CHICAGO -- Michigan Gov. Rick Snyder and top lawmakers announced a plan to pledge $350 million toward Detroit's pensions while protecting its prized art collection in what would be Michigan's first significant intervention into the city's historic bankruptcy case.
The state may borrow against its annual tobacco settlement payments to raise the $350 million, according to Snyder.
"This is an opportunity to really resolve things," Snyder said at a press conference Thursday with House Speaker Jase Bolger, R-Marshall, and Senate Majority Leader Randy Richardville, R-Monroe. "This is a significant commitment of resources."
The leaders are both in favor of the plan, which legislators are expected to pick up over the next several weeks.
The $350 million pledge is part of a first-of-its-kind proposal that is being hashed out under the oversight of bankruptcy mediator Gerald Rosen, chief federal judge for the Eastern District of Michigan.
A group of foundations announced the plan last week with the Detroit Institute of Arts and city officials. The foundations have already raised $330 million in private donations.
Snyder's announcement provided the most detailed glimpse of the high-profile plan.
The $350 million of state funds, which would be delivered over the next 20 years, would come with a number of conditions, Snyder said.
Among them is the requirement that the city and state can reach a settlement with the unions and the retirees on a deal; that the money should go to the retirees only, particularly the lowest-earning ones; and that the city's two pension systems are taken over by an independent financial manager.
"There are a number of other conditions that I'm not going to talk about except to say that we're being consistent with both the foundations and ... the mediators," Snyder said.
Snyder said he considers the state's annual tobacco settlement payments as a "good potential source" of funding. The state may tap the money directly -- amending its current law -- or securitize it to back a 20-year bond. Either way, Snyder said he does not want the pledge to be subject to an annual appropriation.
The $350 million financing will be considered as part of the 2014 budget, and Snyder will include it in his spending plan, to be unveiled in early February.
Because the tobacco settlement dollars come from the state and are outside the Detroit bankruptcy case, other creditors, such as bondholders, would not be able to lay claim to the money, the governor said.
"This is not a bailout. This is not geared toward bondholders or Wall Street, but toward Michiganders who worked really hard for our state," said Snyder.
"These are incremental dollars that otherwise would not be part of the bankruptcy process," he said, adding that the attorneys and court mediators still need to hash out final details.
With the foundation money, the total pledge for pensions could come to $700 million. Detroit emergency manager Kevyn Orr has said the city's total unfunded obligation is $3.5 billion, though the two pension systems have put the figure much lower, at around $650 million.
Snyder said the impact of the money on pensioners' earnings would be detailed in the city's plan of adjustment. Local officials expect to file the plan within the next several weeks. Orr has said in the past that the plan may divide pensioners into different classes depending on how much they earn.
"If you talk about $700 million, that's a significant investment," Snyder said. "From my understanding, it is a material difference [for pensioners' income]."
Bolger and Richardville said they would sell the deal to legislators as good for the entire state, as many Detroit retirees now live outside the city.
"This is a one-time investment in the future of Detroit's success," Bolger said. The court mediators put out a statement Thursday morning praising state involvement.
"The mediators wish to express their appreciation for the constructive and positive role the governor has now agreed to play in helping resolve key issues in the bankruptcy case," they said. "We hope that the governor's announcement will further assist the parties in reaching as many agreements as possible which can be included in an agreed-upon plan of adjustment."
Orr put out a statement saying the plan was an "unprecedented" effort to help the city fulfill its commitments and preserve its art.
"It is now time for the remaining parties to set aside the bargaining rhetoric and step forward and join this settlement to help this great city regain its footing and become once again an attractive place to live, work and invest," Orr said.
U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, needs to approve the proposal.
