U.S. Bankruptcy Judge Steven Rhodes (Courtesy of Detroit Legal News Publishing LLC)
Detroit — U.S. Bankruptcy Judge Steven Rhodes on Thursday says he wants to move forward with plans for a three-hour bus tour of Detroit despite potential organizational roadblocks.
Rhodes stopped short of granting the city’s formal request for the tour, but did direct parties to organize a meeting in late July to work out details.
Though he favors the idea, Rhodes has said he’s concerned over the ability to keep the details of the tour secret and secure.
“It is likely the value of such an inspection would be outweighed by the effort it would take to organize and execute the tour,” he said. “So it will take however further discussion and planning here in the meantime.”
Rhodes’ remarks were part of a busy day in U.S. Bankruptcy Court in which the judge also dealt some setbacks to bond insurer Syncora Guarantee Inc., a holdout creditor that has been fighting the city’s debt-cutting plan.
The judge blunted Syncora’s efforts to question foundation officials about the so-called “grand bargain;” to force the city to provide more specifics about the DIA collection; and to compel State Attorney General Bill Schuette to testify about a legal opinion involving the DIA.
In regard to the controversial bus tour of Detroit, city bankruptcy lawyer Robert Hertzberg told Rhodes he needed to see things first-hand.
“Pictures (alone) aren’t going to help you understand,” Hertzberg said. “You need to see it live, what is going on in the city.”
City lawyers say the tour would give Rhodes an up-close view of the city’s blight, crime and positive developments. But objectors, including Robert Schwinger, counsel for creditor Assured Guaranty Municipal Corp., claim such a tour would create a spectacle and only represent an inadequate snapshot of the city.
“Getting that full look, it isn’t possible here,” Schwinger told Rhodes, noting potential security issues over the proposal. “There are a lot of risks here. … The benefit of taking the court on the tour is “very small.”
Detroit’s bankruptcy team wants to give Rhodes a glimpse of the city’s conditions, which could be mitigated if the judge approves a plan to restructure $18 billion in debt.
The city has proposed having the U.S. Marshals Service or security personnel accompany the tour. Tour stops have not been finalized, but the trip includes visits to the Detroit Institute of Arts, rail lines and downtown redevelopment areas.
Rhodes rejects Syncora requests
In another matter, Rhodes granted a motion brought by several foundations that sought to prevent Syncora Guarantee Inc. from learning more about negotiations that led to the grand bargain. The $661 million plan seeks to soften retiree pension cuts and shield the DIA collection from creditors.
The decision comes after the bond insurer earlier Thursday defended its attempt to question under oath and obtain documents from the foundations contributing millions of dollars to bolster Detroit pensions and protect the art collection.
The group features several local and national foundations, including Kresge, Hudson-Webber, Mott, Knight and the Ford Foundation of New York.
The state and foundation funding is a key part of Detroit’s plan to restructure $18 billion in debt and emerge from bankruptcy court.
Lawyers for the city and foundations said the request was designed to “annoy, oppress or harass” the groups and disrupt the resolution.
But Syncora attorney Stephen Hackney insisted its inquiry is “meaningful.” The funding allocation for the grand bargain could be detrimental to other groups, he argued.
“It is not a fishing expedition, it’s highly relevant,” Hackney said. “The potential warping effect of the grand bargain on the philanthropic foundations is relevant to the feasibility ... of the plan.”
Facing hundreds of millions in potential losses, Syncora and Financial Guaranty Insurance Co. have been pushing for a sale of city-owned art at the DIA, which Orr has resisted.
The bond insurers contend more money could be extracted from the DIA than the $466 million private foundations and the DIA have offered over 20 years, coupled with a $195 million lump sum payment for Detroit pensioners.
The judge also granted a motion by Schuette seeking to block Syncora from questioning him about a legal opinion that the DIA collection cannot be sold because it is held in a charitable trust. Rhodes said the attempt had “no basis.”
In addition, Rhodes denied a motion by Syncora to compel the city to provide specifics about the DIA collection, namely a list of all pieces valued at $1 million or more and the museum’s 300 most valuable works, because the city admittedly only possesses partial information and “doesn’t know the answer.”
Rhodes did not, however, rule Thursday on the city’s petition for a protective order of retirees’ personal information after Syncora withdrew the request during court.
Detroit lawyers had asked Rhodes to block Syncora from gaining access to the financial details involving 20,000 retired city workers, calling it an effort to discredit a plan to limit pension cuts at the expense of other unsecured creditors.
Syncora attorneys said they would accept information about retiree finances that does not identify them by name and just lists the town and state they live in.
The judge and attorneys agreed the hardships or neediness of creditors are not relevant to the proceedings.
Lump sum payments possible for 'clawback'
Earlier Thursday, an attorney for the city’s General Retirement System told Rhodes that a resolution is expected before the weekend that would allow retirees to pay annuity recoupments being sought by the city in a lump sum, rather than spread out over time.
The city, in its debt-cutting plan, is seeking to recoup up to $239 million from GRS retirees who had active annuity savings fund accounts between July 2003 and June 2013. The Plan of Adjustment, as written, does not allow retirees to pay back the total amount owed up front. Rather, it seeks to have it repaid over their lifetime.
Attorneys say the mediation discussions to permit the upfront payment has been a sticking point for some and will be critical to those who have not yet cast ballots.
“Our hope is to get that resolved today,” Clark Hill attorney Robert Gordon said told Rhodes. “It’s important to announce this resolution before the weekend because it could affect voting which is ongoing right now.”
Carole Neville, an attorney for the court’s committee for Detroit retirees, added the proposed settlement “will make the buyout option available to retirees … which is really important to the Retiree Committee and across the state and everywhere else,” she said. “We’re very excited about the agreement in principle.”
Emergency Manager Kevyn Orr and city consultants contend the retirees were improperly paid interest earnings that exceeded actual investment returns — even in years when the pension fund lost money.
Under the plan, the non-uniform general city retirees are also facing a base cut to pensions of 4.5 percent and the elimination of annual cost-of-living adjustments.
Judge warns against leaks
Before adjourning, Rhodes held a status conference and cautioned Detroit’s bankruptcy attorneys not to “leak to the press” any interim results on balloting.
Rhodes’ comments stem from a remark Orr made after a May 30 speech at the Detroit Regional Chamber’s Mackinac Policy Conference.
“I would strongly suggest that neither the balloting agent nor the city provide any interim balloting information at all until the final certification,” Rhodes said, adding if any information is provided publicly about it, it should be “complete and accurate.”
Orr, at the time, disclosed to reporters that early returns of ballots from pensioners was nearly two-to-one votes in favor of his debt-cutting plan.
“Early returns seem to be supportive, but here again I’m taking nothing for granted in this process,” Orr told reporters at the Grand Hotel on Mackinac Island.
Jones Day attorney Heather Lennox agreed, calling the remark “unfortunate.”
“It was immediately addressed and we don’t expect that to happen again,” she said.