The special House Committee on Detroit’s Recovery and Michigan’s Future is hearing testimony today about the package of bills that would provide money and oversight to Detroit as it emerges from bankruptcy. Here’s the rundown of what’s happening:
The first remarks came from Sandy Baruah, president and CEO of the Detroit Regional Chamber.
“You are all engaged in what is perhaps the most important economic issue facing Michigan in a generation if not more than a generation. You’ll note that I said ‘Michigan’ and not ‘Detroit’ because I truly believe this is an issue for the state,” Baruah said.
He emphasized that the chamber is not funded by the city and promotes economic development in 11 counties in southeast Michigan. He cited his international travels and explained what he’s learned. “Outside of the state of Michigan, we are all viewed as one. Mackinac Island might as well be in a suburb of Kalamazoo,” he said. “When the world thinks ‘Michigan,’ they automatically think ‘Detroit.’ They are one and the same and frankly, internationally, the brand ‘Detroit’ is much better known than the brand ‘Michigan’. And in international business circles, Detroit’s reputation is surprisingly strong, still known for its manufacturing, engineering and marketing excellence.”
Next to speak was Rep. John Olumba (D-Detroit), who sponsored House Bill 5572. This is the legislation that proposes taking $194.8 million from the state’s “rainy day fund” for appropriation to Detroit. Using an interest rate of 6.75 percent, the $194.8 represents the present value of the$350 million for Detroit that Gov. Rick Snyder had proposed.
Committee Chair John Walsh (R-Livonia) explained how his bill, House Bill 5566 would create a seven-member panel to oversee Detroit’s fiscal operations including its finances, budgets, contracts for more than $750,000, collective bargaining agreements, debt issuance and revenue estimates.
“Yes, there is oversight, that’s no question. I think that’s a concern of many of our taxpayers,” Walsh said.
Walsh said he had talked to Detroit Mayor Mike Duggan specifically about the contract approval provision. “The mayor is working on providing us alternative language that will work,” Walsh said. “We’re working very closely with the mayor on that.”
Rep. Fred Durhal (D-Detroit) explained some of the provisions of House Bill 5575 that he introduced. Under this measure, the Michigan Settlement Administration Authority would be created to ensure the criteria are met for the state’s $194.8 million.
Committee Member Rep. Harvey Santana (D-Detroit) had concerns about the role city council would have regarding the hiring of a city Chief Financial Officer as required by House Bill 5567. “I think within the public is a bone of contention,” Santana said. He also questioned exactly what power the CFO, backed by the state oversight committee, would have.
“The council is still along with the mayor creating a budget for the city,” Walsh told Santana. “This doesn’t create unilateral opportunity for a CFO or the mayor to make those kinds of changes.”
Committee Member Rep. Michael McCready (R-Birmingham) questioned the number of contracts that would be reviewed by the oversight committee. Walsh gave more details of this conversations with Duggan, who was concerned about the high number. “The number …would create an unworkable process for the oversight committee,” Walsh said. “He’s going to try to develop a process that makes sense, something that gives the oversight committee the assurance that contracting is being done appropriately and for the benefit of the city but not gum up the works for the city and the mayor and not create a burdensome system that is unworkable.”
Rep. Thomas Stallworth was concerned about how oversight committee members are selected. The bill, House Bill 5566, calls the committee to consist of: the governor or a designee; the state treasurer; the director of the department of technology, management, and budget or a designee; a member appointed by the governor, who has knowledge, skill, or experience in the field of business or finance, including relevant actuarial expertise, and who is a resident of the city; the mayor or a designee; and two other members who live in the city and are chosen by the governor from lists provided by the Senate Majority Leader and the Speaker of the House.
“I think we would want to talk about whether more balance should be placed on the review board, especially as it relates to having the city council have some say or a designee on the review board,” Stallworth said, indicating most of the members were selected by the governor.
McCready said he shared some of Stallworth’s concerns. “I somewhat agree but I’d have to see it more laid out. The city council is such a big portion of the city of Detroit, obviously and the mayor, they’re very equal bodies, I’d say, they should have the ability to make an appointment as well and maybe not so much state appointment,” McCready said. “We may even want to consider the police and fire unions to have an appointment in this as well. This is the pensioners’ money we’re talking about.”
Next up was Nick Ciaramitaro, director of legislation and public policy for AFSCME Council 25, which represents about 2,000 of Detroit’s 9,000 city employees. The Council leadership and the city last month reached a five-year contract agreement.
But Ciaramitaro said the new legislation and the most recent Plan of Adjustment conflict with the contract agreement, which means AFSCME can’t support the legislation nor the plan as they are currently written. “At the end of last week, we felt that the Grand Bargain had been derailed,” Ciaramitaro said. “Yesterday I began to think there’s an opportunity to put this train back on the right track.”
Ciaramitaro said parts of the proposed legislation that require the city to change from traditional pensions to defined contribution plans are in direct conflict with what’s been negotiated and, if approved and made law, would be costly to the city. “Everyone loses in this provision,” he said. “We’re currently setting up a plan that was designed to fail.”
He also pointed out that the state was asking for a tremendous amount of oversight in exchange for about $200 million. “It is a lot of money, but remember that we’re dealing with pensions erasing the amount of nearly $4 billion,” he said. “We spent six months negotiating an agreement with the city and the state. The emergency manager and the governor signed off on that agreement. We support that agreement. That’s the agreement that Judge Rosen recently announced. The entire situation is in peril if the Legislature acts without recognizing what has gone on so far.”
Two representatives from the police and fire retirement system also testified. George Orzech, the group’s board chair, called for a one-time, lump sum payment from the state. “We pay out $25 million a month in benefit payments, life-sustaining benefit payments,” he said. “Your contribution would go into cash flow.”
He was joined by board member Sean Neary, who echoed Ciaramitaro’s characterization of the legislation being in conflict with mediation agreements and city court filings. “Maybe this is a little cart-before-the-horse syndrome,” he said. “Some of the bills introduced do not reflect the current Plan of Adjustment.”
At the end of their testimony, committee member McCready said this: “Thank you for your service to the city and to the state for what you do. I know you’ve had a tough situation to live under both the equipment situation and the society we live in and now add this on, it’s very challenging.”
The final speaker was Don Taylor, president of the Retired Detroit Police and Fire Fighters Association, which represents about 7,000 retired police and firefighters and surviving spouses. He pointed out to the committee that the bankruptcy mediations have resulted in the city’s obligation for retiree health care dropping from $4 billion to $450 million. Under the Grand Bargain, the $3.5 billion in pension claims is reduced to the $820 million contribution in the deal, Taylor said.
“The RDPFFA was the first group to endorse the Plan of Adjustment. The board did so knowing many of our members would not agree with that decision,” he said. “We knew that we were giving up our constitutionally protected pensions, however we did not feel it would serve the interests of anyone other than attorneys for us to engage in that ongoing, expensive legal battle.”
The committee’s chair, Walsh, ended the hearing by telling Taylor, “Putting the numbers out helps us realize how important this is.”
Another hearing is scheduled for May 15.