05.23.14

Motor City Recovery & Future. The Michigan House yesterday voted overwhelmingly to pass and send to the Senate the 11-bill package to provide oversight and a critical state contribution to help the City of Detroit emerge from bankruptcy. The legislation also authorizes a $195 million state contribution toward the city’s underfunded pensions.The special package governs everything from how the money will be transferred to setting up an oversight commission that will have control of the city’s finances, budgets and contracts for at least 13 years. Gov. Rick Snyder, who first proposed the aid package in January, urged the state Senate to quickly move on the package, noting the overwhelming support it received in the House: “It’s important for them to look at all the margins these passed…I would encourage the Senate to move promptly. It would be helpful to get it done quicker because people are voting…This settlement will allow us to more quickly resolve the bankruptcy issues, and create a solid, sustainable fiscal foundation to support Detroit’s continuing turnaround…Detroit is an important part of Michigan’s identity…Let the city’s resurgence show the world that Michiganders are standing together and growing stronger as we accelerate our continuing comeback.”  The House vote on the main bill, which spells out the oversight provisions of the Motor City attached to $194.8 million the state could send to Detroit to help ease cuts to pensioners and protect artwork at the Detroit Institute of Arts from sale, passed by a 103-7 vote, with unanimous Republican support and 43 of the 50 Democrats. Rep. John Walsh, R-Livonia, who shepherded the bills through the House of Representatives, stated: “To put $194.8 million in perspective, if this doesn’t pass, the number of retirees that will fall into the social safety net will cost the state $250 million over 20 years…This legislation is the beginning of a very bright future for Detroit.” The House passed the main piece of the 11-bill package, House Bill 5566, by a vote of 103-7. The vote came just one day after a special House committee created to handle the Detroit bankruptcy unanimously passed the package. The House burst into applause after the package was approved.

“I hail from southwest Michigan, but today I stand with Detroit and its path back to prosperity…“By settling Detroit’s bankruptcy, we save taxpayers billions of dollars. If we don’t, we could be on the hook for a lot of money.” ~  Michigan state Rep. Al Pscholka, R-Stevensville.

Detroit Mayor Mike Duggan praised both the process and the compromises that the House made to reach a bipartisan majority: “This is an important step. It was interesting, there could have been tension between me and the governor, me and the emergency manager, me and the unions with the Legislature…And yet you saw by the vote margins the great majority of disagreements were worked out constructively.”

State-Local Tension. Nevertheless, the debate exposed apprehensions, with Rep. David Nathan of Detroit telling his colleagues: “This is something that the city of Detroit elected officials that are here will have to live with for a very long time…I do not trust this will work out for the betterment of my community.”

The Fine Art of Municipal Bankruptcy. Altogether, the package, combined with help from a group of private foundations and supporters of the Detroit Institute of Arts museum who have pledged another roughly $500 million and the state’s proposed $195 million from Michigan’s rainy day fund, would be dedicated to Detroit’s retirees to ensure none falls below the federal poverty level—and that, in return for its support, the city owned DIA would be spun off into an independent non-profit, a move that protects the city-owned art collection from sale or privatization, or, as Rep. Jim Townsend of Royal Oak noted during the debate yesterday: “If we fail to act we are going to subject the people who have retired and the people of Michigan to a financial train wreck the likes of which nobody has ever seen in this state and in this country.” Under the package, Michigan’s contribution is part of the so-called grand bargain that will be combined with $366 million pledged from charitable foundations and $100 million from the Detroit Institute of Arts, with the total amount intended to ease the cuts for pensioners and retirees and ensure the world famous Detroit Institute of Art remains. Despite that consensus, the DIA bill, which would prohibit the Detroit Institute of Arts from seeking a renewal or new millage for the world-class museum after its current tax expires in 2022, passed by the slimmest margin, 66-44. The bill was strongly opposed by the DIA. The DIA relies heavily on the tax, approved by voters in three counties in 2002, to fund its operations. Critics, including the DIA, said the bill has nothing to do with Detroit’s bankruptcy exit plan, and so should not be included in the legislative package. Opponents in the legislature said the DIA bill did not belong in the bankruptcy package, because it was basically sending the message that voters in Wayne, Oakland, and Macomb counties were not smart enough to decide whether they wanted to tax themselves to support the DIA: Rep. Jon Switalski told his colleagues: “Passage of this bill says to voters you’re not intelligent enough to determine what services you want to contract for…It says we’re going to dictate from on high what we think is good for you. That has never been the mantra of the majority party. And I’m so offended this is being put up first.” The House did agree to amend the bill, however, so that it applies only to the DIA, not to other museums.

Mayor Mike Duggan’s office yesterday informed U.S. Bankruptcy Judge Steven Rhodes in a hearing that the mayor will not support extending Kevyn Orr’s time as the city’s emergency manager or keeping on his former law firm, Jones Day, if Detroit’s bankruptcy extends beyond Mr. Orr’s expected exit date in late September—or, as the Mayor’s chief of staff told the Detroit Free Press,“We have no intention of keeping Jones Day…We have every intention of running this city, and that means both services and finances.” The issue arose in response to questions from Judge Rhodes after attorneys for the Motor City’s creditors and for Oakland and Macomb counties sought to delay Judge Rhodes proposed schedule for the city’s confirmation trial on its plan of adjustment to commence in July. The confirmation hearings are to determine whether Rhodes approves the city’s blueprint for exiting bankruptcy, which has been on a fast-track schedule in large part because Orr’s time in Detroit was limited to 18 months. The hearings had been set to begin July 24 and last into August, but a group of financial creditors this week asked Rhodes to push the beginning of the hearings to Aug. 26. The two counties and creditor Syncora told the court Mr. Orr’s firm, Jones Day, has not been releasing critical documents quickly enough to meet ambitious bankruptcy schedule—leading the federal court to express apprehension about whether such a delay would push the ultimate resolution of Detroit’s bankruptcy beyond the tenure of Mr. Orr, whose 18-month term is set to end in late September, when city officials have the legal option to vote to remove him under Michigan’s emergency manager law. In response to Judge Rhodes’ query to Greg Shumaker, representing the city yesterday for Jones Day, the law firm hired by the city under former Mayor Dave Bing, what the impact of a delay might be. Mr. Shumaker testified the impact “could be dramatic,” but testified: “We have not talked to the mayor or the City Council about that issue.” The response evoked surprise from Judge Rhodes, who then asked the attorney whether the goal of ending Detroit’s bankruptcy case before Mr. Orr leaves could invoke deadlines that might conflict with sound practices in bankruptcy court. Mr. Shumaker concurred. Under Michigan’s emergency manager law (PL 436), Detroit would remain under a financial emergency — with significant state oversight — until Gov. Rick Snyder declares the emergency over.

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