DETROIT Oct 25 Cuts to Detroit's public
pensions and retiree healthcare were inevitable given the city's
sagging finances, a top consultant for the city testified on
Friday during the third day of a trial to determine whether the
city is eligible for bankruptcy.
Money owed to Detroit workers and retirees is a key factor
in the case, which will also hear testimony by Kevyn Orr,
Detroit's state-appointed emergency manager. Orr is expected to
explain efforts to negotiate with the city's numerous creditors,
including retirees and pension funds, before deciding to file
for the largest-ever Chapter 9 municipal bankruptcy on July 18.
A key claim made by attorneys representing the city's
unions, retirees and pension funds is that Orr and his team were
intent on filing for bankruptcy and did not make best efforts to
negotiate with them prior to the bankruptcy filing. They also
claim that plans to cut pensions would violate the Michigan
On Friday, city financial consultant Kenneth Buckfire said
he did not have to recommend to Orr that pensions for the city's
retirees be cut as a way to help Detroit navigate through debts
and liabilities that total $18.5 billion.
Buckfire said it was clear that the city did not have the
funds to pay the unsecured pension payouts without cutting them.
"It was a function of the mathematics," said Buckfire, who
said he did not think it was necessary for him or anyone else to
recommend pension cuts to Orr.
"Are you saying it was so self-evident that no one had to
say it?" asked Claude Montgomery, attorney for a committee of
retirees that was created by Rhodes.
"Yes," Buckfire answered.
Buckfire, a Detroit native and investment banker with
restructuring experience, later told the court the city plans to
pay unsecured creditors, including the city's pensioners, 16
cents on the dollar. There are about 23,500 city retirees.
On Thursday, Buckfire was questioned by attorneys from Jones
Day, the city's attorneys in the bankruptcy filing and Orr's
This portion of the trial is to determine whether the city
is eligible to undergo Chapter 9 restructuring. To qualify for
bankruptcy, Detroit must prove the city is insolvent and that it
negotiated in good faith with creditors, or that there were too
many creditors for negotiations to be feasible. The city also
must prove it desires to enact a restructuring plan.
U.S. District Court judge Steven Rhodes, presiding over the
trial expected to last at least through next Tuesday, is not
expected to rule until at least mid-November whether the city is
eligible to undergo restructuring in bankruptcy.
If Orr does not testify on Friday, he may do so on Monday,
when Michigan Governor Rick Snyder also is expected to take the
Rhodes is not expected to decide on the eligibility issue
until at least Nov. 13, which is the date for attorneys from
both sides to file with Rhodes documents explaining defending
their notions of what constitutes "good faith" negotiations.
The city has said about half of its liabilities stem from
retirement benefits, including $5.7 billion for healthcare and
other obligations, and $3.5 billion involving pensions.
As the cross-examination of Buckfire began Friday morning,
Bill Nowling, press secretary for Orr, said on Twitter, "the
journey up the River Denial continues for union and creditors
Buckfire said the city did not consider the state
constitution's protection of pensions in creating its
restructuring proposal presentation to creditors on June 14.
"We did give it some weight, but did not deem it relevant,"
UAW attorney Peter DeChiara and Montgomery, the retirees
committee lawyer, made arguments on Friday morning to Rhodes
that Buckfire's testimony should not be allowed because he was
not deemed an expert witness by the court.
Rhodes ruled that Buckfire's testimony would be allowed, in
part because he had become an expert after in-depth study of the
city's financial status.