Now it's up to Lansing to make Detroit's "grand bargain" work

Apr 17, 2014

Credit Sam Beebe

Now that Detroit’s bankruptcy is moving along, Gov. Rick Snyder is moving to secure the state’s end of a so-called “grand bargain.”

It would use $816 million to minimize city pension cuts, and protect the Detroit Institute of Arts from potential liquidation to pay off creditors.

The state is supposed to come up with a $350 million contribution to the grand bargain, if city retirees approve a settlement deal. The rest would be supplied by foundations and other private sources.

The governor’s office said Wednesday that the state could pay that money in one of two ways.

The first proposal would pay out the $350 million from the state’s tobacco settlement fund over 20 years.

Another option is to pay Detroit up front. An immediate lump sum payment would cost less overall – one estimate suggests about $200 million. But it would require the state to issue bonds, and probably use tobacco settlement revenues to back them up.

Michigan State University economist Eric Scorsone said Gov. Snyder had been waiting for Detroit’s pension funds to settle with the city.

Now that they’ve reached tentative deals, the focus turns to state lawmakers.

“We’ll see now if the legislature is willing to step forward,” Scorsone said. “Obviously, the governor will probably be putting quite a bit of pressure on them to do that.”

Snyder has said he wants lawmakers to vote on the aid package before they leave for summer break.

Some Republican lawmakers have expressed strong skepticism about providing Detroit with any kind of aid package. But without state support, the grand bargain concept would fall apart, endangering both the DIA and the whole bankruptcy process.

Wayne State University bankruptcy law professor Laura Bartell said the ball is now firmly in the state’s court.

Now that Detroit’s pension funds have come to the table, “That does create a strong impetus for Lansing to get its act together,” Bartell said.