Lansing— Gov. Rick Snyder’s administration was more focused on keeping Detroit from running out of cash than addressing its long-term debt as the state’s largest city inched toward bankruptcy earlier this year, state Treasurer Andy Dillon testified this week.
Dillon told labor union attorneys in a sworn deposition Thursday that the Snyder administration was aware of the state constitution’s protection of pensions as a contractual commitment, but wanted to let a bankruptcy judge decide if those contracts apply under federal law.
But Dillon denied there was a concerted effort to use Chapter 9 bankruptcy to slash an estimated $3.5 billion in debt Detroit owes more than 23,000 retirees with vested pension rights, according to a draft transcript obtained Friday by The Detroit News.
“There was no discussion about how do you circumvent any liability and there was no talk about hair cutting bond holders or pensioners or walking away from health care but there was general discussions I’m sure about the condition of the balance sheet,” Dillon testified.
Attorneys for labor unions and retirees opposed to Detroit’s eligibility grilled Dillon and Snyder aide Rich Baird under oath Thursday with similar questions posed a day earlier to the governor about how pensioners should be treated in the debt-cutting process.
Dillon resigned as state treasurer Friday, citing fallout from a contentious divorce that he said was distracting from his ability to serve effectively.
Unions and retirees are gathering evidence they hope can be used to convince U.S. Bankruptcy Judge Steven Rhodes that the city did not engage in good faith negotiations, a requirement for being eligible for municipal bankruptcy. A trial on Detroit’s bankruptcy eligibility begins Oct. 23.
Baird’s testimony also suggests there was little discussion within the administration about how to deal with Detroit’s pension liability, an issue that looms large over the largest municipal bankruptcy filing in U.S. history.
But Baird said he independently was gathering data on the pension payouts to study whether the state could pursue legislation “that would provide (an) incremental safety net to those at the lower end of the spectrum.”
“That was not based on discussions with anybody else,” Baird testified. “It was simply a question that I had because I didn’t know the answer.”
Baird is not a state employee, but works out of the governor’s office and is paid $100,000 annually by Snyder’s non-profit civic organization the New Energy to Reinvent and Diversify, or NERD Fund.
The governor testified Wednesday that he doesn’t know who is donating to the fund that he controls. The union attorneys also asked Baird about the NERD Fund.
“I don’t know the donors,” Baird testified. “I’ve been advised that they are private donors but I have no way of knowing who they are.”
Meanwhile, Baird testified also he began courting Orr to become emergency manager after Orr and his associates pitched their law firm’s services to city and state officials in late January.
The Jan. 29 meeting in Detroit with Jones Day and other law firms vying for the multi-million contract to help Detroit shed billions in debts came six weeks before Snyder hired the Washington, D.C. bankruptcy attorney to run City Hall. Orr resigned his partnership at Jones Day to become Detroit’s emergency manager in March, ending plans to takeover the global law firm’s Miami office.
After seeing Orr in action at the meeting, Baird said he believed Orr was well-suited for the monumental task of fixing Detroit’s municipal bottom line.
“ It was that meeting where it became clear to me that somebody who knew their way around the courts would actually stand a much better chance of keeping us out of the courts in terms of our negotiations with creditors and other stakeholders,” Baird testified.
Staff Writer Joel Kurth contributed.