DETROIT – Looking years ahead, the judge overseeing Detroit’s bankruptcy said Thursday he wants assurances from the mayor and other elected leaders that they’ll follow a final plan that likely cuts pensions, sheds debt and plows millions into better services.
The bankruptcy case — the largest by a local government in U.S. history — is far from over. But Judge Steven Rhodes told city attorneys that he’d have a hard time approving an exit strategy without an endorsement from Mayor Mike Duggan and council members.
Emergency manager Kevyn Orr, appointed by the governor, took the city into bankruptcy last July, but his 18-month term ends by fall.
Rhodes said he doesn’t want to “get to a place where a plan obligates the city to make certain payments, and Mr. Orr is no longer in office and whoever is running the city doesn’t support the plan.”
Detroit bankruptcy attorney Heather Lennox said Duggan and other officials are expected to testify this summer when Rhodes holds a trial on the plan.
Rhodes also told the city to start thinking about someone who would independently monitor Detroit’s post-bankruptcy performance.
The case clearly is picking up momentum with the help of behind-the-scenes negotiations with mediators. Detroit this week got the support of pension funds and a retirees’ group to reduce payouts to thousands of retirees as well as employees who qualify for a future pension.
Roughly 30,000 retirees and employees still must vote in May and June, and the judge also must review Detroit’s entire bankruptcy plan.
“We are also optimistic in the next several days we may be in a position to announce further agreements,” said Bruce Bennett, another city attorney.
There are many concerns, however. Foundations, philanthropists and the state of Michigan are supposed to pay $816 million to shore up pensions and prevent the sale of city-owned art.
The Republican-controlled Legislature still hasn’t approved the state’s share, $350 million, although Gov. Rick Snyder and House and Senate leaders are on board.
Union attorney Sharon Levine said the money should be guaranteed when retirees vote. Pension cuts would be deeper without it.
“This would not be the first time they would be lied to,” Levine told the judge.
Carole Neville, an attorney for a committee of retirees, said there’s a need for clear disclosure about another key issue facing many pensioners. The city is proposing to recover 20 per cent of what they earned in separate annuity accounts since 2003. The money would be deducted from future pension checks of non-uniformed retirees.
The pension fund for years offered an annual interest rate of at least 7.9 per cent in good investment times and bad — an “unfair and illegal diversion of pension fund assets,” Bennett said.
Neville said the city needs to clearly explain this to retirees when they vote.
“Nobody understands that. … It is the property of the retiree,” she said of the claw-back.
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