DETROIT – Eight days before Detroit filed for bankruptcy, Michigan’s state treasurer expressed concern about the move, saying he agreed with it but wondered if the city first should give creditors a “take-it-or-leave-it demand before we pull this trigger,” according to an email revealed in court Tuesday.
Andy Dillon, who resigned last week, was called as a trial witness by unions opposed to Detroit’s Chapter 9 filing. Unions and pension funds want the judge to dismiss the case, claiming the city failed to hold “good-faith” negotiations, an important step for a local government to be eligible to restructure in bankruptcy court.
Dillon had a key role in trying to repair the city’s finances from the time he took office in 2011 as an appointee under Republican Gov. Rick Snyder. On July 10, he wrote an email to Detroit emergency manager Kevyn Orr in response to a draft of Orr’s bankruptcy recommendation.
“I don’t think we are making the case why we are giving up so soon to reach an out-of-court settlement. Looks premeditated,” Dillon wrote. “I think we may want a take-it-or-leave-it demand before we pull this trigger. I agree with the recommendation but I don’t think we make the case.”
Dillon testified Tuesday that he had no further input in Orr’s recommendation to the governor, who approved the bankruptcy on July 18. He said bankruptcy seemed inevitable after Orr in June offered creditors just 10 cents on every dollar owed. The city says it has debt of $18 billion.
“I became very skeptical that an out-of-court solution could happen,” Dillon testified.
He said he was more concerned about Detroit’s ability to pay for retiree health care than its ability to cover pensions, which are underfunded by $3.5 billion.
“The number was relevant but not the driving factor to whether (bankruptcy) was necessary,” Dillon said of pensions.
The Michigan Constitution protects public pensions, but the bankruptcy case will test that provision. In an email to the governor before the bankruptcy, Dillon said there are a “lot of creative options” to explore with pensions.
But when asked in court if he subsequently proposed any, Dillon said no.
Orr, who was appointed by the governor in March, has defended his actions with creditors, noting that four weeks passed between a meeting to describe the city’s finances and the bankruptcy filing.
But the UAW’s chief lawyer, Michael Nicholson, portrayed Orr and his team as inflexible. He said attendees weren’t always free to speak at private meetings and instead were required to put questions on cards.
“I’ve never been in negotiations where only one side speaks,” Nicholson testified Tuesday.
He acknowledged the UAW had no interest in negotiating pension cuts because public pensions are protected under the state constitution. But he said he was willing to put together a coalition to talk about health insurance.
“Mr. Orr never responded. … They never took us up on it,” Nicholson said.
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