DETROIT – A judge deciding whether Detroit can go through a multibillion-dollar makeover in bankruptcy court suddenly challenged the city’s emergency manager Monday over remarks made during the summer suggesting pensions would be safe in any restructuring.
Emergency manager Kevyn Orr had told the public weeks before the July bankruptcy filing that pensions were “sacrosanct” under the Michigan Constitution. Judge Steven Rhodes interrupted friendly questioning by a city lawyer on Monday and asked Orr, “What would you say to that retiree now?”
Orr, near the end of his fourth day on the stand, answered in legal terms, saying rights to a full pension could be trumped by federal law in a bankruptcy.
“That’s a bit different than sacrosanct,” the judge said.
Attorneys for unions and pension funds, worried about benefit cuts, have challenged Detroit’s eligibility to fix its finances in bankruptcy. Detroit is the largest city in U.S. history to choose Chapter 9.
Some creditors claim the city failed to hold “good-faith” negotiations with them before the July filing, a key step that’s needed to be eligible to recast $18 billion in debt, including $3.5 billion in underfunded pensions.
Steve Kreisberg, national director of collective bargaining at the American Federation of State, County and Municipal Employees, said he attended at least four meetings with Orr or his staff before the filing.
“We were expressly told they were not negotiations,” Kreisberg told the judge.
Kreisberg tried to portray the union as flexible and reasonable, saying AFSCME, for example, has negotiated health care costs in Illinois while still challenging a new state law that would make retirees pay for those changes.
The exchange between Rhodes and Orr was the day’s dramatic high point. It’s not uncommon for a judge to ask a witness to repeat testimony or clarify something, but Rhodes asked a pointed question about how the state-appointed manager views the most controversial aspect of the bankruptcy.
Detroit has 23,000 retirees, and the state constitution since 1963 has protected public pensions. AFSCME estimates that the average rank-and-file retiree gets no more than $19,000 a year.
In September, after hearing retirees speak all day at a court hearing, the judge urged Orr and his boss, Gov. Rick Snyder, to listen to a recording of their anxieties and fears.
During Orr’s cross-examination Monday, an attorney for police and firefighters presented a July 12 letter to the city, dated six days before the bankruptcy, that signalled a willingness to discuss pension proposals. The letter also asked for specifics from Orr’s team.
“I know there were a lot of discussions. I don’t know if they were provided with specific proposals,” Orr testified.
Later during Orr’s testimony, attorneys for the city introduced spring letters from unions that said they could not negotiate on behalf of current retirees.
The trial is expected to end by Friday. If Detroit is found to be eligible for Chapter 9 protection, the case would take a major turn toward how to actually solve the city’s debt.
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