Detroit Bankruptcy Legislation Calls for 20 Years of Oversight
By Kathleen Gray and Joe Guillen
A seven-member board could oversee Detroit's pensions and finances for at least 20 years under a package of 11 bills that will govern the state's contribution toward settling Detroit's historic bankruptcy.
The bills, which were introduced late Thursday afternoon, will deal with everything from what method the state will use to come up with roughly $200 million for the city, to oversight of the city's finances and pension systems as part of the state's role in the so-called grand bargain.
"There is concern about what is the right thing we do for (the) city of Detroit and for the residents of Michigan," said Speaker of the House Jase Bolger. "And certainly there's concern about the money, but also concern that this never happens again."
The bills will:
-- Create a Michigan Settlement Administration Authority to appropriate $194.8 million, taken from the state's rainy day fund, to be paid back from the tobacco settlement over the next 20 years.
-- Require the city to hire a chief financial officer to handle the day-to-day operations of the city.
-- Enact a seven-member oversight commission to oversee the financial operations of the city, modeled after New York City's oversight commission. The committee would be in lieu of a financial advisory board that would have been put in place after emergency manager Kevyn Orr leaves the city and the bankruptcy is settled. The New York State Financial Control Board operated in full force from 1975 to 1986 before its powers systematically began to wane.
The commission, which will be made up of two appointees from Gov. Rick Snyder, two from the state treasurer, and one each from Senate Majority Leader Randy Richardville, R-Monroe, Speaker of the House Jase Bolger, R-Marshall, and Detroit Mayor Mike Duggan, would have veto authority over contracts over $750,000, said Bolger, as well as collective bargaining agreements.
-- Prohibit the Detroit Institute of Arts from approving a new millage or renewing the existing millage that benefits the museum. That change reflects the change in ownership of the museum from a quasi-public to a private entity. And legislative leadership didn't think it was appropriate for a private museum to go for a millage, said state Rep. John Walsh, R-Livonia, who is chairing the committee that will review the bills.
But that was the intent of the 0.2 millage in the first place. The DIA has said that when the 0.2 millage expires in 10 years, the goal is to have enough money on hand -- roughly $400 million -- to cover 60% of the museum's operations and a sizable endowment that the millage would not be renewed.
-- Implement pension reforms that: prohibit the city from opting out of an 80/20 hard cap for employee health care premiums, transition new employees from a defined benefit to a defined contribution system, and create an investment committee that will recommend pension decisions to the funds' boards of trustees.
-- Require that commission ensures that binding arbitration with police and fire mesh with the goals of the city's long-term financial plan.
-- Require that benefits for new city employees are no greater than benefits received by state employees.
The bills are written in such a way, Bolger said, to make sure that other communities don't try the same thing if they suffer financially. However, the provisions are in effect for cities of 600,000 or more that fall into bankruptcy. Detroit is the only community in the state that fits that bill, both in population and fiscal crisis.
Snyder said the legislation will help build a solid foundation for the city's revitalization while creating safeguards for taxpayers.
"The legislation offered today reflects the commitment from our partners in the Legislature to work together to help Detroit pensioners and ultimately save taxpayers millions of dollars as momentum builds to solve problems that have dragged on for far too long," he said in statement released Thursday evening.
"The city's long-term viability is essential for its 700,000 residents, who already are seeing improvements in vital services and their quality of life. But all of Michigan benefits from a restored Detroit. Our largest city is known throughout the world. Detroit shouldn't be known for its struggles, but its renewal -- as the comeback city in the comeback state."
The 20-year oversight of the city could go on for even longer or end earlier, depending on the city's economic outlook, said state Rep. John Walsh, R-Livonia, who will chair the committee reviewing the bills.
"If there are periods of time of fiscal health in the city, then it could go dormant," he said.
The $194-million state investment in the city would come from the state's rainy day fund, which has a balance of $580 million. That investment would be paid back with an annual infusion from the state's tobacco settlement, Walsh said.
State Rep. Thomas Stallworth, D-Detroit, who also is on the committee reviewing the bills, said he can't think of a better way to use the rainy day fund.
"It's raining. It's storming out there," he said. "I like the help for pensioners and retirees. But this isn't something that any of us are going to like. We're getting a boost of funds, but people's wages are still being hit, their benefits are still being hit. It's still going to be a very tough road for Detroit to come back."
Public safety officers and most city employees have endured pay freezes and cuts over the last several years, and many of them recently have seen reductions in health care benefits.
The Detroit City Council, which will have no appointments to the special commission, should have a say in the financial oversight board's composition, council members said Thursday.
"We have every right to have a choice and a pick on that board," said Councilman Gabe Leland, a former state representative. "This is something that essentially is affecting us for the long haul."
Council members were still gathering information about the legislation on Thursday. But they were familiar with the concept of an additional layer of oversight for Detroit as the city comes out of bankruptcy.
Councilwoman Saunteel Jenkins said the panel's level of oversight should not be set in stone for all 20 years. She also said the mayor and the council should have equal representation on the board.
"Twenty years from now, or even five years from now, this board should not have the same level of oversight that it might have next year," Jenkins said. "At some point soon, the city of Detroit needs to be returned to a fully democratic government, meaning the people that the residents of the city of Detroit elected to run this city should be able to run this city."
Mayor Mike Duggan was reviewing the plan and had no immediate comment on it, said spokeswoman Alexis Wiley.
The House Committee on Detroit's Recovery and Michigan's Future, which includes a total of three Republicans and two Detroit Democrats, will begin meeting next week, perhaps as soon as Tuesday, to consider the bills.
The state's contribution is meant to make sure pensioners take as little a cut as possible in their monthly retirement checks, as well as protecting the masterpieces at the Detroit Institute of Arts from a possible sale to settle debts to creditors. It will be combined with $466 million pledged from charitable foundations, philanthropists and the DIA to minimize the impact of the bankruptcy.
Still lurking in the background of the legislative package is a desire from Bolger to have unions contribute some cash to bankruptcy settlement. That demand is not included in the legislation, he said.
"But that's an important part of the overall picture," he said. "Their participation is important, the union organizations themselves need to buy into this settlement."
On July 18, the City of Detroit became the largest municipality in U.S. history to file for Chapter 9 bankruptcy protection, claiming debts and projected long-term liabilities of $18 billion.
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