Michigan Senate votes to send Detroit $195 million; so-called ‘grand bargain’ lives
Under a bill narrowly passed by the Michigan Senate on Tuesday, the state will throw $195 million into the golden pot known as Detroit’s “grand bargain.” From The Detroit News:
The Senate sent Gov. Rick Snyder a nine-bill package that adds state tax dollars to a pool of $466 million in private funds to limit cuts to city pensions.
The Senate approved the pension aid on a 21-17 vote, a more narrow margin than a House vote less than two weeks ago.
The legislation allows the state to tap its $580 million rainy day fund to send a $194.8 million one-time cash infusion to shore up Detroit’s pensions and salvage the Detroit Institute of Arts’ collection from a possible sale. This makes Senator Pat Colbeck, R-Canton, upset. From the News:
Colbeck railed against tapping the state’s … rainy day fund to infuse Detroit’s two pension funds with the $195 million, arguing it sets a bad precedent for the next Michigan city in financial trouble.
“We need to tighten our state spending, not break open the piggy bank,” Colbeck said.
Because this shit is always a bit confusing to keep track of, let’s back up a moment.
The genesis of the deal began last fall during negotiations with Detroit’s creditors. That’s around the time the bankruptcy judge overseeing Detroit’s bankruptcy, Steven Rhodes, determined the city was eligible for court protection — and could cut pensions. To lessen the blow to pensioners — which, Detroit Emergency Manager Kevyn Orr noted last month could see cuts as high as 30 percent without the $816 million cushion — a federal mediator appointed to the case began discussions with nonprofits, the DIA and the state to contribute funds.
Even with the money, though, pensioners would still take a cut under Orr’s proposed bankruptcy-exit plan, called a “Plan of Adjustment.”
General retirees would take a 4.5 percent cut, with their cost of living adjustments (COLA) wiped out. Police and fire retirees, who on average receive $30,000 annual pension, would receive no cuts, but would see a reduced COLA to roughly 1 percent.
For some, the impact is worse: the city is proposing to claw back over $200 million from thousands of general retirees who received interest payments from its general fund, which, in some instances, would add an additional 15 percent cut. That’s why some retirees have pledged to vote no against Orr’s plan, in hopes of seeing through the outcome of an appeal on Detroit’s eligibility for bankruptcy protection. As one retiree put it last month before a state House panel, “Our choice is the deep blue sea with a heavy stone around our necks, or burning in hell. I’d rather go down swinging.”
Now, if a majority of Detroit’s roughly 30,000 retirees and city employees vote against Orr’s bankruptcy-exit plan, the emergency manager would have to go back to the drawing board, and the “grand bargain” vanishes. The cuts to pensions at that point “would be severe,” Orr said last Friday at the Mackinac Policy Conference. (As the Detroit Free Press previously reported, though, even then, Rhodes could still approve the Plan of Adjustment if he feels it’s in the best interest of Detroit’s creditors. So, as should always be noted, this thing won’t be over until it has been officially determined Detroit has exited bankruptcy.)
Despite all of that, the Senate vote obviously struck a positive tone today: Detroit Mayor Mike Duggan said in a statement today that the Senate’s vote will “help us honor the contract we made with our retirees.
“We all owe a debt of gratitude to Senate Republican Leader Randy Richardville and Democratic Leader Gretchen Whitmer for their leadership on this issue. This kind of bi-partisan support we are seeing in Lansing right now is a clear sign of a new beginning in the city of Detroit.”
The bill moves on to Gov. Rick Snyder, which — unless he does a bizarre about-face on an issue he’s supported for months — he is expected to sign.
Now that the dust has settled in Lansing, the big question becomes this: Is the grand bargain even legal? That’s something we tackled last month. The answer? No one really will know other than Judge Rhodes.