Koch group prepares to fight Detroit deal

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LANSING, Mich. -- Americans for Prosperity, the conservative advocacy group supported by the Koch brothers, has launched an effort to torpedo a proposed settlement in the Detroit bankruptcy case, potentially complicating chances for completing the deal just as its prospects seemed to be improving.

The organization, formed to fight big government and spending, is contacting 90,000 conservatives in Michigan and encouraging them to rally against a plan to provide $195 million in state money to help settle Detroit pension holders' claims in the case, a key element of the deal.

The Koch group has threatened to run ads against members of the Republican-controlled Legislature who vote in favor of the appropriation before the state's August primary.

Michigan lawmakers on Tuesday opted to wait a day to hold their initial vote on giving the state money to help Detroit emerge from bankruptcy, while potentially keeping the city under oversight for decades. A GOP-led House committee plans to vote on the 11-bill package today, after reviewing a number of changes being made.

Expected changes include adding a City Council designee to a nine-member oversight board to review Detroit's finances and budgets. The panel would still consist mainly of state appointees. Another change makes the oversight panel go dormant if Detroit meets various conditions.

Using public money for Detroit's case "is very toxic, especially to out-state and Republican, conservative-leaning individuals," said Scott Hagerstrom, director of the Americans for Prosperity's chapter in the state. "Even out-state Democrats, why send any more money to Detroit? Certainly other areas of the state have needs."

The group's move is a blow to Republican Gov. Rick Snyder, who proposed the state cash as a final ingredient to bring the 10-month-long bankruptcy case to a conclusion. Some creditors are fighting the "grand bargain," but it recently drew support from major retiree groups and unions. The bankruptcy court trial on the city's case comes this summer.

"This is a settlement. This not a bailout," Mr. Snyder said. "And I want to be very, very clear about that."

Ten-year-old Americans for Prosperity, which plans to spend at least $125 million nationally helping conservatives in the midterm elections, is becoming more active in state politics. Its willingness to spend millions for advertising has made it a powerful player in political contests.

Dave Doyle, a political strategist and former chairman of the Michigan Republican Party, said the organization's opposition could make a difference, even though polling shows considerable public support for a settlement. "What does have an impact is if they start spending a lot of money on TV and radio and doing mailings into people's districts. The threat of that would get some people to pay attention," he said.

Mr. Snyder, who took the lead in resolving Detroit's fiscal crisis by appointing an emergency manager for the city's operations, proposed the $195 million to match commitments from private foundations. The money would limit pension cuts for the approximately 30,000 retirees and city workers to no more than 4.5 percent and avert the need to liquidate the Detroit Institute of Art's collection to raise money. Mr. Snyder and city leaders say the museum is key to rebuilding Detroit as a world-class city.

JPMorgan Chase, the nation's biggest bank, will provide $100 million to help Detroit with housing repairs, blight removal, job training and economic development projects during the next five years, according to two people with direct knowledge of the plans. The investment, a mix of loans and grants, will add to the growing pile of money from outside private institutions as the city nears the final, painful stages of the nation's largest municipal bankruptcy proceeding.

JPMorgan's support, reported by Detroit newspapers, will focus on city revitalization efforts and may help ease concerns by some legislators that Detroit could find itself in financial trouble again. The institution's chairman and chief executive, Jamie Dimon, will announce the money with state and city officials today.

Despite the cost to the state, Mr. Snyder said, "It would be more positive to get this behind us. How many of us have traveled somewhere in the country or the world and had to listen about this bankruptcy?"

But the question is a tough sell for many Republicans, who blame the Democratic-dominated city's problems on corruption and overly powerful labor unions.

"I think every member of the Legislature wishes we weren't in this situation, where we even have to consider it," said Rep. Robert VerHeulen, a Republican from conservative western Michigan.

The New York Times contributed.

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