%1

Michigan Governor Rick Snyder on Friday signed into law bills that complete funding for a key component of Detroit's plan to adjust $18 billion of debt and exit the biggest municipal bankruptcy in U.S. history, Reuters reported on Friday. The legislation allocates nearly $195 million in state funds for the so-called grand bargain, which includes $366 million pledged over 20 years by philanthropic foundations and $100 million from the Detroit Institute of Arts. The money would be used to ease pension cuts for Detroit's retired city workers and protect art work from being sold to pay city creditors. Detroit and state officials are hoping that the grand bargain will sway thousands of city workers and retirees to vote in favor of the proposed debt adjustment plan. If they reject it, the officials have warned that the money would be yanked and pension cuts would be bigger. In an interview with Reuters on Friday, Snyder said the loss of the grand bargain would be "devastating" for the city's retirees and would delay the bankruptcy case.

Detroit's Police and Fire Retirement System board yesterday voted to recommend that its 13,000 current and retired members vote in favor of the city's plan to adjust its debts and exit bankruptcy, Reuters reported yesterday. Last week, the city's other pension fund, the General Retirement System, took similar action, urging its 20,200 members to vote "yes" on the plan. The police and fire pension board, in an 8-3 vote, passed a resolution supporting the plan, which cuts annual cost-of-living adjustments for public safety retirees by 55 percent but does not reduce their direct pension payments. Ballots, which were sent out in May, are due back by July 11. The city is hoping that a key component of the plan dubbed the grand bargain will sway voters. The grand bargain taps $466 million pledged by philanthropic foundations and the Detroit Institute of Arts and $195 million in state funds to ease cuts to city retiree pensions and protect art works from being sold to pay city creditors.

San Bernardino, Calif., said that to exit bankruptcy it must terminate a union contract that pays an average annual salary of $190,000 to each of its top 40 firefighters, Bloomberg News reported today. In about three weeks, the city may try to use a federal bankruptcy law to cancel firefighter and police contracts if talks on new agreements fail, its lead bankruptcy attorney, Paul Glassman, told U.S. Bankruptcy Judge Meredith Jury at a hearing yesterday. Since filing for bankruptcy in August 2012, the city has been mired in conflict with its unions and its biggest creditor, the California Public Employees’ Retirement System, which it owes about $143 million, according to court papers. The city told the judge yesterday that it has a final deal with CalPERS. That leaves the unions as some of the last groups the city must win over, or beat in court, to put together a debt-adjustment plan that will return the community of about 200,000 to fiscal stability.

Detroit Emergency Manager Kevyn Orr laid out plans yesterday for changes to the city's two retirement systems even as bankruptcy proceedings continue, Reuters reported yesterday. Orr, who was tapped by Michigan's governor in March 2013 to run Detroit, said all current and new city workers will be subject to the changes effective July 1. The changes maintain a defined benefit system, but require new deductions from workers' paychecks for pensions and matching contributions from the city. "The city and its labor partners have come up with what we think is the best option to strengthen employee pensions so we can continue to meet future obligations in a financially responsible and sustainable manner," Orr said. Accrued benefits will be frozen as of June 30 and no new employees will be allowed to earn benefits under prior General Retirement System and Police and Fire Retirement System benefit formulas. Obligations toward Detroit's pension systems are a major contributor to the $18 billion in debt and other expenses that led to the city's historic municipal bankruptcy filing in July 2013. Detroit has about 22,000 retirees who currently receive pensions, but only about 9,000 active employees support the funds, according to Orr's office.

Bankrupt San Bernardino has reached an interim deal with its biggest creditor, the California Public Employees' Retirement System (CalPERS), that will help the city plan its exit from bankruptcy, according to a court filing, Reuters reported yesterday. In a status report ahead of a hearing today with the judge overseeing the bankruptcy, the city's lawyers said the deal has led San Bernardino to start paying back its debt to CalPERS. The agreement marks a significant breakthrough in the bankruptcy. When the parties last met in May the judge expressed her frustration over the slow pace of talks between the city and CalPERS, and that the city appeared a long way from producing a bankruptcy plan, known as a plan of adjustment. The city refused to divulge details of the deal, which has only been shared with a court-appointed mediator. An interim agreement has been reached with CalPERS "regarding various items," the city said.

