When Detroit first went bankrupt, the Obama Administration made it clear that while it would help the city out where it could (and it did send some money), it would not provide the city a federal bailout. Even so, this hasn’t stopped various groups within the city from trying to get more federal aid where they could. The latest plan was hashed out in conversations between the union and the city over raising money to close the funding gap in the city’s pension plans.Their plan centers around a federal program for distressed homebuyers in Michigan created in the aftermath of the housing crash. Essentially, the state will transfer $100 million of these federal funds to the city as part of a blight reduction program, and the city will then use these funds to replace what it was already spending on blight reduction, freeing up the rest of the money to go to pensions.This is clearly not what was intended when the Treasury Department set up the program in 2010, but the Administration does not seem to have a major issue with this proposal (although it hasn’t explicitly endorsed it either). As the WSJ reports:
“There is no bailout coming from Washington, but we continue to support the efforts by state and local officials as they work on Detroit’s revitalization,” the White House said in a statement Wednesday. […]Still, the White House has been under pressure from organized labor to help blunt the effects of the bankruptcy on workers in Detroit and beyond. Since the city’s bankruptcy filing in July, union leaders have met directly with the White House, concerned that the city’s case could set a dangerous precedent by cutting public pensions.
The larger question now is whether the state government will go along with it. Recent statements from the Governor’s office suggest that Rick Snyder does not particularly care for the plan, though he may choose to let it go through anyways.This may help explain how the city plans to pay for the generous deals it struck yesterday with its pensions funds. The extra money won’t be nearly enough to plug the hole in Detroit’s retirement programs on its own, but this plan and others like it could certainly begin to make a dent.