Bankrupt Detroit may get Michigan bailout

Michigan Gov. Rick Snyder will announce a plan on Wednesday to commit state money to help shore up debt-ridden Detroit's pension funds and prevent valuable city-owned art from being sold during the city's bankruptcy.

Details have not been released, but the Republican governor scheduled an afternoon news conference with GOP legislative leaders in Lansing to get behind a proposal that would need approval from the Republican-led Legislature.

Snyder privately gauged support among lawmakers last week for a state commitment of roughly $350 million over 20 years. That would match more than $330 million in commitments so far from national and local foundations to bolster pension plans and block the potential sale of valuable pieces at the Detroit Institute of Arts.

$3.5billion pension shortfall

However, Detroit's debt estimated at $18 billion or more includes underfunded pension obligations of $3.5 billion and $5.7 billion for retiree health coverage. Snyder hasn't talked much publicly about any potential state aid to the insolvent city, partly because discussions between the city and its creditors with federal mediators are private.

Republican Senate Majority Leader Randy Richardville said he likes the proposal but cautioned that the full Senate is not yet on board. Richardville, who is from Monroe in the southeast corner of Michigan, said it would not be a "bailout of Detroit at all," but would rather help retirees who now live across the state.

• Detroit's fiscal problems are a wake up call for pensioners, Don Pittis writes
• A Detroit-style bankruptcy is unlikely in Canadian cities, experts suggest

"It does a lot to help people out, and I think it's worthy of consideration," said Richardville, who planned to attend Snyder's announcement with Republican House Speaker Jase Bolger.

Snyder was expected to meet behind closed doors with all Senate Republicans before his news conference on Wednesday; he met with their leadership last week.

Other options

Detroit's state-appointed emergency manager, Kevyn Orr, has said two pension funds are underfunded by $3.5 billion. A deal involving the state and charitable foundations would help retirees but probably would not cover all of their pensions.

Richardville declined to say if state aid also could be used to help with retirees' health care costs. He gave no timetable for potential legislative action, but said it would be "sooner rather than later."

"These are people that have earned a pension, have earned health care, and we're going to do what we can to help them out," Richardville said.

Plan faces opposition

It is politically tricky terrain. Some legislators are worried that state financial assistance to Detroit could set a precedent if other cities collapse, while others note that they have their own spending priorities elsewhere in the state. Election-year politicking also could come into play.

"It's going to be difficult because people around here count dollars very tightly," said Sen. Bert Johnson, a Democrat who represents part of Detroit. "Some very viable programs have been cut over the past three years."

Johnson said he wants to see specifics on how pensioners would be helped. He also wants assurances that control of pensions is vested with the city; Republicans have talked about outside oversight of what critics says are mismanaged funds.

"If this can be a major component of solving the bankruptcy and workers end up in a good position and the city of Detroit can walk away with a clean slate, it's something we have a responsibility to look at," Johnson said.

Mediators between the city and its creditors said in a statement that they hope Snyder's announcement will help the parties reach as many agreements as possible that can be included in a plan to take Detroit out of bankruptcy.

"The mediators acknowledge that the question of state participation will now move to the legislative process, and urge that all parties approach the issue with an open mind," they said.

Orr wanted to present a proposal this month to take Detroit out of bankruptcy, but the timeframe has shifted to February.