(Recasts; adds background, details on bills, statement from
Detroit emergency manager, House debate on bills)
May 22 Detroit's plan to adjust its debts and
exit bankruptcy as soon as this fall got a boost on Thursday
when the Michigan House of Representatives approved a package of
bills that includes state money to aid the city's retirees.
Under the so-called grand bargain in Detroit's debt
adjustment plan, Michigan's nearly $195 million lump sum
contribution, along with $466 million pledged over 20 years by
philanthropic foundations and the Detroit Institute of Arts
would be used to ease pension cuts for city retirees. The deal
would also protect city art works from being sold to raise money
to pay city creditors and includes commitments from two unions
to raise money for retiree healthcare costs.
All of the contributions are contingent on each other and on
members of Detroit's two retirement systems agreeing to accept
minimal cuts to their pensions to help the cash-strapped city
deal with $18 billion of debt and other obligations.
The legislation approved by the Republican-controlled House
would allow Michigan to take the money out of its rainy day
fund. The money would be paid back to the fund over time from
Michigan's share of a national settlement with U.S. tobacco
The bills also create a nine-member oversight panel that
would stay active until Detroit meets certain financial
thresholds and require the city hire a qualified chief financial
officer and submit four-year financial plans. The 11 bills now
head to the Republican-controlled Senate.
Kevyn Orr, Detroit's state-appointed emergency manager, said
the House's action brought the city "a crucial step closer" to
protecting pensions and exiting the biggest municipal bankruptcy
in U.S. history.
"The state of Michigan's willingness to participate in a
negotiated settlement that will limit financial impact to the
city's two pension funds and protect the city-owned treasures at
the Detroit Institute of Arts is a critical component to the
city's proposed plan of adjustment," Orr said in a statement.
Ahead of the voting, some Republican and Democratic
lawmakers said unless the state participates in the settlement,
Michigan could be hit with big legal and social service costs in
the wake of larger pension reductions.
But State Representative David Nathan, a Detroit Democrat,
argued that the legislation "tramples on democracy."
"I do not trust this will work out for the betterment of my
community," he said.
A special, bipartisan House committee initially approved the
bills on Wednesday.
U.S. Bankruptcy Judge Steven Rhodes has set July 24 for the
start of a hearing on Detroit's debt adjustment plan to
determine if it is fair and feasible.
(Reporting by Karen Pierog; Editing by Meredith Mazzilli and