Detroit emergency manager pressed on pension cuts at bankruptcy trial

DETROIT Mon Nov 4, 2013 5:47pm EST

Detroit's emergency manager Kevyn Orr speaks to members of the Detroit Economic Club in Detroit, Michigan October 3, 2013. REUTERS/Rebecca Cook

Detroit's emergency manager Kevyn Orr speaks to members of the Detroit Economic Club in Detroit, Michigan October 3, 2013.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - Detroit's unions called witnesses on Monday to testify that the city does not belong in bankruptcy including representatives of a union and retirees who said a negotiated settlement of the city's debts had been possible before it filed for bankruptcy in mid-July.

The testimony at the city's bankruptcy eligibility hearing in U.S. Bankruptcy Court followed an appearance by Kevyn Orr, Detroit's state-appointed emergency manager. Orr added further nuance to the question of whether a bankruptcy filing might violate pension protections enshrined in Michigan's state constitution.

To be eligible for bankruptcy, Detroit must prove that it is insolvent, that it negotiated in good faith with its creditors or that negotiations were impracticable because of the number of creditors.

With more than $18 billion in debt and other obligations, Detroit filed the largest municipal bankruptcy in U.S. history on July 18.

The city plans to submit a restructuring plan to the court by the end of the year if it is found eligible for bankruptcy.

The presidents of the Detroit Retired City Employees Association and the Detroit Retired Police and Fire Fighters Association each took the stand Monday afternoon to assert that their organizations could have negotiated on behalf of city retirees.

But under questioning from city attorneys, the two leaders acknowledged limitations to their negotiation authority. DRCEA President Shirley Lightsey and DRPFFA President Donald Taylor each said they were not authorized to negotiate a binding reduction in health or pension benefits.

"I've never had the authority to make a binding (agreement) and I've never asked that from the membership," Lightsey said of reducing pension benefits.

Taylor said he did not ask for the authority to negotiate cuts to pensions because Orr and then Michigan Treasurer Andy Dillon told him this spring that pensions were protected under Michigan's constitution.

"He was fully aware that the pensions were protected by the state constitution and he had no indication to set aside or modify the state constitution," Taylor said of Orr.

Steven Kreisberg, the American Federation of State, County and Municipal Employees international director of collective bargaining and healthcare policy, also testified Monday afternoon that concessions agreed to last year by the city and a coalition of unions, though never implemented, showed that Detroit could have negotiated with the unions to avoid bankruptcy.

Kreisberg is scheduled for questioning Tuesday morning by Detroit's attorneys. Rich Baird, a top aide to Michigan Governor Rick Snyder, and former Michigan Treasurer Andy Dillon are also expected to testify on Tuesday.

Closing arguments in the case are expected to begin Thursday, and Rhodes is not expected to make a decision on eligibility until later this month at the earliest. Michigan Governor Rick Snyder testified last week, a rare instance of a sitting governor testifying in a court proceeding.

PENSION RIGHTS 'SACROSANCT'?

During the morning session, emergency manager Orr testified that he did not mean to mislead city retirees when he said during a June 10 public meeting that pension rights were "sacrosanct" under Michigan's constitution.

"I wasn't attempting to mislead anyone. I was trying to say we understood these issues around pensions," Orr said.

"What would you say to that retiree now about his rights?" asked U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case.

"I would say that his rights are in bankruptcy now," Orr said. "I'd say those rights are subject to the supremacy clause of the U.S. Constitution."

"That's a bit different than sacrosanct, isn't it?" Rhodes replied.

Orr, who wrapped up four days of testimony on Monday, has repeatedly argued that pension benefits must be diminished as part of Detroit's financial restructuring as U.S. bankruptcy law trumps the Michigan Constitution, which protects public pension benefits from being slashed.

But when another objecting attorney tried to ask Orr about the supremacy clause, Rhodes interrupted, saying, "We've had enough testimony on the supremacy clause. It's not really within the scope of this trial."

Orr has said he plans to stay in office until next autumn.

Detroit residents will head to the polls on Tuesday to elect a new mayor.

(Reporting by Joseph Lichterman; Editing by Maureen Bavdek and Cynthia Osterman)

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