May 13 (Reuters) - Detroit’s emergency manager told a special committee of Michigan lawmakers on Tuesday that without state money, the city could be pushed back to “the starting gate of the bankruptcy process.”
Kevyn Orr, a former bankruptcy attorney who was tapped in March 2013 by state officials to run Detroit, said the state money was essential for the city’s debt adjustment plan, which aims to ease pension cuts and protect works at the Detroit Institute of Arts from being sold to pay city creditors.
The state’s $195 million lump sum contribution, along with $366 million pledged by philanthropic foundations and $100 million by the Institute, would be tapped for city worker pensions.
Without all of that money, pension cuts would be larger and litigation challenging those cuts would drag on, derailing hopes of wrapping up the city’s historic bankruptcy by early September, Orr said.
“We have an ambitious schedule. We have what we think is a reasonable plan. But to put it bluntly, we need your money,” Orr told the committee on Detroit’s Recovery and Michigan’s Future in the Michigan House of Representatives.
U.S. Bankruptcy Judge Steven Rhodes will begin on July 24 a confirmation hearing on Detroit’s plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history. The judge must ultimately determine if the plan is fair and feasible.
Orr said the money from the state, the foundations and the art museum has to be in place by the time ballots for voting on the plan, which were mailed on Monday to thousands of city creditors, including retirees and current workers, are returned by July 11. The three Detroit automakers said on Tuesday they were mulling a request by the museum to help raise its $100 million share of the deal.
Michigan would take the nearly $195 million out of its rainy day fund, paying it back over 20 years with proceeds from the state’s share of a national settlement with U.S. tobacco companies.
An 11-bill package introduced in the House last week also creates a seven-member commission to oversee the city’s finances, modeled after one put into place following New York City’s fiscal crisis in the 1970s.
Orr said some parts of the legislation will have to be tweaked to reflect settlements the city has with its two pension funds, some unions and other groups.
Committee Chair John Walsh, a Republican, said that by providing the money to Detroit pensions now, Michigan could prevent paying much more later if bigger pension cuts force some city retirees to seek state assistance. The committee has scheduled additional hearings on the legislation for Wednesday and Thursday. (Reporting by Karen Pierog; Editing by Dan Grebler)