01.22.14

The Fine Art of Negotiating. Gov. Rick Snyder has scheduled a press conference for today to discuss a potential $350 million framework he has worked out with members of the Michigan legislature to help protect Detroit pensioners and the Detroit Institute of Arts (DIA) collection from ongoing municipal bankruptcy proceedings. The potential, unprecedented twenty year financing package would be the result not only of intense, bipartisan negotiations by the Governor with Michigan House and Senate leaders—which the leaders were testing with their respective caucuses, but also with the museum’s leadership—where Governor Snyder has been seeking $100 million to augment a state contribution and $330 million from nine foundations. The state proposal appears to have emerged from Gov. Snyder’s proposed state commitment of up to $350 million over 20 years—an amount that would approximately match the $330 million in commitments from national and local foundations announced earlier this month under a plan brokered by Chief U.S. District Judge Gerald Rosen, who U.S. Bankruptcy Judge Steven Rhodes asked to serve as a mediator in the Motor City’s municipal bankruptcy negotiations. A spokesperson for the Governor yesterday stated: “We’re interested in continuing discussions and dialogue and seeing if there might be a way to protect the retirees, while putting in place safeguards to make sure Detroit makes better financial decisions moving forward.” The state’s contribution, reportedly, would come from the state’s tobacco settlement fund or some other source not tied to annual tax revenues, thereby avoiding being subject to annual appropriations. Any deal is intended to help protect Detroit retirees from cuts to their pensions as part of a bankruptcy settlement and avoid a sell-off of art at the city-owned DIA. As part of any agreement, the DIA would be spun-off from city control into an independent nonprofit. The DIA also is widely expected to contribute to the rescue fund, but the specific terms — including the overall total and time frame — remain in the ongoing negotiations coordinated by Judge Rosen. The bipartisan negotiations in the legislature and with the DIA have been complicated by the DIA’s own goal of hundreds of millions of dollars in endowment funds over the next decade, plus $12 million annually for operations. Meanwhile, some state legislators have made clear that they want greater public access to DIA artwork around the state (DIA officials yesterday released a statement rejecting an idea floated in some news media reports that it consider charging admission to residents of Macomb, Oakland, and Wayne counties―the DIA promised free admission in exchange for passage of the tri-county property tax passed in 2012 that funds the museum. “Under no circumstances will we alter the free general admission policy,” the statement said.), and greater state control over how Detroit’s General Retirement System is managed as part of any agreement involving state money. Any final agreement would be subject to approval by U.S. Bankruptcy Judge Steven Rhodes—who today is scheduled to consider a motion by a group of creditors to establish an independent committee to assess the value of the DIA’s property, a potential step toward the sale of art to help reduce Detroit’s debt.

Plop, Plop, Fizz, Fizz, oh What a Relief It Is…Amy Aguer, the Finance Director for Desert Hot Springs has informed the city council the city will most likely avoid re-entering municipal bankruptcy; rather the Golden State city could end the fiscal year with more than $200,000 in available cash. The r-o-l-a-i-d-s statement in the wake of a turbulent period after the Council last November, as part of a process to avoid bankruptcy, declared a fiscal emergency and has since sought to produce enough cash by June to pay city employees, while also making good on other contractual obligations, such as the city’s contract with the Riverside County Fire Department. Desert Hot Springs is projected to spend more than $17 million this fiscal year, while bringing in about $14.1 million in revenues, according to revised budget figures; but Ms. Aguer has since advised that the projected $3.1 million gap has been closed, and she expects the city will end the fiscal year with more than $200,000—telling the Council the needed funding was derived from “salary and benefit concessions” made by the city’s various labor groups and other contract savings that were recently identified. The council will still need to adopt a balanced budget for fiscal year 2014-15 to reflect the changes that have already been made. In addition, Director Aguer said the city will also need to continue to grow its anticipated cash fund to $1.5 million by June 30, which will be used to pay city employees and maintain city contracts. Interim City Manager Bob Adams said that staff is recommending a zero-based budget approach for the next fiscal year and is working to rebuild each city department’s budget from the “ground up.” He said city leaders and department heads are continuing to carve out additional funding cuts in order for the city to provide adequate services to its residents. To date, the City Council has approved several cuts, including immediately freezing cash payouts for unused vacation time for non-union city employees, halting all citywide expenses for travel and cutting almost all city employee and police salaries by more than 20 percent. Two of the police department’s highest-ranking officers also decided to retire less than month after the city declared a fiscal emergency, helping city staff find the savings the city needed. Public safety is the city’s biggest expense, consuming some 70% of the city’s operating budget.

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