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Detroit emergency manager pressed on pension cuts during trial

Joseph Lichterman
Monday, 4 Nov 2013 | 1:19 PM ET

DETROIT, Nov 4 (Reuters) - Detroit retirees, unions and pension funds continued to press their case on Monday that the city did not negotiate in good faith before it filed for the largest municipal bankruptcy in U.S. history in July.

Kevyn Orr, Detroit's state-appointed emergency manager, testified on Monday that he did not mean to mislead city retirees when he said during a June 10 public meeting that pension rights were "sacrosanct" under Michigan's constitution.

"I wasn't attempting to mislead anyone, I was trying to say we understood these issues around pensions," Orr said.

"What would you say to that retiree now about his rights?" asked U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case.

"I would say that his rights are in bankruptcy now," Orr said. "I'd say those rights are subject to the supremacy clause of the U.S. Constitution."

"That's a bit different than sacrosanct, isn't it?" Rhodes replied.

Orr, who wrapped up four days of testimony on Monday, has repeatedly argued that pension benefits must be diminished as part of Detroit's financial restructuring as U.S. bankruptcy law trumps the Michigan Constitution, which protects public pension benefits from being slashed.

But when another objecting attorney tried to ask Orr about the supremacy clause, Rhodes interrupted, saying "We've had enough testimony on the supremacy clause. It's not really within the scope of this trial."

To be eligible for bankruptcy, Detroit must prove that it is insolvent, that it negotiated in good faith with its creditors or that negotiations were impracticable because of the number of creditors.

Orr was the city's last witness, and the focus of the trial will now turn to Detroit's unions, retirees and pension funds, which will call their own witnesses in an effort to prove Detroit is not eligible for Chapter 9 municipal bankruptcy.

Judge Rhodes is not expected to make a decision on eligibility until next week at the earliest.

With more than $18 billion in debt and other obligations, Detroit filed the largest municipal bankruptcy in U.S. history on July 18.

The city will submit a restructuring plan to the court by the end of the year if it is found eligible for bankruptcy. Orr has said he plans to stay in office until next autumn.

Detroit residents will head to the polls on Tuesday to elect a new mayor. 1/8ID: nL1N0IM05H 3/8