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The White House is not considering a financial bailout for Puerto Rico, where chronic fiscal challenges have raised the specter of a Detroit-like bankruptcy, an Obama administration official said yesterday, Reuters reported. The island's woes have led credit rating agencies to say that they are considering labeling the U.S. territory's general obligation debt as junk bonds. Puerto Rico already pays the highest interest rates of any big municipal bond issuer, but as a U.S. territory, it does not have the ability to file for chapter 9 protection. "The President's Task Force continues to partner with the Commonwealth to strengthen Puerto Rico's economic outlook and to ensure that it is taking advantage of all existing federal resources available to the Commonwealth," said White House spokeswoman Katherine Vargas. "There is no deep federal assistance being contemplated at this time," she said. Puerto Rico has raised taxes, reformed pension systems and cut staff in moves meant to counter chronic budget deficits and an economy in or near recession for eight years.

Detroit's available cash shrank less quickly than city officials feared it would in the latest quarter, but it was still down nearly 32 percent from the previous quarter to $87.5 million, according to a report posted on the city emergency manager's website, Reuters reported yesterday. The decline was significant, but did not approach the levels feared by Detroit Emergency Manager Kevyn Orr. In August, he warned that the city could be out of cash at year end if Detroit were unable to gain unfettered access to casino tax revenue, which is pledged to banks for payments on interest rate swap agreements that the city is trying to terminate at a steep discount. Bankruptcy Judge Steven Rhodes, who is overseeing Detroit's bankruptcy case, last week rejected a deal for the city to end the swaps at a 43 percent discounted payment to two investment banks. Judge Rhodes urged Detroit to renegotiate with its swaps counterparties, UBS AG and Merrill Lynch Capital Services. Detroit's cash on hand beat the city's forecast of ending the quarter with just $40.7 million, largely due to higher-than-expected property tax collections, the report showed.

Gov. Rick Snyder (R) avoided asking the public what he had already floated privately with lawmakers: State aid to help Detroit emerge from bankruptcy, the Associated Press reported on Saturday. Snyder appears to have some allies in the leadership of the Republican-led legislature, but other legislators are worried about state financial assistance to Detroit setting a precedent if other cities collapse. Snyder is gauging support for a state commitment of roughly $350 million over 20 years, matching $330-plus million in commitments to date from national and local foundations to shore up Detroit's pension plans and prevent the sale of valuable city-owned art. Other foundations are expected to soon announce their participation in the effort to help address two of the bigger issues facing the insolvent city. Senate Majority Leader Randy Richardville, who last year introduced a bill to prohibit the sale of the Detroit Institute of Arts' collection to help with Detroit's financial crisis, said he had seen no plan or request, and other lawmakers said Snyder spoke more of a concept and did not offer much in the way of specifics. But Richardville was cautiously optimistic that a solution would be put forth soon and said legislators understand the city's importance to Michigan.

The Detroit federal judge overseeing mediation of the city’s $18 billion bankruptcy met with Michigan’s top two Republican lawmakers to gauge their willingness to help resolve the largest municipal insolvency in U.S. history, Bloomberg News reported today. The leaders of the state legislature met with U.S. District Judge Gerald Rosen in December, their representatives said this week. The bankruptcy is politically sensitive in Michigan’s Republican-controlled House and Senate, where lawmakers have proposed using a $971 million surplus to cut taxes. Talks with lawmakers are continuing, a person familiar with the matter said. Any aid from the state legislature would mark a change in the Republican party’s treatment of the heavily Democratic city, Michigan’s largest. Republican Governor Rick Snyder, who faced lawsuits for authorizing the bankruptcy, has said he opposes a state bailout that only focuses on debt.

The multimillion-dollar plan to save the Detroit Institute of Arts from a fire sale to help the city pay its debts in bankruptcy court could face its first test next week when a group of creditors will argue in court that the valuation of the city-owned art collection is incomplete, the Wall Street Journal reported today. Christie's auction house last month estimated that a portion of the museum’s collection — the more than 2,700 pieces of art purchased with city funds at the DIA — is worth between $454 million and $867 million. But the creditors group says that the valuation process should be much broader to include more works from the 66,000-piece collection, likely resulting in a total valuation of more than $1 billion. If the collection is deemed to be worth substantially more than the Christie's estimate, it could threaten the plan to raise some $500 million from foundations to pay the city for the entire art collection so that the city can fund a portion of its estimated $3.5 billion pension shortfall.

