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A bankruptcy judge is expected to rule Wednesday afternoon whether to freeze several lawsuits filed against the city and let its bankruptcy case proceed.
U.S. District Judge Steven Rhodes will also decide whether an automatic stay triggered by Detroit’s Chapter 9 filing extends to Emergency Manager Kevyn Orr, Gov. Rick Snyder and members of the restructuring team.
The decision would come after city lawyers — during a hearing that lasted almost two hours over the biggest municipal bankruptcy case in U.S. history — argued Wednesday morning that Detroit would be “irreparably harmed” if retirees are able to block its Chapter 9 filing.
Retirees and city pension fund lawyers have been trying to fight the bankruptcy case because, they say, the filing is trying to violate constitutional protections of vested pension benefits.
From The Detroit News: www.detroitnews.com...
“This could be a bellwether or litmus test for the true meaning of an attorney general for the people of the state of Michigan,” said Larry Roehrig, secretary-treasurer of AFSCME Council 25, one of the city’s largest labor unions.
“If this person decides not to defend it, then we have a serious rip in the moral fabric of the government of this state.”
Gov. Rick Snyder says the issue is a “fair question” and could force the state’s attorney general to ultimately be on both sides of Detroit’s bankruptcy filing.
From The Detroit News: www.detroitnews.com...
Orr claims that Detroit's ultimate debt obligations will amount to between $18 and $22 billion. But his own fiscal report says right up front on page 3 that the total unfunded portion of Detroit's pension obligation comes to only $600 million. That's less than 3 percent of Orr's higher figure. Even the most aggressive recalculation can't turn it into a significant portion of Detroit's obligations.
Behind all the talk about unfunded obligations lies the real goal: They want to cut the funded obligations. But even that figure only comes to about one-sixth of Detroit's total obligations. So why all the focus on pensions?
They want to set a precedent.
Because Detroit's being used by the austerity economics crowd. We've already seen the needless public spectacle being enacted by Orr and his team as they publicly contemplate selling off the city's property, large and small. (See "The Looting of Detroit.")
Gutting the city's employee pension plan would be a similar kind of ritual sacrifice, designed to break the public's belief in the social contract -- and to set a national precedent. Detroit's unusually severe financial circumstances make that seem more necessary than it is.
A federal bankruptcy judge on Wednesday suspended pending lawsuits in state courts that are challenging Detroit's bankruptcy filing.
U.S. Bankruptcy Judge Steven Rhodes said there is nothing in the 10th Amendment, which guides state vs. federal jurisdiction, that bars federal jurisdiction in this case. He said his court will be the exclusive venue for any legal action regarding the bankruptcy.
The protest, organized by the newly formed “Stop the Theft of Our Pensions Committee,” gained a steady group of 50 to 70 supporters within the first 30 minutes.
The group is arguing that Gov. Rick Snyder and Emergency Manager Kevyn Orr’s bankruptcy filing is a “declaration of war” on city workers and retirees. Labor unions have sued the city on claims the petition filed last week violates the state constitution because it could impair constitutionally protected public pensions for 10,000 city works and 20,000 retirees.
Participants in Friday’s demonstration marched in front of the Spirit of Detroit statute outside the Coleman A. Young Municipal Center, chanting “banks got bailed out, we got sold out,” and “hands off Detroit,”
From The Detroit News: www.detroitnews.com...
Michigan Attorney General Bill Schuette announced this morning that he will defend the state’s constitutional protections of public pensions in Detroit’s historic bankruptcy filing.
"The City of Detroit’s bankruptcy will cause even greater hardship for many people in southeast Michigan who are already struggling," Schuette said in a news release today.
Schuette noted that Detroit emergency manager Kevyn Orr has not detailed the type of cuts he intends to seek from Detroit’s two pension plans, but Orr has said the city doesn’t have money to pay what he says is $3.5 billion in underfunding in the two plans that provide pensions to about 20,000 retirees.
“Be very careful. You might have to live with that number,” Orr said Thursday on the “Craig Fahle Show” on WDET-FM (101.9). “And that means that’s less of an obligation that we have to meet in this process.”
Orr spokesman Bill Nowling said the city could at some point in the bankruptcy proceedings accept the police and fire unions’ figure and diminish their voting power on the city’s restructuring plan for unsecured creditors.
“We might take them up on their offer … and then they won’t get anything,” Nowling told The Detroit News.
From The Detroit News: www.detroitnews.com...
The city would need to file its plan for how it will restructure as much as $18 billion in debt by March 1, according to proposed dates listed in an order filed Tuesday by a federal bankruptcy judge.
U.S. Bankruptcy Judge Steven Rhodes proposed a slew of key dates that help establish short-term deadlines in the largest municipal bankruptcy case in U.S. history and establish dates for creditors to object to the city’s eligibility for Chapter 9 relief.
From The Detroit News: www.detroitnews.com...
During the city’s second day in bankruptcy court, Rhodes on Friday implored the city and its numerous creditors to use mediation to resolve major disputes as he authorized a committee to represent retirees in the bankruptcy proceedings.
~~~~
“A consensual resolution is better than a cram-down,” said Rhodes, using the bankruptcy term for a debtor using deals with some creditors to force cuts onto others.
The judge has proposed appointing Chief U.S. District Court Judge Gerald Rosen as mediator, but he did not make a final decision Friday during a hearing to set court dates and deadlines for legal challenges to the city’s eligibility for bankruptcy.
~~~~
The central issue in the city’s second day in bankruptcy court involved the formation of a committee to represent more than 23,500 retirees with vested pension benefits.
