Michigan House Approves $195 Million for Detroit Settlement

A $195 million pledge to help Detroit settle its bankruptcy was approved by Michigan’s House of Representatives, putting the city closer to court-approved solvency.

The chamber sent a package of 11 bills to the Senate, where leader Randy Richardville has been a supporter of the contribution proposed by Governor Rick Snyder. The money is part of a plan to raise $816 million from the state, foundations and the city’s art museum to lessen cuts to Detroit pensioners and shield the art collection from a creditors sale.

The Republican governor’s party dominates the legislature. Without state money for the Democratic city, the court-mediated deal would likely collapse, leaving a plan by Emergency Manager Kevyn Orr to exit bankruptcy vulnerable to litigation and increasing the likelihood that U.S. Bankruptcy Judge Steven Rhodes would force creditors to take greater losses.

“By settling the Detroit bankruptcy, we save Michigan taxpayers billions of dollars,” Republican Representative Al Pscholka said during debate on the bills.

Detroit, home of General Motors Co. and once an industrial powerhouse, last year filed for the biggest municipal bankruptcy in U.S. history, citing $18 billion in debt, about half of it pension and retiree health-care liabilities. Its population has shrunk to about 700,000 from 1.8 million in 1950, its post-World War II heyday. Now, 38 percent of households are below poverty level, according to the U.S. census.

Union Assistance

Snyder had proposed giving $350 million to Detroit’s pensions over 20 years. The House chose a $195 million lump sum, which would come from the state’s surplus.

The 11 bills passed with overwhelming majorities, some with more than 100 votes out of 110 members. Afterward, Snyder praised House leaders.

“This is truly a bipartisan team effort that wasn’t about politics, but about stepping up to do the right thing for the people of Michigan,” Snyder said at a press conference. “This was an opportunity to say, ‘Let’s change the direction of Detroit.’”

The House vote came one day after a special panel approved the legislation, which would create a nine-member commission -- mostly state appointees -- to oversee Detroit’s finances for at least three years. The commission would be modeled after the financial control board that watched over New York City after its near-bankruptcy in 1975.

The bills would impose restrictions, such as limiting how much Detroit could spend on retirements.

Also yesterday, the United Auto Workers Union agreed to raise money to help pay retirees’ medical costs. Republican House Speaker Jase Bolger had demanded that unions contribute money for the bankruptcy settlement in return for a vote on the state’s contribution. On May 19, the Michigan Building and Construction Trades Council agreed to give cash toward the settlement plan.

Before it's here, it's on the Bloomberg Terminal.