CHICAGO -- Outgoing Michigan Treasurer Andy Dillon may be called to testify Tuesday as the battle over Detroit’s eligibility to enter into bankruptcy enters its seventh day.
The city rested its case Monday after six days of testimony from officials trying to argue that the city meets various tests to allow it to formally enter into Chapter 9 bankruptcy protection. Detroit’s case featured three days of testimony from Detroit emergency manager Kevyn Orr that wrapped up mid-day Monday.
Creditors opened their case by calling two presidents of two retiree employee groups.
The fate of Detroit’s pensions have dominated testimony, as creditors argue that Orr and Gov. Rick Snyder were determined to file for bankruptcy in the belief that only federal law can overcome Michigan’s constitutional protection of pension benefits. The rush to file and desire to cut pensions meant the city failed to negotiate in good faith with unions, pensions systems, and 23,000 retirees, a key threshold to be allowed to file for Chapter 9, creditors argue.
No bond insurers or bondholders are challenging Detroit’s eligibility.
Monday, creditor attorneys questioned Orr on his statements in early June to unions that the city’s pensions were “sacrosanct.”
Orr made the comment June 10, just four days before he unveiled a restructuring plan that cuts pensions by as much as 85%. Orr testified Monday that he was not trying to mislead any creditors or retirees when he called the benefits “sacrosanct” under the state constitution.
“Excuse me one second,” Judge Steven Rhodes, who is overseeing the case, interrupted. “What would you say to that retiree now?”
“I would say his rights are in bankruptcy now,” Orr said. “I would say his rights are subject to the supremacy clause of the Constitution.”
“That’s a bit different than sacrosanct, isn’t it?” Rhodes replied.
The judge cut off questioning of Orr soon after the exchange. “I think we’ve had enough testimony about the supremacy clause,” Rhodes said. “It’s not really within the scope of this trial.”
Later, the head of collective bargaining for the city’s largest union testified that the union had agreed to significant concessions that could have possibly kept the city out of bankruptcy as far back as February 2012. The American Federation of State, County and Municipal Employees, which is Detroit’s largest union, agreed to cuts that would have saved the city $100 million a year in early 2012, testified Steven Kreisberg, the union’s director of collective bargaining.
But the concessions were never implemented because the Detroit City Council never voted on them -- based on instructions from state officials, Kreisberg said.
“Was this agreement ever put into effect?” Sharon Levine, the attorney for American Federation of State, County and Municipal Employees, asked. “What is your understanding of why it was not?” Levine asked.
“The City Council never voted based on instructions it received from state officials,” Kreisberg said.
Rhodes asked what officials Kreisberg was referring to. “Treasurer Dillon and perhaps Mr. Baird,” he answered, referring to top Snyder aide Richard Baird, who is also set to testify this week.
“That was for tomorrow, your honor,” Levine said, referring to Dillon and Baird’s upcoming testimony.
“I jumped the gun,” Rhodes said.
Meanwhile, the head of a police and fire retiree group testified that Orr and Dillon as late as April 2013 told him that the city’s pensions were safe under the state’s new emergency management law.
Retired Detroit Police and Fire Fighters Association President Donald Taylor said Dillon had told him in early 2013 meetings that pensions were safe because they were guaranteed by the state constitution.
“He informed me there would be no change, that current retiree pensions were guaranteed by the state constitution,” Taylor said.
Closing arguments could come Thursday and will likely stretch into Friday.