Federal mediators involved in the Detroit’s bankruptcy proceedings announced yesterday that national and local philanthropic foundations have committed more than $300 million toward a deal that would help preserve the Detroit Institute of Art’s renowned collection by bolstering the city’s employee pension funds, the New York Times reported today. A group including the Ford Foundation, the Kresge Foundation and the John S. and James L. Knight Foundation have pledged to pool the money, which could essentially relieve the city-owned museum of its responsibility — estimated at millions of dollars — to help Detroit pay its debts in its federal bankruptcy case. As part of the plan, on which negotiators have been working quietly for months, the museum might be removed from city ownership and put under the control of the state. But mediators stopped short of saying that an agreement had been reached with state officials or with the office of Kevyn D. Orr, Detroit’s emergency manager, who had said that the museum must pay its share to help ease the city’s debt.

Bankruptcy Judge Steven Rhodes said that he will rule on Thursday on whether to let stand a deal struck between the city of Detroit and two investment banks to end toxic interest rate swap agreements that proved to be a strain on city finances, Reuters reported yesterday. Lawyers for bond insurers, banks, pension funds and others objected to the deal during a bankruptcy court hearing yesterday, saying that the Dec. 24 deal with UBS AG and Merrill Lynch Capital Services, a unit of Bank of America Corp., was not in the best interest of the city. Detroit could have won larger concessions from the investment banks, the opponents argued. If Judge Rhodes approves the agreements, Detroit will pay the banks $165 million plus fees to end the agreements at a 43 percent discount to their original cost to the city. Detroit entered into the interest-rate swaps in a failed attempt to hedge, or limit the risk, on some of the $1.4 billion in pension debt that it sold in 2005 and 2006.

This week is Detroit's chance to prove that the city's comeback has begun as thousands of automotive executives, suppliers and members of the news media arrive there for the annual North American International Auto Show, the New York Times reported today. The auto show has historically been a financial boon to the city, and this year is no exception. Organizers estimate that it will contribute $365 million to the local economy in wages and other spending. Yet with the city mired in chapter 9 bankruptcy, the event has taken on added importance. City leaders are quick to point out other early signs of a broader revival, such as a nascent technology sector, new restaurants and retail stores, and the revamped Cobo Center convention facility, where the auto show’s media previews begin today.

Retired Detroit workers, including police and firefighters who are seeking to block the bankrupt city from unilaterally cutting their health care benefits, filed suit against the city, which is already struggling to provide its 700,000 residents with basic services, Bloomberg News reported on Friday. The retirees said that the city’s decision to reduce funding of vested health-care benefits by 83 percent, starting in March, will force retirees to spend money out of pocket to replace the coverage, according to a filing on Thursday by representatives of the workers in bankruptcy court in Detroit. The retirees seek to block the city from dropping its state and federal “contractual obligation” to provide them with health care benefits, according to the filing.

Detroit’s pension funds continued to push this week for an expedited appeal of the city’s bankruptcy eligibility and ability to slash pensions while negotiations between the city and its creditors intensified over a deal to shed billions in debt, the Detroit News reported today. The General Retirement System and Police and Fire Retirement System shot back on Wednesday at the city’s attempt to keep its favorable eligibility ruling out of the hands of judges on the Sixth Circuit Court of Appeals’ bench. “The city’s transparent effort to avoid any appellate review of the critically important eligibility question is legally unjustified and breathtakingly unfair to the tens of thousands of workers and retirees who devoted their lives to public service to Detroit and now depend on their accrued pension benefits, as well as employees and retirees across the state and nation who may be affected by this ruling,” the pension funds wrote in a brief filed on Wednesday with the Sixth Circuit. The pension funds’ appellate attorneys filed the brief after the city’s attorneys argued against an expedited appeal in a Monday filing with the Cincinnati-based appellate court. Detroit’s retirees want to be insulated from cuts to more than $18 billion in city debt, including an estimated $3.5 billion long-term liability in the two pension funds.