By Matthew Dolan
The governor of Michigan on Friday signed a collection of bills to provide about $200 million in state aid to Detroit as part of a complex deal to preserve the city's art collection and make up some of the shortfall in the public pension systems.
"We are taking historic steps that many would have said was impossible not long ago. We have come together as a state and as a family to build a bright future where the outlook was once very uncertain," Republican Gov. Rick Snyder said in a statement after a signing ceremony at a state natural resources department outdoor recreation center.
The signing in Detroit had been long expected, but it markedanother turning point for the city of about 680,000, which filed for municipal bankruptcy protection almost one year ago with about $18 billion in long-term obligations and a dwindling cash reserve. It was the largest such filing in U.S. history.
In the months that followed, Detroit under an emergency manager has secured deals with many creditors, leading to a debt-cutting plan that would trim benefits to pension holders but hit much harder against many of the city's unsecured bondholders.
The speed at which the city completes its journey through bankruptcy court now may be dependent on its pension holders. About 32,000 current and retired city employees face a stark choice in voting continuing through early July: Vote for the plan to cut most pensions and eliminate of a future cost-of-living increase or reject the plan and risk additional cuts.
If the pension holders vote for the plan, the state will contribute $194.8 millionto a larger effort valued in excess of $800 million to essentially buy the city-owned Detroit Institute of Arts and place it in an independent trust while using the proceeds to help make up a shortfall in city payments into its two employee pension funds. If they vote against the plan, lawsuits challenging Detroit's ability to cut pensions may erupt, potentially tying up the city in court for months if not years.
After the vote, a federal bankruptcy judge will weigh in, holding a trial expected in August on whether the city's reorganization plan, which also includes about $1.5 billion in reinvestment in services and blight removal, is viable. Detroit hopes to exit bankruptcy court as soon as this fall.
Write to Matthew Dolan at email@example.com
(END) Dow Jones Newswires
June 20, 2014 11:56 ET (15:56 GMT)
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