Lansing —The Michigan Legislature on Tuesday greenlighted the state’s participation in Detroit’s bankruptcy “grand bargain,” approving $195 million in aid for Detroit pensioners and long-term oversight of city finances.
Gov. Rick Snyder plans to sign the nine-bill package chipping in state tax dollars to a pool of $466 million in private funds to limit cuts to city pensions.
“It makes pensioners as whole as possible and protects the Detroit Institute of Arts from having its artwork seized and sold off,” state Sen. Tupac Hunter, D-Detroit, said on the Senate floor.
If the city’s debt-cutting plan is approved by a majority of city pensioners, the DIA art would be shielded from a fire sale in exchange for limiting reductions in monthly checks. Non-uniform retirees face a 4.5 percent cut if they approve the deal or at least a 27 percent cut if they vote it down before bankruptcy court ends voting on July 11.
“There’s really no value for someone to vote no,” Snyder said at a Capitol press conference. “They’re putting themselves at risk.”
The Senate’s passage of a nine-bill package tied to the pension aid capped a five-month push by Snyder and legislative leaders to try to resolve two of the most vexing issues in Detroit’s bankruptcy: cuts to pensions and Detroit’s vast art collection.
Lawmakers fear taxpayers could be left on the hook for a $3.5 billion pension liability if a court found Michigan’s constitutional protection of pensions leaves the state liable to pay the promised benefits. A federal bankruptcy judge has already ruled pensions can be cut.
“This was, in my mind, a very responsible vote,” Senate Majority Leader Randy Richardville, R-Monroe, said after his chamber passed the bills.
Chief U.S. District Judge Gerald Rosen, the federal judge who engineered the “grand bargain,” appeared at a press conference Tuesday evening with Snyder, Richardville, other lawmakers and Emergency Manager Kevyn Orr.
“I can’t help but think that today — and with the passage in the House — that we’ve set a template for how things can be accomplished in a political environment and in a non-political way,” Rosen said. “This is the third leg of the grand bargain.”
After the House passed the bills with huge bipartisan majorities May 22, Snyder began pressuring senators to quickly approve the package of bills because some 32,000 Detroit retirees have until July 11 to vote for or against the bankruptcy plan.
The Senate on Tuesday swiftly passed the bills — some with large bipartisan majorities — but left behind a controversial House bill that would have prohibited the DIA from seeking a tri-county millage renewal in 2022. The Senate did not amend the House-authored bills.
Senators voted 21-17 in favor of the pension aid bill. On a lopsided 36-2 vote, the Senate also passed a bill establishing at least 13 years of oversight of Detroit’s finances through a new state commission.
Sen. Pat Colbeck, R-Canton, and Sen. Coleman Young II, D-Detroit, cast the only “no” votes against the oversight bill.
Young, who was the only senator to vote “no” on all nine bills, said the oversight commission would legalize “inter-state colonialism” in the predominately African-American city that has been under state financial oversight since April 2012.
“It simply won’t do for my city, my friends, my neighbors, my constituents who will be put under the thumb of another body hand-picked by this administration to enact policies in their own best interests, not Detroit’s,” Young said.
Colbeck railed against tapping the state’s $580 million rainy day fund to infuse Detroit’s two pension funds with the $195 million, arguing it sets a bad precedent for the next Michigan city in financial trouble.
“We need to tighten our state spending, not break open the piggy bank,” Colbeck said.
Earlier Tuesday afternoon,the Government Operations Committee unanimously sent the bills to the Senate floor after just over an hour of public testimony. The Republican-controlled House approved the bills May 22.
$3.5M for health care
The $195 million in state funds would be pooled with $366 million pledged over 20 years by 12 regional and national foundations and $100 million the DIA has pledged to raise from its donors.
Rosen’s mediation team announced Tuesday the Detroit-based Skillman Foundation would contribute $3.5 million toward a Detroit retiree health care fund, which faces significant cuts.
Annie Patnaude, deputy director of Americans for Prosperity, testified against the bills, drawing a comparison to punishing her son and making Detroit take “responsibility for fiscal mismanagement, years of corruption.”
The conservative political group is advocating for a sale of Detroit’s art and other assets to repay pensioners and other creditors, Patnaude said.
“What’s more important: A painting on the wall or someone’s pension?” Patnaude said. “Detroit needs to give up some of its assets.”
Richardville, a longtime supporter of the DIA, pushed back at Americans for Prosperity’s advocacy for auctioning off the 60,000-piece art collection, arguing it may not be legal.
“This quick-and-simple, let’s sell the assets and take care of it just can’t happen,” Richardville said.
Duggan explains plan
Detroit Mayor Mike Duggan answered questions about Detroit’s bankruptcy plan in separate meetings with the Republican and Democratic caucuses.
“I disagree with most everything he had to say,” state Sen. Jack Brandenburg, R-Harrison Township, said afterward. “He stated emphatically that Detroit is assetless. That’s simply not true. There’s lots of assets down there.”
Brandenburg contends city-owned art, land, the water department and even parts of Belle Isle should be sold to make pensioners whole.
Richardville defended Rosen’s behind-the-scenes role in getting the bills up for a vote.
“I heard no lobbying from Judge Rosen whatsoever,” Richardville told reporters. “He explained the details. Now, of course, when you’re the architect, you’re going to be proud of the work you did and I think he is. But it wasn’t that he was trying to sell anybody.”
Police, fire retirees
Detroit’s debt-cutting plan calls for no base cut for retired police officers and firefighters, but a reduction in their annual inflationary raises from 2.25 percent to 1 percent.
The city proposes a base 4.5 percent cut for general retirees and the elimination of cost-of-living increases. Some members of the General Retirement System could see an additional cut of up to 15.5 percent if they received interest earnings on annuity savings accounts between 2003 and 2013 that exceeded actual investment returns.
Base pension cuts for general retirees could swell to 27 percent or higher if that class of creditors rejects the deal.