CHICAGO — The fate of Detroit’s pensions was front and center Monday when Michigan Gov. Rick Snyder was questioned under oath in historic testimony as part of Detroit’s bankruptcy trial.
Snyder’s testimony came on the fourth day of the eligibility phase of Detroit’s bankruptcy trial. Attorneys for the unions, pension funds, and retirees are trying to block the city from entering into Chapter 9 protection, relying in part on the argument that city and state officials did not negotiate in good faith with its creditors because they believed that only federal bankruptcy law would allow them to override Michigan’s constitutional protection of pensions.
Snyder testified for more than three hours Monday afternoon.
Detroit emergency manager Kevyn Orr, whose cross-examination was interrupted for the governor’s testimony, is expected to return to the stand Tuesday morning.
Under questioning from union attorneys, Snyder said he never offered state funds to help Detroit avoid having to cut its pensions. He said he believes it’s up to the courts to decide whether the state would be responsible for paying Detroit’s pensions if the city is unable to meet the obligations. The governor also said that he believed pensions are protected in the constitution as contracts, echoing an argument mentioned in the past by Detroit’s attorneys.
“I’m following the Constitution ... and the Constitution says the accrued benefits shall be treated as a contractual obligation,” Snyder said.
Sharon Levine, an attorney for the city’s largest union, asked Snyder if he thought a retiree would be able to determine the size of the proposed pension cut from the city’s proposal for creditors, unveiled by Orr on June 14.
The plan calls for issuing $2 billion of notes to pay off $11.5 billion of unsecured creditors, including the unfunded pension liability, which the city has sized at $3.5 billion.
“That would be difficult,” Snyder admitted.
“Governor, if you don’t understand it, how does the 86-year-old retiree understand it?” Levine asked.
Snyder said earlier that Orr’s June 14 proposal was part of the city’s proof of negotiations. “I believe it was good-faith negotiation: put something on the table based on the facts that are available.”
The governor relied on attorney-client privilege to avoid answering questions about whether he knew how much Orr intended to cut pensions.
He acknowledged that the cuts would have “dramatic impact” on pensioners, but also said he did not believe that significant pension cuts would necessarily be required as part of the city’s bankruptcy.
The governor said Chapter 9 was the last and only option for Detroit and that the city’s problems are one of the country’s “largest issues.”
“There are not many problems of this magnitude in our country,” said Snyder. “It was a tremendously difficult decision to make but the right one given the circumstances.”
Like Orr, Snyder said a spate of pre-bankruptcy lawsuits filed over the summer weeks drove the decision to file. “There wasn’t going to be a meeting of the minds to solve this, short of bankruptcy,” Snyder said.
Attorneys also questioned Snyder about the state’s emergency management law for distressed local governments, Public Act 436.
The law was passed during a lame-duck session in late 2012, just a month after voters overturned an earlier version. The new law has been a theme at the trial, with even Rhodes raising questions about it.
PA 436 is immune from voter referendum due to a $5.7 million spending appropriation, and Snyder testified that he knew adding the spending provision would protect the law from being overturned by voters.
Snyder is the only governor to testify as part of a Chapter 9 case and one of the only sitting governors to testify as part of an ongoing legal trial.