(Recasts, adds cross examination of CFO by Syncora attorney)
By Karen Pierog
DETROIT, Sept 4 Revenue projections in Detroit's
debt adjustment plan will be hard to achieve, but restructuring
initiatives will bring in new money and help make Detroit's plan
feasible, Detroit's chief financial officer said Thursday in the
city's historic bankruptcy hearing.
John Hill, who was appointed the city's CFO last November,
testified that the plan would eventually gain money for Detroit
as the restructuring initiatives bring about changes, including
higher collections of unpaid taxes. Hill was the first witness
called by the city of Detroit as it seeks a federal bankruptcy
judge's endorsement of its financial restructuring plan.
"Revenue targets in the plan are going to be difficult to
meet," said Hill, in answer to a question from an attorney for
hold-out city creditor Syncora Guarantee Inc.
If revenue comes in below projections after Detroit emerges
from bankruptcy, that would lead to changes in the plan, which
would require the approval of an oversight commission created
for the city under Michigan law, according to Hill.
The CFO referred to the city's plan to shed about $7 billion
of its $18 billion of debt and other obligations as a road map
for operating Detroit once it exits the biggest-ever U.S.
The plan came under fierce attack in U.S. Bankruptcy Court
this week as Syncora and others blasted it for skirting state
and federal laws and discriminating against certain creditors.
Syncora and fellow bond insurer Financial Guaranty Insurance
Co guaranteed payments on $1.4 billion of Detroit pension debt
and are facing recoveries of just 10 cents on the dollar - or
perhaps nothing at all if the city succeeds in its effort to
void the debt altogether. Both insurers have argued the plan
short-changes them, while allowing fatter recoveries for others,
including the city's retired workers.
The federal court hearing to determine if the plan is fair
and feasible began on Tuesday with an opening statement from
Detroit's attorney, Bruce Bennett, who defended it as the best
hope for saving the city.
On Thursday, Douglas Smith, a Kirkland & Ellis lawyer
representing Syncora, peppered Hill with questions for 90
minutes in an effort to bolster Syncora's contention the city
did not adequately analyze how creditors would fare should the
bankruptcy case be dismissed.
Hill, the former executive director of Washington, D.C.'s
control board of the late 1990s and early 2000s, said he was not
aware of any study or discussions on raising Detroit's tax
rates. Detroit's taxes already have reached limits set by the
state of Michigan.
Hill also testified that Detroit's financial situation when
it filed for bankruptcy in July 2013 was more serious than what
Washington, D.C., faced and overcame without the help of
municipal bankruptcy, for which it is not allowed to file.
Smith's questioning of the CFO, which is expected to
continue on Friday, also touched on improvements in Detroit's
economy and the city's potential for gaining more revenue in the
future through new kinds of taxes and the privatization of
Hill also discussed projects to replace Detroit's
"antiquated" information technology and improve the city's
financial reporting. He said he was willing to stay on with the
city to see the projects through, noting some may take two years
The hearing is scheduled to continue through Oct. 17
(Additional reporting by Lisa Lambert in Washington; Editing by
Matthew Lewis, David Greising and Dan Grebler)