Despite budget surplus, no state bailout in works for Detroit, says top lawmaker

[January 16, 2014]  DETROIT (Reuters) — Despite forecasts that Michigan will have a budget surplus, a top state legislator on Wednesday warned that Detroit should not expect a state bailout for the struggling city that has filed the largest municipal bankruptcy in U.S. history.

Michigan House Speaker Jase Bolger, a Republican, wants much of the extra money to go toward tax cuts, according to spokesman Ari Adler.

"A direct bailout for the city by the state is not an option Speaker Bolger will consider, but many other options exist that deserve to be explored," Adler said in an email. "It's still too early to say what, if any, legislative action would be needed."

Bolger has spoken with U.S. District Judge Gerald Rosen, the chief mediator in the bankruptcy, Michigan Republican Governor Rick Snyder and others about "the best way to resolve Detroit's bankruptcy in a way that saves the state money and alleviates future financial liabilities," Adler said.

Bolger is not part of the ongoing mediation talks in the Detroit bankruptcy case, Adler added.

State Senate Majority Leader Randy Richardville, a Republican, met with Rosen before Christmas and has not spoken with him since then, Richardville's spokeswoman Amber McCann said in an email.

Detroit filed for bankruptcy in July 2013 and says it has more than $18 billion in debt. Michigan will have an extra $971 million in revenue for its fiscal 2015 budget, according to local media reports.

The next development in Detroit's bankruptcy case may take place on Thursday when U.S. Bankruptcy Judge Steven Rhodes is scheduled to rule on whether to approve a termination payment to end costly interest-rate swap agreements.

The city and UBS AG and Merrill Lynch Capital Services, a division of Bank of America, agreed to end the swaps, for $165 million, a 43 percent discount. The judge is also scheduled to rule on a request by the city to borrow $285 million from Barclays Plc to pay the swaps termination fee

(Reporting by Joseph Lichterman)

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