CHICAGO — The state of Michigan supports the Detroit emergency manager's plan to treat the city's general obligation bonds as unsecured debt, a spokesman for Gov. Rick Snyder said late Friday.

The state has been largely silent on Kevyn Orr's controversial plan to restructure the city's debt since the manager unveiled it June 14.

The proposal defines more than half of the city's GO debt as unsecured — backed only by general fund revenues and not a specific lien — and on par with the city's sizable pension and retiree health care liabilities.

Orr, a bankruptcy attorney, has proposed issuing $2 billion of so-called limited-resource participation notes to repay holders of $11.4 billion of unsecured debt on a pro rata basis. The city has halted all payments on its unsecured debt, including its unlimited-tax GO bonds, starting with a $39.7 million payment on pension certificates due June 17.

It will continue to make payments on its secured bonds, including those with a lien on state aid and nearly $6 billion of water and sewer debt, but hopes to renegotiate the payments with investors.

"A key point is that general obligation bonds don't have any legal security," Sara Wurfel, Gov. Rick Snyder's spokesman, said in an email to The Bond Buyer. "[Bondholders] are relying on general revenues of the city and the city can't make the payments and can't raise taxes anymore."

Orr's move to treat GO bonds — traditionally considered among the safest municipal bond debt — unsecured is unprecedented, and municipal bond experts say the move, if successful, will mean higher borrowing costs for all Michigan local governments and even the state's own GO debt.

But Snyder doesn't believe that, Wurfel said.

"Those institutions bought bonds on Detroit's credit profile, not the state's or any other municipality," she said. "There shouldn't be any impact or bleed-over. We are confident in the state and local community standings and that market should dictate rates.

"The plan emergency manager Kevyn Orr has outlined is designed to return Detroit to solid financial footing, ensure the delivery of essential services for residents, and solidify the city's viability well into the future," Wurfel added. "This is a first step in a long, difficult process, but a critical step in Detroit's reinvention and long-term economic growth."

The Michigan Treasury Department, which oversees governments under emergency management, did not return repeated phone calls or emails seeking comment.

Orr is in the midst of negotiating with unions and bond insurers, who wrap most of the city's debt. He is expected to announce within a few weeks whether he plans to file for Chapter 9 bankruptcy.

Creditors who are in negotiations are still waiting for "Lansing to bail them out," said a source familiar with the situation who asked to remain anonymous. "The city has no money, so the policy question has to be for the state, for any state, is if they step in and guarantee all Detroit's debt, then they have to do it for every city in the state," the source said.

One high-profile Michigan issuer said a successful treatment of unlimited-tax GO debt as unsecured may be more of a blow than if Detroit files for Chapter 9, as widely expected.

Robert Daddow, deputy executive of Oakland County, which borders Detroit, said the county has successfully maintained a triple-A rating for 15 years despite the Motor City's long descent, but that Orr's restructuring plan could end up affecting all the state's local governments.

"I'm kind of schizophrenic on Detroit," Daddow said. A Chapter 9 bankruptcy filing would be painful but Detroit would emerge a "fiscally clean city."

"But on the other hand, Orr's proposal is troubling in that they're treating unlimited-tax general obligation debt on par with retiree and vendors," he said. "That treatment is very troubling and that could have more of an impact on us than necessarily the bankruptcy itself."

"It's going to come down to whether or not they deal with this class of creditors differently, and if they treat them all as one, the state's going to have a problem," Daddow said.

Daddow said he believes the county will retain its prized gilt-edged ratings despite Detroit's restructuring or bankruptcy. "The fallout is really going to be on those communities rated double-A or lower," said Daddow. "If Detroit can go under, then so can an A or an A-minus."

Michigan, unlike California and other states, has a relatively strong oversight program for distressed local governments under Public Act 436, said Daddow, who helped write the state's previous emergency manager law, Public Act 4.

There are currently 11 local governments under state control. "Ten percent of the population is sitting in an EM status, and that's pretty sizable," he said. "It's going to have an impact on other communities if they don't solve the issue of the disparity of classes of creditors."

Oakland County plans to head to market in September with a $300 million bond issue to refinance OPEB certificates into long-term debt.

"We're sitting on pins and needles at the moment," Daddow said, saying the county plans to meet with rating agencies in August to review the transaction. "It'll be kind of an interesting summer."

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