Advising the government on the restructuring of General Motors and Chrysler has paid off in spades. Rothschild leaped to the No. 9 spot this year from No. 24 last year in the rankings of mergers and acquisitions advisers in the United States, according to preliminary Thomson Reuters data.
The venerable investment bank, which traces its roots to 18th-century German founder Mayer Amschel Rothschild and is still owned by the family, also came in No. 9 in the league tables for Europe, up from No. 12 last year.
Emergency Manager Kevyn Orr’s proposal to leverage Obamacare to shed some of Detroit’s $5.7 billion debt for retiree health care has angered unions and struck a sour chord with Democrats and Republicans alike.
But it might benefit the city and become a model for other financially struggling American cities, some experts say.
Orr has suggested routing most city retirees who are under 65 — and therefore too young to qualify for the federally funded Medicare system — into Michigan’s health insurance exchange, set to open Oct. 1.
~~~~~~~~
“(The proposal) ends up shifting the risk from the city to the federal government,” said John Thomas, director of the Center for Health Law and Policy at Connecticut’s Quinnipiac College Law School. “This looks to be, if the bankruptcy judge approves it, very beneficial to Detroit, and a lot of other cities are watching it.”
In late February, cash-strapped Detroit received a $1 million check from the local school system that wasn’t deposited. The routine payment wound up in a city hall desk drawer, where it was found a month later.
This is the way Detroit did business as it slid toward its bankruptcy filing, which it entered July 18. The move exposed $18 billion of long-term obligations in a city plagued by unreliable buses, broken street lights and long waits for police and ambulances. Underlying poor service is a government that lacks modern technology and can’t perform such basic functions as bill collecting, according to Kevyn Orr, Detroit’s emergency manager.
“Nobody sends million-dollar checks anymore — they wire the money,” said Orr spokesman Bill Nowling. Except in Detroit.
“We have financial systems that are three, four, five decades in the past,” Nowling said. “If we can fix those issues, then we’ll be able to provide services better, faster, more efficiently and cheaper.”
Trustee Cheryl Johnson, who is black, questioned whether the police and fire pension board fairly represents all workers. The verbal altercation started after she welcomed a group of about five black firefighters to the meeting. “I would like to encourage all of you and — I’m trying to choose my words carefully — other members who look like you to come to these meetings because I think it is imperative that you are aware of what this board does to represent you, and for you to get involved, and to run for seats on this board so that we can, as a group, make sure that your interests are represented,” she said.
Two fellow trustees challenged Johnson’s comment. “Why does the race of somebody have to have anything to do with the running of this board?” trustee Matt Gnatek, who is white, said. “I’m just curious. I’m sitting here in awe that someone would say that.”
“I take offense to assuming that I — as a white firefighter — don’t have black firefighters’ interests at heart,” trustee Jeffrey Pegg said.
Gov. Rick Snyder is making plans for an oversight board to keep tabs on Detroit’s finances for years to come after the city exits bankruptcy.
~~~
Snyder spokeswoman Sara Wurfel said the governor’s office is mostly focused on getting Detroit through bankruptcy, restructuring its finances and improving city services. Detroit’s bankruptcy petition has not yet been approved; an eligibility trial is scheduled for late October.
~~~
The board is meant “to ensure that things stay on the right path” after the state-appointed manager leaves town, said Terry Stanton, spokesman for the state Department of Treasury.
From The Detroit News: www.detroitnews.com...
Before Detroit filed for bankruptcy in July, a team of analysts working with emergency manager Kevyn Orr met three times with labor unions but couldn’t agree on a critical number: whether Detroit’s unfunded pension liability was five times larger than previously believed.
Weeks later, the bitter divide persists. Orr, appointed by Michigan Governor Rick Snyder to fix Detroit’s finances, insists that his estimate of a $3.5-billion future shortfall for the city’s two retirement systems is correct. The pension funds themselves have only reported a $644-million gap based on 2011 actuarial valuations.
Detroit’s retirement systems calculate future assets based on the notion that their investments will return 8 per cent annually over several decades. Many U.S. public employee pension funds use that projected rate of return. Orr has declined to release details about his calculations. But his actuaries use a 7 per cent rate of return on investments, calling it “more realistic” in part because the financial crisis and recession caused years of poor investment returns.
Orr’s claim helps him justify reducing pension benefits. The health of the funds therefore becomes a battleground in what looks like a long legal fight.
In a broader sense, Orr must still persuade U.S. Bankruptcy Judge Steven Rhodes that the city is eligible to file for Chapter 9 municipal bankruptcy. To do that, Orr must demonstrate that the city is insolvent. Larkin’s column and his financial assumptions shows that a claim of insolvency is by no means a slam dunk.
The most crucial element missing from all of these plans is the future political leadership of this distressed city. In every city fiscal crisis since 1975, fiscal recovery was spearheaded by extraordinarily strong political leadership by a newly elected mayor. In the New York City fiscal crises in 1975 and 1991, the leaders were the late Ed Koch and former mayor Rudy Giuliani. In Philadelphia’s crisis in 1991, it was Ed Rendell, who went on to become governor of Pennsylvania. In Washington, D.C.’s 1995 financial crisis, it was Anthony Williams, first as the city’s Chief Financial Officer, and immediately after as the city’s fifth mayor since the position was created under federal law in 1975.
Detroit will be electing a new mayor this year. Never has strong political leadership in Detroit been more important. Right now, the city’s future is in the hands of a bankruptcy lawyer from Washington, D.C. The long-term future, success or failure will now be in the hands of Detroit’s voters. It is in everyone’s best interest that the final choice can lead the city out of the wilderness of municipal bankruptcy and into a new era of renaissance for this once-great city.