stock-detroit-skyline-guardian-plane.jpg

A plan flies over downtown Detroit.

(Jonathan Oosting | MLive.com)

LANSING, MI -- Michigan lawmakers may consider sending a $194.8 million lump sum payment to Detroit -- rather than $350 million over 20 years -- as part of a "grand bargain" settlement that would minimize pension cuts and speed up the city's exit from bankruptcy.

Detroit's latest plan of adjustment, filed Monday in federal bankruptcy court, includes a draft "state contribution agreement" outlining the potential settlement and various strings that would be attached to any cash.

Michigan Gov. Rick Snyder originally proposed devoting up to $350 million in state money over two decades, likely through tobacco settlement revenue, but he has signaled a willingness to consider a smaller one-time payment, as requested by Detroit pension funds.

Emergency Manager Kevyn Orr also said last week that a lump-sum payment "probably makes better sense."

The unsigned state contribution agreement specifies that the state would make a payment "equal to the net present value" of $350 million over 20 years. That would amount to a single payment of $194.8 million, roughly $155 million less than originally anticipated.

House Speaker Jase Bolger wants to "look at all of the options and see which one works better," according to spokesperson Ari Adler, but the Marshall Republican has made clear he likes the idea of a shorter payment period that would ensure a firm end date for state support.

"If we go up front, with a lump sum, we now know $194.8 million would be the number we're working with," said Adler. "But then you have to decide where that money would come from. There's still a lot of unanswered questions."

The state money would be part of a "grand bargain" -- which also includes $366 million pledged by philanthropic foundations and another $100 million from Detroit Institute of Arts donors -- designed minimize pension cuts for retirees and protect prized art work from sale.

Detroit creditors -- including retirees and bondholders -- are set to receive ballots for the city's restructuring plan May 12, and they'll have until July 11 to enter their votes.

Without state funding, monthly pension reductions for general retirees could balloon from 4.5 percent to 27 percent while police and fire would lose all cost of living increases. Legislative approval is no sure bet, and Republican leadership has made clear that any state money for Detroit will come with multiple strings attached.

The state contribution agreement outlines what form some of those strings might take:

Pension oversight: The Detroit General Retirement System and the Police and Fire Retirement System would each be required to establish a seven-member "investment committee" that would recommend and approve pension investments and assumptions for at least 20 years.

Income stabilization fund: Detroit and its pension funds would have to establish an "income stabilization" program to provide targeted payments ensuring that vulnerable retirees remain above the federal poverty line.

Limited liability: The state and its related entities would be released from any liability in lawsuits filed by eligible pensioners involving the bankruptcy case, Michigan's emergency manager law or pension protections included in the state constitution.

Transition board: The city would be required to cooperate with a transition advisory board set up under the auspices of the emergency manager law or comply "with any new legislation that is enacted regarding post-bankruptcy governance."

Enabling legislation could be introduced as soon as this week in the Michigan House. The 10-bill package would pave the way for a state contribution and may detail other "post-bankruptcy governance" options.

Adler said leadership has been studying financial advisory boards in New York City and Philadelphia as they work on the legislation but indicated "there's still a lot of dots to connect."

Bolger has also called on unions to contribute to the settlement, indicating he may not even hold a vote until they do. Snyder and Senate Majority Leader Randy Richardville (R-Monroe) have both said that they are not asking for a union contribution.

Orr spent two days in Lansing last week, lobbying lawmakers and explaining the plan of adjustment. He is expected to return this week if and when the legislation is introduced.

Snyder, speaking with reporters after Orr's visit, cited "tremendous progress" in the bankruptcy case, including a string of recent agreements between the city and employee unions, that could motivate lawmakers to approve the state funding.

"The plan of adjustment will show a number of parties coming on board to settle it, particularly the retirees, but also a number of unions, in terms of the active membership," Snyder said. "And I think that really creates an environment where we should be looking to go forward with the legislation about the settlement."

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Facebook or follow him on Twitter

