Gov. Rick Snyder called for his fellow Republicans in Michigan to join him in allocating up to $350 million in aid to retirees impacted by Detroit's bankruptcy crisis.
"This is a settlement, this is not a bailout," Snyder said at a press conference held in his Lansing office Wednesday afternoon. He was flanked by state Senate Majority Leader Randy Richardville (R-Monroe) and House Speaker Jase Bolger (R-Marshall), who both expressed their support for the deal.
Snyder's plan calls for the state to pay up to $350 million over 20 years to help shore up Detroit's two pension funds. He suggested that the money could be drawn from an annual $250 million payment the state receives from a 1998 settlement with tobacco companies, the Detroit News reports, although the governor said more details would be forthcoming.
The announcement follows on the heels of $330 million in commitments from numerous philanthropic organizations that have been pledged during Detroit's bankruptcy mediation process, although details have been scarce due to confidentiality requirements. The funds from foundations would also be used to protect the city-owned art collection at the Detroit Institute of Arts.
"This is not geared toward bondholders, banks or people on Wall Street," Snyder added, arguing that the "significant contribution of resources" would help solve Detroit's problem of "how to minimize the impact for lower-income retirees."
He also called for several conditions that Detroit must meet to receive the money, including reaching an official bankruptcy agreement and "independent fiduciary management" of the city's pension funds.
A statement from the U.S. Bankruptcy Court mediators said the governor will try to gain support for the plan within the state legislature.
"We hope that the governor's announcement will further assist the parties in reaching as many agreements as possible which can be included in an agreed-upon plan of adjustment," the mediators said in the statement, reported by Reuters.
Both houses of Michigan's legislature are controlled by Republicans, who may see the idea of bailing out Detroit in any way as a tough sell. Some Republican lawmakers in Michigan are already voicing their disapproval for sending any aid Detroit's way.
“We should not be targeting a bailout for Detroit. ... Otherwise, we’re just rewarding bad behavior," Sen. Patrick Colbeck (R-Canton Township) told the Detroit News.
But Bolger said in a release accompanying Snyder's Wednesday announcement that directing settlement money to pensioners is the right thing to do.
“I won’t cut off taxpayers’ noses to spite Detroit’s face, but I also will not ask the state’s taxpayers to make a bad investment. That’s why we must look at how we can work together to move Detroit out of bankruptcy as quickly as possible," he said.
Detroit's two pension funds for workers are underfunded by $3.5 billion, according to Kevyn Orr, the city's emergency manager, though that sum is disputed by the city's unions and pension fund managers. Orr said he'll have an official plan to guide the city out of Chapter 9 bankruptcy by mid-February after originally promising to deliver that roadmap this month.
Also on Wednesday, Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case, denied a request from Detroit's creditors to establish an independent committee to assess the value of city-owned works at the Detroit Institute of Arts, the Detroit Free Press reports.
One settlement that would have put a financially-devastating deal between Detroit and several big banks to rest was rejected last week by Rhodes. "It's just too much money," he said about the deal that would have forced Detroit to pay those banks $169 million.
Snyder's proposed $350 million aid package could help put a decades-old disagreement between Detroit and the state government to rest. Back in 1997, then-governor John Engler and Dennis Archer, then-mayor of Detroit, made a "handshake deal" to deliver hundreds of millions of dollars in revenue sharing to the embattled city if it dropped its high income tax rates.
But as the state's economy worsened, Michigan cut its revenue sharing agreements to cities like Detroit. According to that deal, the state owed Detroit at least $220 million in revenue sharing payments that it never paid. It's become a sticking point with many Detroiters who wonder why they'd trust the state government to keep their end of the deal this time around.
Democrats in the legislature expressed hope that discussions would continue to move forward.
“I am pleased that the needs of the people of Detroit have transcended party lines and personal politics and we are all working to protect retirees’ pensions as well as the city’s cultural assets,” said state Senator Tupac Hunter (D-Detroit) in a statement. “I strongly support the efforts of Chief Judge Rosen, the foundations, Governor Snyder, Senate Majority Leader Richardville and Speaker Bolger to reach a compromise that addresses the city’s financial concerns without disregarding its residents, and properly recognizes the impact of Detroit’s stability and success on the entire state."