Refusing to call it a bailout, Michigan Gov. Rick Snyder has announced he is looking to help Detroit out of its pension mess with $350 million in state aid.
“This is not a bailout of paying the debts directly of the city of Detroit. This is not a bailout of banks and other creditors. This is focused on helping reduce and mitigate the impact on retirees,” Snyder said during a Wednesday press conference.
The $350 million in state aid could be added to the $330 million consisting of donations raised by private sources. Selling the city’s art collection–which could bring upwards of $800 million–is also an idea.
Just as for nearly every big city and most states, Detroit’s biggest financial bind is its obligation to pensions for its public workforce. This transpires when government workers are given overly generous pensions, often protected by favorably written laws and compliant judges, then enforced by government employee unions.
The Motor City’s pension mess is the first hurdle it must overcome to put a dent in the $18 billion the city owes. This is what Gov. Snyder hopes to address with his infusion of tax dollars.
But one of the reasons this hurdle was erected in the first place is the power of intransigent government unions, and this deal Gov. Snyder is offering would hinge on a settlement between the city and its government employee unions.
Government unions, however, may not be in the same position to be as unforgiving as they once were. A December ruling in Detroit found that government union pensions are now susceptible to being “impaired” by the city looking to stave off total financial collapse. For the first time, a city might expect to be able to alter the overly generous deals the unions have made.
If this ruling stands against the inevitable assault by union lawyers, it could have far-reaching consequences for struggling cities all across the nation. “If it stands, this is huge,” said San Diego Republican candidate for Congress Carl DeMaio. The ruling could lead to “municipalities lining up outside of bankruptcy court,” DeMaio added.
Gov. Snyder isn’t the only person trying to find a path forward for Detroit. Recently Senator Rand Paul (R-KY) offered his own plan to save the city. Early in December, Paul unveiled a plan that included the suspension of hindering EPA rules, reduction of the payroll tax, provision of child tax credits, and the end of the Davis-Bacon Act, among other things.