Detroit Mayor Mike Duggan

CHICAGO -- Michigan lawmakers could vote as early as Tuesday on a package of bills aimed at helping resolve Detroit's bankruptcy.

The legislation would, among other things, authorize a $195 million state contribution to the bankrupt city's pension funds.

After a Tuesday morning hearing by a special House committee devoted to the bankruptcy, chairman John Walsh, R-Livonia, said the committee may reconvene later in the day for a vote on the bills. If not, the House Committee on Detroit's Recovery and Michigan's Future will hold another hearing on Wednesday, Walsh said.

Former New York Lt. Gov. Richard Ravitch, who played a key role in New York City's recovery from its fiscal crisis in the 1970s, testified Tuesday morning. U.S. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's case, has tapped Ravitch as a consultant to the case.

Ravitch told lawmakers that accounting practices are one of the most important criteria for Detroit as it exits state and court oversight.

"Detroit is the most egregious example of a city in severe financial difficulty that I've seen," Ravitch said, adding the "whole country" is watching the case.

"The most important piece of this legislation is that the city be required to budget according to generally accepted accounting practices. There can be no more borrowing to cover deficits," he said.

Detroit Mayor Mike Duggan also testified, and he pushed lawmakers for at least two changes to the bills. Duggan said he would like clearer provisions for the city's ability to gain independence from a proposed oversight committee, and proposed that the oversight panel go "dormant" if the city meets certain financial targets, including balanced budgets and access to the capital markets, for three consecutive years.

It's based on New York's model, he said.

"We want to have a clear path in and out of financial control periods," Duggan told lawmakers. "I think the three-year standard in New York is a fair standard. Even when you're in a non-control period, the existence of that financial oversight board .... reinforces the culture of accountability for years to come."

Duggan also said he'd like the Detroit City Council to be able to appoint one member of the oversight board. Currently, the bills call for the state to tap six of the seven appointees and the Detroit mayor to get the seventh spot. Duggan, joined by council President Brenda Jones, pushed lawmakers to give the council one appointment.

Jones also asked lawmakers to strip out a requirement that junk-rated Detroit maintain a bond rating of at least A-minus before it can come out of state oversight.

"This rating has not been held by the city since the 1960s," Jones said.

The legislation features a host of requirements for state's largest city, including that it hire a chief financial officer, implement certain pension and health care reforms, and create an investment committee to advise the city's two pension funds. The bills are a key part of Detroit's plan to exit the nation's largest Chapter 9 case by the end of September.

The proposed state financial contribution is part of a so-called grand bargain in which Michigan, a group of private foundations, and the city owned Detroit Institute of Arts museum raise $816 million for the city's pension debt.

In return, the DIA would be spun off to an independent nonprofit board that would protect the art collection from any future sale or privatization. Most of the settlements Detroit has reached with its creditors rely on that infusion of cash.

House leaders pledged that the legislation would move quickly. Snyder wants lawmakers to pass legislation before they break at the end of June.

In related news, late Monday, Judge Gerald Rosen, who is chief mediator in Detroit's Chapter 9 case, announced that the Michigan Building and Construction Trades Council has pledged $3 million to $5 million to the city's retire health care benefits. The move comes after House Speaker Jase Bolger demanded that Detroit's unions pledge money to the grand bargain.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.