05.21.14

Motor City Recovery & Future. The Michigan House Committee on Detroit’s Recovery and Michigan’s Future  voted unanimously today to authorize a $195 million state contribution to help shore up the Motor City’s pensions and outline post-bankruptcy oversight for the next 20 years, sending the 11-bill package to the full House—which could act as early as tomorrow. The special committee Chair, Rep. John Walsh, made clear: “We still have plenty of work to do.” In reporting the bill, the committee adopted a number of amendments, so that, as reported, the provisions would expand the state oversight board—which would oversee Detroit’s recovery for at least 20 years―to nine members instead of seven, and provide the Governor with two appointees and the Detroit City Council with one. The original proposal did not include a council appointee. The panel, the Michigan Financial Review Commission, will be chaired by the state treasurer. In response to Mayor Duggan’s testimony yesterday, the committee modified the Commission’s charge to clarify when it would become “go dormant,” effectively determining when the Motor City would be permitted to regain independent authority, and the committee agreed to drop a different provision requiring the city to earn at least an A-minus credit rating in order to trigger dissolution of the state oversight, amending the language instead to provide for the commission’s dissolution at the point in time in which Detroit could “prove to the commission that it can access the markets and repay the debt,” under Chairman Walsh’s amendment. Key provisions in the bill now include:

  • The committee agreed to an amendment to mandate that Detroit contribute no more than 7% of an employee’s base pay toward her or his pension or 401(k)-style retirement account—dropping the earlier version’s mandate to the city to shift all new employees to a 401(k)-style retirement plan.But the committee approved a controversial bill that would bar the Detroit Institute of Arts from asking tri-county voters to renew a 10-year, 0.2-mill property tax in 2022. The tax generates $23 million annually for the museum, which would be spun off from the city of Detroit to a private entity under its bankruptcy reorganization plan.
  • The $195 million state contribution, which will be given to the city in a lump-sum cash payment that officials expect to grow to $350 million over 20 years.
  • The legislation would bar the Detroit Institute of Art from seeking any future levies (the DIA currently relies now on a three-county property tax levy to finance its operations);
  • The commission would go dormant after three years if the city can prove it has three consecutive “deficit-free” budgets using generally accepted accounting principles, access to borrowing money in the municipal financial market and meets other criteria; but, in order to make the committee go dormant, the Motor City would also have to:
  • Not violate a bankruptcy court-approved debt-cutting Plan of Adjustment;
  • Produce financial projections showing balanced budgets for the current fiscal year and three years thereafter;
  • Contribute no more than 7 percent of an employees’ compensation to a retirement plan, be it a pension or 401K defined contribution plan;
  • Post city contracts on its website; and,
  • If after 10 years the city meets all of the fiscal benchmarks and does not fall back into the control of the state, the commission would be dissolved.
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