A California city still burdened by debt payments from its 2001 bankruptcy is struggling to avoid defaulting on those bonds or going insolvent for a second time in 13 years, Bloomberg News reported today. A decade after Desert Hot Springs, Calif., emerged from court protection, it’s again on the brink of fiscal collapse. Officials last night discussed dissolving the 27-employee police department and handing the service over to the surrounding county, the Desert Sun reported. The community of 28,000 in an arid valley east of Los Angeles is at risk of becoming the sixth U.S. city in the past 25 years to go bankrupt twice. City council declared a fiscal emergency in November, a step toward bankruptcy under California law, after staff warned the municipality would run out of cash by March because of “severe economic downturns, state takeaways and a decline in development activity.” Desert Hot Springs also faces about $740,000 in annual debt payments on securities issued in 2004 to cover the cost of a legal settlement that pushed it into bankruptcy in 2001.

Michigan Attorney General Bill Schuette yesterday approved a deal to protect the collection of the Detroit Institute of Arts (DIA) from being tapped to help pay the bankrupt city's creditors, Reuters reported yesterday. Under the settlement, which is part of the so-called grand bargain in Detroit's debt adjustment plan, the DIA's assets will be transferred to a nonprofit corporation for the benefit of Detroit and state residents. Schuette said that the arrangement complies with an opinion he issued a year ago that concluded that the DIA's art collection is held in a charitable trust for the people of Michigan and no part of the collection can be "sold, conveyed, or transferred to satisfy city debts or obligations." The attorney general said that his approval was required under the settlement. The Detroit City Council has also approved the transfer of city assets at the DIA to the nonprofit corporation.

The Detroit City Council yesterday voted for the second time this month to endorse the transfer of art and other assets at the city-owned Detroit Institute of Arts to a charitable trust as part of a proposal to protect the art from being sold off in the city’s bankruptcy case, the Detroit Free Press reported today. The council’s second-ranking member, George Cushingberry Jr., said that federal mediators involved in the bankruptcy case determined the council’s first resolution — passed on June 5 — was not satisfactory. The first resolution indicated that the council supported the art transfer. The resolution passed yesterday reads that the city council approves the transfer. The first resolution also referenced some additional questions the council had about the transfer, corporation counsel Butch Hollowell said. The transfer of DIA art is part of the so-called grand bargain, a deal equivalent to $816 million that helps reduce pension cuts for Detroit retirees. The grand bargain is the centerpiece of emergency manager Kevyn Orr’s plan to restructure Detroit when it exits bankruptcy.

Detroit got closer to resolving its record $18 billion municipal bankruptcy, reaching a deal with the insurer of taxpayer-backed bonds on how to treat debt holders, Bloomberg News reported on Saturday. Details are being put into final written form, according to a statement filed in court yesterday by mediators appointed to help broker an agreement. Since filing for bankruptcy last year, Michigan’s largest city has been negotiating with many of its biggest creditors, including unions, pension plans and some bondholders. The mediators didn’t say how much the bondholders covered by yesterday’s agreement, who are owed about $163.5 million, would recover or how much insurers would have to pay to cover any losses on the limited tax, general obligation bonds known as LTGOs. The city had previously estimated that without a deal, bondholders would get back as little as 10 cents on the dollar.

An agency created to illuminate bankrupt Detroit plans to borrow $185 million to improve street lighting, Bloomberg News reported yesterday. The Michigan Finance Authority will offer bonds, secured by a utility users tax, on behalf of Detroit’s Public Lighting Authority on June 25, Standard & Poor’s analyst Jane Ridley said. The debt is rated A-, the seventh-highest investment grade, according to an S&P report. The lighting authority was created in February 2013 to replace a city department, and was authorized to issue debt to repair a system that left swaths of the city in darkness, with an estimated 40 percent of its 88,000 lights broken. A $60 million bond sale in December financed the replacement of thousands of broken, outdated street lights with LED lights. The authority had planned to use the new bond issue to pay off the December debt and finance more lighting repairs. The bond sale was approved by Bankruptcy Judge Steven Rhodes as part of the city’s restructuring plan to improve services.