Feb 5 (Reuters) - In what would be a major step toward resolving Detroit's historic bankruptcy case, Michigan Governor Rick Snyder on Wednesday unveiled plans to use state funds to help pay for Detroit worker pensions in his proposed $52.1 billion state budget.
The insertion of the Detroit pension money is Snyder's first official move toward previously announced plans to tap $17.5 million a year over 20 years from the state's share of a 1998 multi-state settlement with U.S. tobacco companies.
Last month, the Republican governor proposed adding $350 million in state funds to money pledged by U.S. foundations to help fund Detroit's retired worker pensions and keep city-owned art work out of the bankruptcy case.
Pension funds are Detroit's biggest unsecured creditors, and Kevyn Orr, the state-appointed emergency manager running Detroit, has pegged the unfunded pension liability at $3.5 billion. Pension cuts are among options Orr has said he is considering in his effort to restructure Detroit's finances.
In a plan of financial adjustment circulated to major creditors last week, Orr put forward proposals to use state money, along with $470 million pledged by foundations and the Detroit Institute of Arts, to help make the city's pension payments.
Some lawmakers in the Republican-controlled legislature have opposed any kind of state bailout for the state's biggest city. But House Speaker Jase Bolger is open to the idea, according to his spokesman.
"Tobacco money is one potential source of revenue the speaker is willing to consider to make the settlement (to get Detroit out of bankruptcy) possible," spokesman Ari Adler said.
Detroit, which filed the biggest municipal bankruptcy in U.S. history in July, has a March 1 deadline to submit an adjustment plan to U.S. Judge Steven Rhodes, who is overseeing the case.
Snyder's $52.1 billion all-funds budget for the fiscal year that begins Oct. 1 includes $9.4 billion in general fund spending and $13.9 billion toward a school aid fund.
His plan would boost Michigan's budget stabilization fund to $700 million with a new deposit of $120 million. Another $122 million would launch the state's new health savings fund to offset future costs.