Source: Sherman Publications

Jacobsen shares thoughts on potential state role in settling Detroit bankruptcy

by CJ Carnacchio

January 29, 2014

State Rep. Brad Jacobsen hasn’t formulated a definite opinion on Gov. Rick Snyder’s plan to give Detroit $350 million as part of a proposed bankruptcy settlement.

But the Oxford Republican realizes the state’s going to be somehow financially involved in cleaning up the city’s financial mess whether it’s through Snyder’s plan or giving government assistance to retirees whose pensions get cut.

“I hate using the scenario that was used with the auto companies, but Detroit’s too big to fail,” Jacobsen said. “Detroit goes under and there’s a long, protracted (bankruptcy) settlement, ultimately, all of us state taxpayers are going to end up paying something for it.”

Last week, Snyder proposed giving Detroit up to $350 million over the next 20 years to mitigate cuts to city retiree pensions and resolve the bankruptcy proceedings in a way that could save millions of dollars that would otherwise be spent on legal costs and social services for affected pensioners.

“I’m not totally enthused, but I understand the theory behind it,” Jacobsen said. “I agree with the theory that we need to get it settled as quick as possible.”

The money Snyder’s proposing would be added to the $370 million being offering by a coalition of national and local foundations, all of which agreed to put up this money in an effort to protect the Detroit Institute of Arts (DIA) collection and prevent the possibility of it being sold to help satisfy the city’s debts.

The foundation money comes with the condition that the DIA be released from city control and turned into its own independent, nonprofit entity.

“It’s the first attempt at a settlement of the bankruptcy with multiple parties,” Jacobsen said. “I guess we have to start some place. The sooner we can come to some kind of settlement that the judge will authorize, the better for all parties involved.”

Even the DIA pledged to make a “significant contribution” to the settlement effort, but the museum has yet to release a monetary figure.

“The DIA is the one I can’t quite figure out,” Jacobsen noted. “They’re looking at putting some money into it, but they didn’t have enough money to operate, so we voted for a millage for them and now, they have enough money to put into the settlement.”

In August 2012, voters in Oakland, Macomb and Wayne counties approved a 10-year, 0.2-mill property tax to support the DIA.

Snyder’s plan calls for the $350 million to come from the state’s portion of the tobacco settlement. The state receives approximately $250 million annually from a 1998 settlement that Michigan and 45 other states reached with tobacco companies.

Giving Detroit $17.5 million per year of this money for 20 years would require approval from the state Legislature. “It’s still a work in progress,” Jacobsen said.

Jacobsen believes if some type of bankruptcy settlement isn’t approved in a timely manner, Detroit’s pensioners “will very likely lose a much greater amount” of their pensions “than they would otherwise” and “it might lead to court cases that may go on for several years.”

One of the conditions under Snyder’s proposal is that Detroit’s unions, employees and retirees must sign releases from litigation claims.

The other conditions are that all state money goes solely toward pensions and independent fiduciaries would manage the pension funds going forward.

If a settlement isn’t reached, Jacobsen fears city pensioners could supplement their reduced incomes by applying for taxpayer-financed government assistance in the form of welfare, Medicaid and unemployment benefits.

“You can’t have your right leg die and not have an effect on the rest of your body,” Jacobsen said. “It’s still the biggest city in the state.”

Although Detroit’s “been failing” for many years, Jacobsen pointed out that the city has never gone “completely down the tubes” before.

“If it does go completely financially bust and becomes a drain on the entire state, it’s going to have a detrimental effect on all of us,” he said.