DETROIT Thu Jan 23, 2014 8:01pm EST
DETROIT Jan 23 (Reuters) - As retirees and lawmakers began leveling criticism at Michigan Governor Rick Snyder's plan to use $350 million of state money to reduce cuts in pension benefits for Detroit workers, Snyder set out on Thursday to defend the proposal as a way to help ease the impact of the city's bankruptcy on its retired workers.
"I think it will be a lot of work, but I wouldn't propose it if I didn't think it was possible," the Republican governor said in an interview with Reuters. "But I wouldn't describe it as an easy exercise."
The proposal Snyder sketched out on Wednesday would need approval from the Republican-controlled Michigan legislature, where Snyder anticipates challenges from lawmakers who have opposed a "bailout" of the city.
Snyder also said he would not release any state funds unless Detroit's unions, workers and retirees agree to halt litigation seeking to challenge Detroit's bankruptcy.
Tina Bassett, a spokeswoman for Detroit's General Retirement System, which has been fighting the city's bankruptcy and pension cuts in court, raised doubts about whether a settlement can be reached. "There are still a lot of i's to dot and t's to cross before an agreement can be reached by all parties," she said in a statement.
Snyder's effort to win support for his plan may face its toughest test from within the ranks of his own party. Republican lawmakers hold a majority in both houses of Michigan's legislature and their leaders joined Snyder when he unveiled his plan on Wednesday. But some lawmakers do not want to see state cash thrown at Detroit's problems.
"I don't want to reward a bad actor. It's a bad precedent for the rest of the state," said State Senator Patrick Colbeck, a Republican from Canton, a town west of Detroit. He added that if Detroit gets state money, other Michigan communities should also get a share for their needs.
The Michigan-based Mackinac Center for Public Policy took issue with Snyder's contention the money, tapped from the state's share of a multi-state settlement with U.S. tobacco companies, would not constitute a bailout for the state's biggest city.
"Call it what you will, but statewide taxpayers will foot the bill and Detroit will get the money," wrote Jack McHugh, senior legislative analyst at the center, in a blog post on Thursday.
Snyder told Reuters his plan has "significant value" for the whole state. Snyder proposes the $350 million, to be paid out to retirees over 20 years, would come from Michigan's cut of a national settlement with tobacco companies, and not from tax revenues. He also suggested the state could issue bonds backed by the tobacco cash.
McHugh said Michigan would end up paying around $17.5 million a year or $24 million if the state sells bonds, noting that money would not be available for roads, schools or public safety.
Snyder defended his decision to make any payment contingent on city worker and retiree groups backing away from litigation they have brought contesting Detroit's bankruptcy.
"I don't think that's unreasonable to say that if we're going to contribute this, we wouldn't expect you to continue to pursue lawsuits over this topic," Snyder said.
The governor's effort to bring state aid comes in addition to another plan, announced last week, in which a group of foundations pledged over $330 million to protect Detroit's pensions and art museum.
A court-appointed group representing Detroit retirees in the bankruptcy case on Thursday lauded Snyder for seeking ways to minimize the impact of benefit cuts, but warned that the money from the state and foundations would fall far short of eliminating the cuts altogether.
"These proposed contributions, unless augmented, will not eliminate the significant pension benefit reductions sought from individual retirees by the city," said Terri L. Renshaw, chair of the retiree committee, in a statement.
Cuts to retirement benefits are a contentious issue. Kevyn Orr, Detroit's state-appointed emergency manager who took the city to bankruptcy court in July, has warned of severe cuts to pension benefits. Pension funds are the city's biggest unsecured creditors and Orr has pegged the unfunded pension liability at $3.5 billion.
U.S. Judge Steve Rhodes ruled on Dec. 3 that Detroit was eligible for municipal bankruptcy and that pension cuts could be part of the city's financial restructuring. The city's two pension funds and other groups have launched appeals of the ruling.
Snyder made it clear he was not interested in starting a "back and forth negotiation" with groups affected by his plan. He wants his plan approved by Judge Rhodes to ensure that "it's locked in," he said.
Snyder said one condition in his proposal, putting independent managers in charge of Detroit's general and police and fire retirement systems, arose out of his concern over the history of corruption at the pension funds.
"There's a lot of very competent pension fund managers, and there can be a whole list of them put together to say, 'OK, you can choose who you want from this list, but you need to choose from that list,'" he said.
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