Detroit’s proposal to restructure its $18 billion of debt by paying pensioners at more than twice the rate of some municipal bondholders threatens to increase borrowing costs for localities throughout Michigan, Bloomberg News reported on Saturday. The draft plan given to creditors last week by Emergency Manager Kevyn Orr offers different recovery rates for classes of unsecured creditors. Pensions would get 45 to 50 cents on the dollar, though retiree health care liabilities would recoup just 13 cents, according to the plan. By comparison, those who loaned $1.4 billion to shore up the two pension funds would receive 20 percent of their claims. Holders of $369 million in unlimited-tax general obligations would recover 46 percent. The plan assumes an infusion of nearly $800 million for the two pension systems from equal contributions by the state and private foundations. To protect the city’s collection of art masterworks, foundations and the Detroit Institute of Arts have pledged $470 million. Snyder proposed $350 million that the legislature must approve.
