CHICAGO -- Michigan Gov. Rick Snyder said it would be premature to assume that Detroit's bankruptcy will drive up borrowing costs across the state.
"As a practical matter, in bankruptcy there's an equitable plan that needs to be addressed," Snyder said Wednesday during a press conference on his newly unveiled 2015 budget. "It's something to keep an eye on, but the goal is to have an environment where we can focus on growth across Michigan."
As part of the $52 billion budget, Snyder proposed spending $17.5 million as the first installment of a $350 million state pledge to shore up Detroit's pension funds.
The state money would be part of a larger plan that could garner as much as $820 million in private and public money to repay the city's unfunded pension obligation while protecting its art collection.
The plan has sparked some criticism from general obligation bondholders, who feel they are being hung out to dry though they are officially on par with pensioners, with both treated as unsecured in the bankruptcy.
Some in the municipal market say it's a problem to pledge the additional money to the pensioners if it forecloses the opportunity to monetize the art, one of the city's most valuable assets, to help all creditors.
If the city treats bondholders as unsecured with recovery rates of 50 cents on the dollar or less, it could drive up borrowing costs for other local issuers across the state, some municipal market experts have said.
Snyder said his focus is on getting Detroit through the bankruptcy process as quickly as possible.
"Everyone is going through a difficult time; bankruptcy is something that is very difficult on everyone," he said. "You're going to find issues with most parties." Michigan's own financial rebound is an example of a "successful reorganization," he added.
"I hope Wall Street keeps an eye on that," said Snyder.
