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Emergency Manager Kevyn Orr and Governor Rick Snyder take stand in bankruptcy trial
7:01 AM, Oct 27, 2013
11:28 PM, Oct 28, 2013
DETROIT (WXYZ) - Michigan Governor Rick Snyder wrapped up almost three hours of unprecedented testimony in Detroit's eligibility trial in bankruptcy on Monday.
He was first questioned by William Werthheimer, an attorney representing Detroit city retirees who sued based on the Michigan Constitution which protects pensions against cuts.
Much of the questioning by challengers to the bankruptcy focused on the Michigan Constitutional protections on public employee pensions.
Governor Snyder testified that was a legal question that the court would decide and that he approved Detroit's bankruptcy without contingencies because Detroit is in "crisis mode" and he wanted no delays.
Governor Snyder also called Detroit "one of the largest issues in our country."
The Governor acknowledged he had discussions with Emergency Manager Kevyn Orr about bankruptcy as a contingency, but those are protected by attorney-client privilege.
Detroit has proposed a $2 billion note payoff to all unsecured creditors including retirees and their pensions and when asked by AFSCME Attorney Sharon Levine if retirees would know how much the cut would be, the Governor agreed nothing has been given to them that would spell that out.
Testimony will continue Tuesday with Orr, who also testified today that Detroit would be in a "free fall crisis" if it can not go through bankruptcy to eliminate $18 billion in debt.
Orr also testified about blight, lights and inadequate city services.
He says the Detroit electrical grid is obsolete and DTE won't allow its workers to do any repairs inside Detroit City Hall because of asbestos and the age of the system.
Orr also says public safety has substandard equipment and that kids carry sticks and rods going to and from school to be safe.
Orr testified he has issued a number of orders to improve city services but no one has ever said they are adequate.
Detroit's EM also testified that he knew things were bad, but once he started looking at the books, "it was shocking how dire" it was.
He said Detroit had only $7 million in cash in June and some employees had their paychecks bounce.
Orr testified the debt grew from $12 billion in 2012 to $18.5 billion this year and there was "no plan in place to mediate it, they were just bumping along."
Orr issued a 45-day report that showed Detroit would have only $900,000 at the end of the fiscal year in June and that is "below the margin of error" for a $1 billion annual budget. Orr said the city was forced to defer payments to avoid running out of cash.
Orr's financial report put on a screen in court shows, "Detroit spends more than it takes in - it is clearly insolvent on a cash flow basis."
In court, Orr said that if Detroit is determined to be ineligible for bankruptcy, it would turn into a "free fall crisis" and that the status quo is "unacceptable" and the city would "still continue to fail."
One of the attorneys for retirees and creditors objected on the grounds that this was Orr's opinion. Judge Steven Rhodes overruled the objection.
Orr's Cross examination started with Anthony Ullman who is the attorney for the retirees committee set up by the Bankruptcy Trustee. He asked Orr, whose background is as a bankruptcy attorney with the Jones Day law firm for 12 years, if Orr has no particular expertise in finance?
Orr replied he did not want to spar and said that is a "fair representation."
Orr was also on the "pitch team" of Jones Day to Detroit and Michigan officials to get the legal work in January of this year and that included discussion of a Chapter 9 bankruptcy filing.
Two other key state officials Treasurer Andy Dillon and an aide to the Governor, Rich Baird, will also testify.
They will also face strong questions from attorneys for Detroit retirees and unions as more than 20,000 retirees are facing cuts in their pensions and health care.
They have already argued Detroit City officials did not negotiate in good faith before going into bankruptcy, that pensions are protected against cuts by the Michigan Constitution and bankruptcy was always the plan to avoid the debt.
Detroit has an $18 billion debt and pensions are underfunded by $3.5 billion.
Bankruptcy Judge Steven Rhodes will decide whether the city can proceed in bankruptcy possibly by the middle of November.