By backing the deal, the governor and legislators are hoping to avoid a protracted bankruptcy and the potential for city retirees to fall into poverty, which could cost the state an estimated $270 million in social safety net costs over 20 years. They also say that Michigan as a whole cannot succeed unless its largest city is turned around.
This is by far, in my opinion, the best that we’re going to be able to do,” said Senate Majority Leader Randy Richardville, R-Monroe.
Bond insurers have pointed to the art collection — which includes Van Gogh’s “Self Portrait” — as a possible billion-dollar source of cash in the 10-month-old bankruptcy case. The city firmly opposes that, and instead is banking on the separate deal brokered by mediators that would protect the art forever and limit base pension cuts to no more than 4.5 percent instead of as much as 26 percent.
The up-front state payment, the equivalent of $350 million spread over 20 years, would come from the state’s savings account and would be repaid with annual $17.5 million withdrawals from Michigan’s tobacco settlement over 20 years. A state-dominated board would oversee the city’s finances for as few as three years or for decades, depending on whether its books are balanced.