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Deal 'probably not' doable absent pension cuts -Detroit manager

Joseph Lichterman
Tuesday, 29 Oct 2013 | 1:54 PM ET

DETROIT, Oct 29 (Reuters) - Detroit Emergency Manager Kevyn Orr said Tuesday he was "probably not" willing to accept an agreement to restructure the city's debt without including cuts to pension benefits before the city filed for bankruptcy in July.

Orr's statement came during cross-examination by United Auto workers Union attorney Peter DeChiara on the fifth day of a trial to determine Detroit's eligibility for Chapter 9 municipal bankruptcy.

Much of the questioning from DeChiara and Anthony Ullman, an attorney representing the official committee of city retirees, focused on pension benefits as Detroit's unions, retirees and pension funds objecting to the bankruptcy contend Michigan's constitution protects public worker pensions from being slashed.

But Judge Steven Rhodes, who is overseeing the case in U.S. Bankruptcy Court, had to admonish Orr a number of times to answer questions with a simple "yes" or "no" and not provide extraneous information. He even instructed Orr's attorneys to counsel their client on shortening his answers during the 90-minute lunch break.

"We're going to be here a really long time if you insist on going on and on," Rhodes told Orr.

The state-appointed emergency manager who took over the state's largest city in March wants Detroit to emerge from bankruptcy by October 2014, when his job is expected to end. Detroit has $18.5 billion in debt and other obligations, which Orr says includes a $3.5 billion unfunded pension liability, a figure that is disputed by bankruptcy opponents in the case.

Orr also said he was unaware of any other instances when federal bankruptcy law was used to supersede a state constitutional protection for pension benefits.

"There were not any specific cases that I was aware of in that regard, but I was aware of federal pre-emption," Orr said.

Orr has argued that federal law trumps state law, meaning the pensions can be reduced as part of the city's restructuring under federal bankruptcy law, but he acknowledged there were other options to reduce pensions outside of bankruptcy court.

"There were other options," Orr said. "I don't know if they were viable or not."

Ullman also pressed Orr on whether the city could sell assets, including from the Detroit Institute of Arts or the Detroit Water and Sewerage Department, to pay some debts.

Orr acknowledged that the works at the DIA could be valuable, but said: "I do not know if it is a potential source of cash for the city."

Auction house Christie's is conducting a valuation of the art works that is expected to be completed soon.

Orr is the city's fifth and final witness, and the bankruptcy opponents begin their case later on Tuesday.

To be eligible for Chapter 9 bankruptcy, the city must prove it is financially insolvent, that it negotiated in good faith with creditors, or that there were too many creditors to make negotiation feasible. It also must establish that it has a desire to restructure its finances.

Rhodes is not expected to make a decision on Detroit's eligibility until at least mid-November.