After negotiations lasted until the wee hours of the morning, the city today filed its proposed agreement with bond insurer Financial Guaranty Insurance Co. in the bankruptcy case. The full document is below. Here are a few highlights:
*A development agreement would mean FGIC or its developer partner would build “mixed-use facility” on the site of Joe Louis Arena after it is torn down in 2017. The development would include at least 300 hotel rooms and office, retail, commercial and residential space. Buildings would not be higher than 30 floors.
*Detroit Emergency Manager Kevyn Orr will ask the city council to approve the deal by early next week. If the council doesn’t approve it, Orr could ask the State Emergency Loan Board for approval.
*The agreement means the city’s litigation challenging the legality of a 2005 pension funding deal is dropped.
*The city will demolish “the Joe” and remediate the site. The state will pay $6 million toward those cots and expenses.
*The state will reimburse the developer up to $4 million in incentives from the Michigan Strategic Fund, in cooperation with the Michigan Economic Development Corp. and $14 million from the Michigan Strategic Fund’s Brownfield Tax Increment Financing Program.
*The city will change the zoning on the site to permit a mixed-use development. The city will approve the site plans.
* To settle FGIC’s debt on the interest rate swap deal for pension funds, FGIC will receive $39.7 million, partially in B notes already in the city’s Plan of Adjustment, partially in money from the Downtown Detroit Development Authority. Another $4.5 million paid to FGIC will come from other funds in the swap claim.
*FGIC will receive about $67.2 million in new C notes. Bond insurer Syncora, in a deal announced last month, received about $23.5 million in those funds. City attorney Corrine Ball said the C note payments represented the relative share of each insurer’s claim in the pension fund insurance: Syncora at about $400 million, FGIC at about $1.1 billion.
*About $19.7 million in “settlement credits,” also offered to Syncora, will be available for FGIC to use as vouchers toward future purchases of city assets. The funds could be used toward 50 percent of any purchase price.
In a 5-4 vote, the Detroit City Council today approved a five-year lease agreement with Olympic Entertainment for the Joe Louis Arena and parking structure. The deal is expected to bring $5.2 million to the city in cable fees, rent and other payments during the next five years. The Detroit News reports:
The new lease — which replaces the original 1978 agreement that expired July 1, 2010 — calls for rent of $1 million a year. Olympia Entertainment — part of the Detroit business empire owned by Mike and Marian Ilitch — also will pay the city about $100,000 a year for police fees.
While the City Council approved the deal, it was the city’s bankruptcy lawyers who negotiated it, the Detroit Free Press reports. One of them addressed concerns that the cable fees were too low, given previous estimates they could total tens of millions of dollars:
A lawyer for Jones Day, however, told the council today that the estimate was exaggerated, and he questioned the city’s chances of winning a lawsuit to recover the cable TV money. … Councilwoman Mary Sheffield, who voted against the lease, said Detroit is not getting enough out of the deal, considering it is in the midst of the country’s largest ever municipal bankruptcy. “We are bankrupt,” she said after today’s meeting. “We are continually cutting from the working class people when there could be a $50 million to $80 million revenue,” she said.
Detroit Emergency Manager Kevyn Orr was a partner at Jones Day before resigning to accept the Detroit post a year ago.
Council President Brenda Jones, and members Scott Benson, Raquel Castaneda-Lopez and Mary Sheffield voted against the proposal. Castaneda-Lopez wanted to eliminate from the lease a non-compete clause that prohibits the city from using Joe Louis Arena for events after the Red Wings leave. Her request was not granted.
The Detroit Free Press had a slew of stories over the weekend related to the city’s bankruptcy. Here’s the most essential reading:
It’s been widely reported that Detroit’s bankruptcy has highlighted flaws in its pension financing and administration, and that’s drawn attention to how public worker pension systems operate. In a look at proposed reforms, their promises and their drawbacks, John Gallagher writes:
Some maintain government pension funds will stay healthy as long as the stock market remains high. Others believe America faces a genuine crisis in which millions of retired teachers, cops, clerks and other government pensioners face cuts to their monthly checks. Just last week, the nonprofit Society of Actuaries released a report by a panel of experts that said the total amount of unfunded liabilities in public pension plans in the U.S. amounts to nearly $1 trillion. Other experts peg the underfunding at three or four times that.
Kevyn Orr spoke with Detroit Free Press writers, telling them he’s frustrated the city’s pensioners haven’t accepted his plan that cuts 26 percent from retired general workers’ payments and 10 percent from police and fire retirees.
The offer is fair, he said, and delaying could jeopardize creation of an $815-million rescue fund meant to boost pensions and protect Detroit Institute of Arts masterpieces from being auctioned to pay off creditors.
Meanwhile, as debate continues about whether (or how) gains made in the downtown and Midtown areas could spread to neighborhoods, the new hockey arena complex is moving ahead with $261 million in public funds. Editorial Page Editor Stephen Henderson weighs in and explains how the structure and management of the arena deal contradicts much of the broader discussion about the city’s future:
Detroit is lost, it seems, when it comes to translating big wins in the city’s core into benefits for most of the people who live here, and we need both city and state government to step it up when it comes to balancing the swell of good fortune that’s overtaking parts of the city.
Under terms of the new stadium deal, Detroit loses the $7 million the team pays the city from percentages of ticket and suite sales, food and beverage concessions, souvenir sales and parking. The deal is raising other questions, the Free Press reports:
Publicly and privately, some residents and elected officials have questioned whether negotiators should have gotten more in the deal for state taxpayers — who are footing much of the construction costs — as well as more financial sweeteners for the City of Detroit, even though its contribution was limited to land for the arena site.