BLOG: Testimony begins in Detroit Chapter 9 Bankruptcy trial

(WXYZ) - Attorneys continue to open their cases in the Detroit bankruptcy trial. They have presented their opening arguments and now testimony will begin.

7 Action News Investigator Jim Kiertzner is live blogging the case from federal court.

You can read his updates below.

4:38 p.m.

CFO John Hill spent the rest of Thursday on the witness stand. Under cross examination by Syncora Attorney Douglas Smith, Hill was questioned about increasing Detroit tax collections and finding other revenue for the city.

Syncora is a creditor getting only 10 cents on the dollar and stands to lose hundreds of millions of dollars in Detroit's case. They are challenging Detroit's Plan confirmation.

The trial will resume Friday morning. 

3:25 p.m.

Court has taken a recess until 3:30 when Hill will be cross examined by objectors to Plan of Adjustment.

Just seconds ago, Detroit Mayor Mike Duggan and City Council President Brenda Jones walked through the hall next to our media room.

Several of us (reporters) rush to pounce and get him to talk with us. NO COMMENT.

Mayor says he has been reading our blog to keep up.Woo hoo! Mayor will be an obvious key witness later in the bankruptcy trial.

1:53 p.m.

John Hill, Detroit CFO is continuing his testimony, outlining how the city will reinvest $1.7 billion over 10 years.

The breakdown includes:

  • $420 million on blight
  • $87 million fire
  • $33 million police
  • $51.4 million transportation

Obviously, this does not add up to the full amount, but are the numbers as they stand early on in the 10 year time span.

Hill also says the city will have $358 million in cost savings while improving city services.

Feasibility of the Plan of Adjustment will be an important element for Judge Steven Rhodes. He told Hill before the lunch break to make sure Hill understood how the Plan would be implemented.

11:01 a.m.

FOUNDATION TESTIMONY

Hill testified that Detroit had the Oracle Dream system for accounting and "most refer to it as nightmares" and people in court laughed. He says they are fast-tracking a new accounting system that should be in place by the end of this month. He called Detroit accounting "very, very poor." Hill also said management of grant money was "abysmal."

Hill testified that the HR department was very bad when he came in. "It still has a lot of work to do," Hill testified. He is overseeing a new organization of HR. He is using some consultants for this. They are doing a catalog of issues and going over these with the Mayor, who can decide to move forward and use the consultants to help restructure other departments beyond HR.

Hill says he reports directly to Emergency Manager Kevyn Orr, but has a "dotted line" to Mayor Duggan to inform him - but the Mayor has no control over what's being done. The Mayor is part of the "quality of life" issues moving forward.

About the future after EM Orr is done, Mayor Duggan asked Hill if he's bought a house yet? Hill says he's not a "house" person, but a "condo downtown" person. Hill says he'd like to stay to see projects completed, "two years or so."

The CFO reports directly to Mayor but the CFO does not have authority to reduce spending or other power as in DC, which has AAA bond rating now - better than federal government.

Mayor has said he will not interfere, allow Hill to run finances independently, not have another deficit.

10:39 a.m.

First witness is John Hill, CFO for City of Detroit. He is from Washington, D. C. and served 4 years as executive director of the DC Control Board handling a financial crisis in the district. He also worked for The General Accounting Office in the federal government.

His chief responsibility at DC Control Board was forecasting revenue. He then went to work for Arthur Anderson Accounting in a local government capacity. He then started his own company, J. Hill Group. He is on the board of two corporations where is on audit and finance committees.

Hill is designated by Judge Rhodes as an expert witness.

He started in Detroit in November of 2013, hired by Emergency Manager Kevyn Orr. He is restructuring officer and CFO in the city and will be in charge of budget, finance and revenue forecasting. W

hen EM Orr leaves, Hill believes his contract will be extended.

The state legislature has a provision that cities over 600,000 population have a CFO. Detroit is the only city where the Mayor nominates a CFO, and it has to be confirmed by City Council and state financial review team

Mayor Duggan asked if Hill would commit to 4 years, the length of Mayor's term in office. Hill said not 4 years, but let's talk. Mayor still intends to appoint him.

9:47 a.m.

Employees who work in Detroit libraries are represented by AFSCME and the UAW and are opposing the Plan of Adjustment on the grounds that their health care and OPEB

benefits have been cut and they are not part of the new VEBA system the city set up for all other employees.

The attorney for the UAW, Peter Di Chiara told the Judge they hope to reach a settlement before they are set to present their case on September 30. Judge Rhodes said, "that would be a good idea."

Di Chiara also says Bankruptcy Court has no authority to alter the employee benefits in the union contracts because Detroit libraries are part of a separate municipal corporation, but the Detroit General Retirement System does handle pensions.

AFSCME Attorney Richard Mack also told the Judge they hope to reach a settlement.

Opening statement are now concluded. The court will resume at 10 with the first witness.

Judge Rhodes has said earlier he wanted his independent expert witness to go first. But then that was changed with the city presenting its Plan first.

Remember these terms, the Plan of Adjustment must be fair and equitable, and feasible. 

9:31 a.m.

Macomb and Wayne Counties are also opposing the Detroit Plan of Adjustment because of DWSD.

Attorney Allan Brilliant (yes, that is his name) is giving an opening statement for Macomb County. He says the Plan is unfair discrimination, not fair and equitable and not legal.

Wayne County is represented by Attorney Max Newman who says in his opening statement this is another bad deal for the city because it takes $428 million out of DWSD and hurts services to water customers.

We may soon get to our first live witness in this trial and that is expected to be John Hill, Detroit's Chief Financial Officer. 

8:57 a.m.

Detroit's bankruptcy case is back in session in day 3. Opening statements continue with Jaye Quadrozzi for Oakland County, who is in opposition to Detroit's Plan of Adjustment because of the Detroit Water and Sewerage Department.

Quadrozzi calls the POA the status quo of perpetual decay. She told Judge Steven Rhodes that the department needs to spend $4.5 billion to improve infrastructure. The city has proposed $2.9 billion. Quadrozzi says that would take 561 years to complete, and said that would be going back to the fall of Constantinople (feel free to look it up!).

DWSD has been the subject of closed mediation for months with Oakland County and other counties on the Detroit system taking the position that the city wants to use money on employee pensions rather than keeping it in the DWSD system. J

udge Rhodes said, "now is the time to solve these problems."

Quadrozzi also says the city needs to right size the system because Detroit's population has dropped to almost half since 1950. She also told the Judge that Flint is leaving the DWSD system and that will cost the system 8 1/2% of its revenue and DWSD has to consider water rate increases.

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