the DIA’s collection.
Walsh, the No. 3 House leader, said he wants any state support to be part of a “grand solution” to settle quickly the bankruptcy with creditors.
Richardville said resolution of Detroit’s chronic budget deficits would be necessary to get his conservative members’ support.
“My caucus would want to be assured that this is a long-term solution and not a Band-Aid,” Richardville said.