Residents, retirees attack Detroit bankruptcy plan

Christine Ferretti
The Detroit News

Detroit — Residents and retirees attacked Detroit's plan to cut pensions and slash more than $7 billion in debt during a rare opportunity Wednesday offered by U.S. Bankruptcy Judge Steven Rhodes.

Rhodes invited 30 people who do not have lawyers to testify and question witnesses as the city's bankruptcy case nears the finish line. The testimony came ahead of closing arguments in the biggest municipal bankruptcy trial in U.S. history and offered people a final chance to convince Rhodes to dismiss the city's debt-cutting plan.

The opportunity made for some awkward, and racially charged, moments as Rhodes relaxed rules and procedures normally in place for lawyers.

Detroiter Wanda Jan Hill, who lost a City Council race last year, questioned city bankruptcy lawyer Heather Lennox and Emergency Manager Kevyn Orr.

At one point, she told Rhodes she wanted to "do some testimony."

"Umm…" a flummoxed Rhodes said.

The list of residents and retirees includes activists, retirees and former Councilwoman JoAnn Watson.

Detroiter Fredia Butler, whom Rhodes allowed to wear a big black floppy hat while testifying, called the city's bankruptcy case a "power grab."

She called Gov. Rick Snyder the city's "master" while decrying the loss of local control since the governor appointed Orr early last year.

"I'm praying for justice," she told Rhodes.

Another objector, Elaine Thayer, argued against a plan to force some retirees to give up annuity savings payments received over the years.

Detroit's debt-cutting plan calls for base pension cuts for general pension fund members of 4.5 percent. Some of those retirees and workers face additional cuts of up to 15.5 percent through the city's plan to recoup excess interest earnings credited to their optional annuity savings accounts.

She told Rhodes the annuity savings recoupment needs to be withdrawn from the city's plan.

"Isn't it enough for the plan of adjustment to reduce retiree pensions by 4.5 percent, eliminate (cost of living adjustments) and skyrocket health care costs?" she asked.

Thayer noted the city, for years, "ignored responsibility" when it came to contributions to the pension funds.

"The employees didn't fail the city, the city failed the employees and retirees," she said.

Attorneys for both sides expressed their hope for a potential agreement as the trial resumed following a weeklong break.

Attorneys for Detroit and Financial Guaranty Insurance Co. told Rhodes they plan to present it in court Thursday.

The city and FGIC have participated in closed-door mediation talks for weeks in an attempt to reach a deal.

Thomas Cullen, a Jones Day attorney representing Detroit, told Rhodes that the city has a "firm and active faith" that a settlement with FGIC would be finalized by Thursday.

But a source briefed on the mediation cautioned that the announcement about a potential deal was "a little premature." Although the parties are getting close, they are "not quite there yet."

A FGIC deal could help convince Rhodes that the city's plan to shed $7 billion in debt is fair, feasible and in the best interest of creditors. An agreement would leave only a small number of financial creditors and individuals fighting against Detroit's debt-cutting plan.

FGIC has been working with Detroit to settle a $1.1 billion claim stemming from a disastrous pension deal backed by ex-Mayor Kwame Kilpatrick.

The News reported last week that the city was considering leasing most of Detroit's public parking facilities to bond insurers — including the Joe Louis Arena garage and one underneath the old Hudson's site along Woodward — to help settle the biggest municipal bankruptcy case in U.S. history.

All told, FGIC could end up leasing three parking garages, receive riverfront land and cash. The bond insurer also could sign a deal to develop city-owned land.

A settlement would let FGIC recover more money than under the city's debt-cutting plan but less than what rival bond insurer Syncora Guarantee Inc. received in a deal last month.

Syncora and FGIC were two of the biggest opponents in the bankruptcy trial. The firms insured $1.4 billion in troubled pension debt that helped Kilpatrick prop up the city's pension funds in 2005.

Without a deal, Detroit proposes paying FGIC as little as 6 cents on the dollar.

Under Syncora's deal, the bond insurer would get a nearly 14 percent recovery on claims totaling $400 million.

On Tuesday, objectors in the case began calling witnesses to refute the city's plan.

Closing arguments in the trial are anticipated next week.