01.27.14

The Delicate Challenge of Balancing. In his exhortation from the bench last Wednesday, U.S. Bankruptcy Judge Steven Rhodes exhorted the Motor City, the unions and retirees, and the city’s financial creditors to participate in productive negotiations, warning that “profound change” might be needed in pensions, health care benefits, union deals, and bank debt. Judge Rhodes, who plays rhythm guitar in his classic rock band, The Indubitable Equivalents, is pressing for syncopation in recognition that the city’s insolvency perforce means there are insufficient resources to make the city’s creditors whole. His musical éclat appears to be gaining some rhythm now, with the bipartisan initiative by Michigan Governor Rick Snyder and foundation supporters of the Detroit Art Institute—and then late last week, Terri L. Renshaw, chair of the Official Committee of Retirees, a committee representing Detroit’s 24,000 retirees, released a statement applauding the efforts led by Gov. Snyder and Republican and Democratic state lawmakers to contribute $350 million over 20 years to help resolve the nation’s largest municipal bankruptcy in history: “We appreciate the efforts of the governor, the mediators and the foundations on behalf of the retirees…We are hopeful that the governor’s settlement proposal can be structured to benefit the city’s retirees, and, along with other developments, will lead to an overall resolution to limit the devastating impact faced by retirees and their dependents who live on fixed incomes and are in dire need of continuing health care benefits.” Perhaps more importantly, Ms. Renshaw warned: “Retirees should be aware, however, that these proposed contributions, unless augmented, will not eliminate the significant pension benefit reductions sought from individual retirees by the city.” The statement marked a commitment to fighting pension and health care cuts “to the maximum extent possible,” but a change from previous federal court testimony, when retirees testified they would have never accepted pension cuts before Chapter 9.

Meanwhile, in state capitol Lansing, notwithstanding the frigid temperatures, the thaw seemed pervasive: Michigan Senate Majority Leader Randy Richardville (R-Monroe) said he did not believe it would be a difficult climb to get to the 20 votes needed in the Senate to pass a financial package for the city: “I think this is a good proposal, and you’ll find a lot more people are supportive of it than some of the other things we’ve done…When we’re done with this, I think you’ll find it will be a financially responsible use of taxpayer dollars for pensioners and retirees who don’t necessarily live in Detroit but in other parts of the state, too. And this might be a good investment and avoids the potential of a $3.5-billion problem if we don’t solve it.”

Financial Emergencies.  Michigan Treasurer Kevin Clinton last Friday announced that the municipalities of Royal Oak Township and Highland Park have been determined be in a state of financial emergency―triggering a ten-day review window for Governor Rick Snyder to consider the reports and reach a determination on the respective cities’ financial conditions. Each is within the Detroit metropolitan area: Highland Park, located in Wayne County, has been under state control before; the Highland Park School District is already under emergency management. Royal Oak Township is located in triple-A rated Oakland County. Under Michigan’s emergency law, the review period marks the first step toward a possible state takeover or even filing for municipal bankruptcy. The state appointed the review teams last month in the wake of a preliminary analysis that indicated “probable financial stress” existed in each community. Highland Park experienced a 126% increase in the negative fund balance in its water and sewer fund in 2013, even as the state reported its officials have been unable to issue timely or accurate water and sewer bills. As of the end of last October, Highland Park owed about $19.5 million to various vendors, including $101,000 to the state of Michigan for principal and interest on outstanding emergency loans. The state team in Royal Oak determined that audit reports for the last three years showed variances between revenues and expenditures, with actual general fund revenues coming in short for two of the three years. In addition, they reported that township officials failed to adopt a budget for the current fiscal year that began on Jan. 1, 2014, according to the treasury department.

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