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Michigan governor includes Detroit pension bailout in budget

Michigan Governor Rick Snyder [official website] unveiled [press release] a new state budget on Wednesday that would allocate state funds to be used to cover Detroit [official website] workers' pensions, currently the subject of controversy in the city's bankruptcy proceeding. The plan sets aside $17.5 million annually for 20 years from funds the state received in a settlement with tobacco manufacturers. This is a major step towards the funding of the pension plans, which are in danger of being cut in an effort to reduce the city's debt. While Snyder's budget is controversial, reports indicate [Reuters report] that the state's Speaker of the House is willing to consider such a use of state funds. Detroit has also been promised $350 million in state funds in an effort to keep city artwork, as well as $470 million from other foundations hoping to ensure the pensions are fully funded.

Detroit's bankruptcy matter has been increasingly controversial and has sparked debate on the surrounding issues [JURIST op-eds] since the city filed for Chapter 9 bankruptcy in July of last year. Earlier this week Detroit filed [JURIST report] a lawsuit to invalidate $1.44 billion of pension debt. A judge for the Bankruptcy Court for the Eastern District of Michigan in January rejected [JURIST report] a proposed $165 million settlement agreement for the city of Detroit to pay off UBS and Bank of America. In December a judge ordered the city to renegotiate its bankruptcy-related financing with UBS and Bank of America, serving as the impetus for this week's proposed settlement between the parties. Earlier in December a judge ruled that Detroit is eligible and authorized [JURIST report] to file for bankruptcy, declaring the city insolvent because it owes approximately $18 billion to more than 100,000 creditors, which is harming the city's residents and making it essentially impossible for the city to negotiate with creditors. In July a judge allowed [JURIST report] Detroit's bankruptcy filing to continue, declaring that his federal bankruptcy court had exclusive jurisdiction over the matter. This action placed a stay on a Michigan circuit court ruling that had been announced three days earlier, which declared the filing unconstitutional [JURIST report] because it threatened public pension benefits and those benefits are protected by the Michigan Constitution [text, PDF].

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