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Detroit expects $195 million lump sum from state to help pensions, get city out of bankruptcy

DETROIT - Detroit is counting on a lump sum of $194.8 million from the state to shore up pensions and prevent the sale of valuable art as it tries to emerge from bankruptcy later this year, the city said Monday.

The details were in Detroit's latest strategy plan filed in bankruptcy court. It comes just days before ballots go out to thousands of creditors, including retirees and city employees personally affected by the largest public bankruptcy in U.S. history.

Detroit emergency manager Kevyn Orr went to the Capitol last week to lobby Michigan lawmakers on a pension rescue. The latest disclosure means he's banking on a lump sum instead of annual payments over 20 years. The payment from the state is being treated as the current value of shelling out $350 million over two decades.

"The thinking from the pension funds is it's better to have the money in hand rather than worry about it over time," said bankruptcy expert Doug Bernstein. "The risk shifts to the pension funds to get a return on the investment."

But it's not a done deal. The Republican-controlled Legislature still needs to embrace it, and no money would be given if retirees and city employees reject the pension changes.

Finally, Detroit's bankruptcy plan would have to be approved by Judge Steven Rhodes by the end of September. Foundations and philanthropists have to kick in millions of dollars as well, putting the total value of the pension rescue at $816 million.

A spokesman for House Speaker Jase Bolger, R-Marshall, said legislation could be introduced this week, although the style of payment still is unsettled.

"He wants to look at the best deal for taxpayers both in the short term and long term," Ari Adler said.

Separately in the bankruptcy plan, the city said it would make payments of $450 million and turn retiree health care over to trust funds run by boards, similar to what has happened in the auto industry. Death benefits would be eliminated.

Detroit "shall have no further responsibility to provide retiree health care or any other retiree welfare benefits," the plan states.

Police and fire retirees would not lose pension benefits, but their annual cost-of-living allowance would be trimmed to 1 per cent. Other city retirees would see a 4.5 per cent pension cut and the elimination of cost-of-living payments. There is a possibility of recovering that money if the health of the two pension funds improves.

Rhodes signed an order Monday accepting a 200-page document from the city that describes the history of Detroit's financial woes and the way out. It accompanies the bankruptcy plan and clears the way for ballots to go out.

Detroit population's peaked at nearly 2 million in the 1950s but fell to under 700,000 by the end of 2012. Even by 2023, the city doesn't believe it will match the $276 million in income taxes collected in 2008.

"There is no non-bankruptcy solution to the problems facing the city, its stakeholders and its residents," the city said.


Associated Press writer David Eggert in Lansing, Mich., contributed to this report.


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