Detroit manager defends actions before bankruptcy

DETROIT (AP) — Detroit's emergency manager faced tough cross-examination Tuesday from lawyers for unions and retirees as he defended his decision to take the city into bankruptcy without first striking a deal to prevent pension cuts...

Adam Howard

Oct 30, 2013

DETROIT (AP) — Detroit’s emergency manager faced tough cross-examination Tuesday from lawyers for unions and retirees as he defended his decision to take the city into bankruptcy without first striking a deal to prevent pension cuts.

It was Kevyn Orr’s third day on the witness stand during a trial to determine if Detroit’s bankruptcy case can go forward. The city must show it was broke and tried to negotiate with creditors in good faith before filing for Chapter 9 protection in July.

The opposition is led by Detroit’s unions and pension funds, which have much to lose if the city is declared eligible to rework $18 billion in long-term debt. Orr has said the pension pools are underfunded by $3.5 billion, but he hasn’t proposed what to do about it.

Orr will return to the witness chair when the trial resumes Monday.

The Michigan Constitution prohibits public pensions from being impaired. Orr said he believes federal law could trump that provision, although he acknowledged there’s no legal precedent.

Under questions from a United Auto Workers lawyer, Orr testified that he and his team were prepared to negotiate with creditors after telling them in a private meeting on June 14 that they might get just pennies on every dollar owed.

“Yes, that’s why we called it a proposal,” he said.

But when asked if he would have agreed to keep hands off pensions, Orr replied: “Probably not.”

Attorneys lined up to question him Tuesday and to highlight their key claim for Judge Steven Rhodes: Bankruptcy was a done deal, and Orr really had no interest in negotiating. They showed video clips of him speaking publicly about his sweeping powers as a state-appointed manager and the possible consequences of taking the city into Chapter 9 if finances didn’t improve.

“We were trying very hard” to get agreements, Orr insisted during his testimony.

He said that’s still the case, even if Detroit is found to be eligible for bankruptcy. The alternative, Orr added, could be big losses for creditors — a “cram-down” — if the judge eventually approves a plan for the city to emerge from Chapter 9.

Orr, a bankruptcy lawyer by training, took his lumps from opposing counsel and also took a few licks from the judge.

He said he couldn’t recall specifically asking Michigan Gov. Rick Snyder for a state bailout for Detroit pensions. He said it was clear there would be no buckets of cash for any purpose.

Snyder and key lawmakers have said they would not rescue Detroit with a bailout.

Rhodes repeatedly became frustrated with Orr’s responses to questions. Instead of replying yes or no, Orr often wanted to elaborate or couldn’t recall.

“You don’t remember asking the governor to write a check for $3.5 billion?” Rhodes said.

Orr said, “I don’t recall asking it in that context.”

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