Detroit bankruptcy plan faces key vote by Michigan state committee

Tue May 20, 2014 5:16pm EDT

A woman walks through the Midtown neighborhood of Detroit, Michigan December 3, 2013. REUTERS/Joshua Lott

A woman walks through the Midtown neighborhood of Detroit, Michigan December 3, 2013.

Credit: Reuters/Joshua Lott

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(Reuters) - Detroit's plan to deal with $18 billion of debt so it can exit municipal bankruptcy faces a crucial test on Wednesday, when a panel of Michigan state lawmakers votes on legislation, opposed by some conservatives, to provide state funding for the city.

A special Michigan House committee on Detroit's Recovery and Michigan's Future began hearings last week on a package of bills authorizing a $195 million lump sum contribution by the state, and creating of an oversight commission for the city.

The state's contribution is a key component of a so-called grand bargain that includes $466 million pledged by philanthropic foundations and the Detroit Institute of Arts to help ease pension cuts for city retirees and avoid a sale of artwork to pay creditors.

But Americans for Prosperity-Michigan, a conservative group backed by billionaire industrialists Charles and David Koch, is revving up a campaign against using state money to help Detroit.

Scott Hagerstrom, the state director of the group, said Detroit, already the top city recipient of state revenue sharing, should be selling assets such as art rather than looking to Michigan for a bailout.

"We want to make sure citizens are fully aware of where their legislators stand on this legislation," he said.

Meanwhile, U.S. Bankruptcy Court-appointed mediators announced late on Monday that the Michigan Building and Construction Trades Council will also participate in the debt adjustment plan by making material contributions for retiree healthcare costs.

"It is hoped that other labor organizations will soon come to the table and support this effort to assist Detroit's retirees in meeting their health care costs," they said in a statement.

The mediators noted that all the contributions were contingent on each other. Without the money from the grand bargain, pension cuts to retired Detroit workers would increase and could force some to seek state assistance.

Michigan Republican House Speaker Jase Bolger has been pushing for monetary participation in Detroit's debt plan by public labor unions.

"Speaker Bolger supports Chief Judge Rosen in his call for more unions to come to the table as we work to resolve Detroit's bankruptcy and the big picture of how that is going to happen comes into focus," his spokesman Ari Adler said on Tuesday.

U.S. District Judge Gerald Rosen is the chief mediator in Detroit's municipal bankruptcy case, the largest in U.S. history.

At the House committee's hearing on Tuesday, Detroit Mayor Mike Duggan and City Council President Brenda Jones asked the committee to allow the city's council to appoint a representative to the planned seven-member oversight commission.

Under the initial legislation, the governor of Michigan and mayor of Detroit would serve on the commission, with state officials or state appointees making up the remaining members.

Duggan also presented the House committee with an update on efforts to deal with blighted properties and build new housing, noting that a major bank would be making an announcement.

The Detroit Free Press reported on Tuesday that JP Morgan Chase plans to invest $100 million in the city over five years to spur redevelopment, blight removal, and job training. The bank will also make money available for home loans.

A Chase spokesman would only say the bank will hold an event in Detroit on Wednesday.

(Reporting By Karen Pierog. Editing by Andre Grenon)

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