Projects planned for the island park and conversations about these ongoing efforts are planned for Monday at a Michigan Department of Natural Resources-hosted event. Scheduled from 9 a.m. to 2 p.m. at the Belle Isle Nature Zoo, 1928 East Lakeside Dr., the event is free and open to the public.
According to the DNR, “education-based Belle Isle stakeholders and partner agencies will present information about their current Belle Isle programs and attractions” at the gathering.
Belle Isle became a state park this year as part of the city’s bankruptcy restructuring.
The new Belle Isle Advisory Committee will hold another public meeting from 9 to 11 a.m., Thursday, March 27 at the Dossin Great Lakes Museum on the island.
On the agenda: reviewing how the Department of Resources will make decisions and communicate about the park’s events, rules, regulations and infrastructure project planning; and scheduling “public listening sessions.” There also is time for public comments during the meeting.
As part of Detroit’s restructuring, the island park was taken over by the DNR and is operating as a state park. The Belle Isle Advisory Committee, made up of local volunteers, advises the state about Belle Isle’s operations, improvements, planning and public safety efforts.
More information may be found at www.belleislepark.org.
As Belle Isle transfers from Detroit’s control to the state’s Department of Natural Resources, Bridge Magazine’s Nancy Derringer takes a look at the park’s history, the improvements to date and the changes the state plans.
The state is also reassuring park visitors that the management transfer won’t change any of the city’s Recreation Department’s current procedures and pricing, at least for events this year. The DNR released information last week explaining the process and deadlines.
Feature Image Source: Angela Anderson-Cobb
If you’ve been wondering what has happened at Belle Isle in advance of the island formally becoming a state park on Feb. 10, the answer is found in some newly functioning restrooms, removed (diseased, dying or dangerous) trees and repaired shelters and picnic tables.
A crowd of more than 100 filled a Detroit Yacht Club ballroom today as the seven-member Belle Isle Advisory Committee held its first public meeting, a three-hour affair. State officials reported about progress to date and described their future plans for management, operation, maintenance and improvement of the island park.
And those are detailed, specific, promising plans for the park so many of us visit for walking, running, biking, skating, sunset watching, photographing, dog exercising, golfing, birdwatching, museum appreciating, cruising, fishing, sailing, power boating, kayaking, canoeing, cricket playing, picnicking, reunion holding, partying…
Let’s stop there as a dozen or so of the men and women at the meeting were clad in law enforcement uniforms from multiple agencies, and their commanding officers promised elevated public safety at the park.
Other future efforts now that the island will be a state park are to include a summer youth employment program, creating a “greener” infrastructure for the park, protecting native plants and specimen trees and historic preservation of buildings.
“We want to keep things moving in a steady but positive direction, and there’s more of that to come,” said Ron Olson, the chief of the DNR’s Parks and Recreation Division, “whether you jog, fish, swim, ride your bike or just come out an read a book.”
The biggest difference will be that beginning Feb. 10, the $11 annual state recreation passport will be required to enter the park.
Public comments were generally positive.
But a handful of people objected to the closure of the island for the Grand Prix auto race. Some others – members of the Detroit Rowing Club, photographers and other early risers – objected to the assumed state park hours of operation: sunrise to sunset.
“At this point we’re talking about 6 a.m. so the hours of operation would be from 6 in the morning until 10 at night,” Olson said. “Basically I want to reassure that our intent is to have the rules be the same.”
-By WDET’s Sandra Svoboda
@WDETSandra and firstname.lastname@example.org
Judge Steven Rhodes is on the bench, and closing arguments have begun. Here’s the lineup attorneys predicted last week.
This morning, city attorney Bruce Bennett has been outlining why the latest Plan of Adjustment should be confirmed, focusing so far on the settlements and moves that reduce city expenditures. This afternoon, additional attorneys supported the plan while two individual objectors spoke against it.
Detroit’s bankruptcy trial is done. Judge Rhodes will give his opinion at 2 p.m., Friday, Nov. 7.
Assuming he confirms it, he said he will schedule a hearing to discuss the form of the confirmation order and implementation issues.
Individual objector Michael Karwoski also objected to the city’s plan, arguing to the judge he should reject it and require the city to file another plan.
Karwoski filed this objection and 98 people filed joinders. During the trial, Karwoski questioned witness Cynthia Thomas. She’s the executive director of the city’s retirement systems, the General Retirement System and the Police and Fire Retirement System. Karwoski’s questions for her covered topics of pension fund governance, investment interest rate assumptions and the annuity savings fund recoupment.
He disputes the city’s contention that some retirees received “excess interest” on their annuity savings fund accounts, calling the city’s plan to reclaim some of the money an “illegal and unjust” measure.
After attorneys supporting the city’s plan spoke, individual objector John Quinn, an attorney, argued against adopting it. He objects specifically to pension cuts and the “clawback” of some annuity savings fund monies from general service retirees.
Here’s the background: the annuity savings fund was a program that allowed non-uniform city employees (everyone but police and fire) to invest 3, 5 or 7 percent of their after-tax income in a fund co-mingled with the general pension funds. The annuities had a guaranteed rate of interest regardless of how the fund actually performed.
As part of the bankruptcy negotiations between the city and creditors, several employee and retiree groups agreed to allow a partial recoupment of “excessive” interest payments on the annuity savings fund. The provision was in the plan that the pensioners approved in their vote on the Plan of Adjustment. The recouped funds would be put back into the pension fund to make up what the city calls “excess interest payments” made to pensioners who have collected their annuity savings funds.
Here is the objection Quinn filed in the case.
Barbara Patek, representing the Detroit Police Officers Association, spoke in support of the plan. She said police officers were uniquely positioned to observe the bankruptcy’s real effects in the city.
“We didn’t need a bus tour or a complicated set of spreadsheets to understand the insolvency. Our members lived it every day in their work,” Patek said.
Robert Gordon, of Clark Hill law firm, represents the pension systems. He also spoke in support of the Plan of Adjustment and its settlements for pensioners.
“These settlements vary in their treatments and their projected recovery reflecting the varying rights of creditors groups,” Gordon said. “Somewhat miraculously a consensual plan is now before the court. … All of Michigan should be proud.”
He was followed by Ryan Plecha, who represents the Detroit Retired City Employees Association and the Detroit Retired Police and Fire Fighter Association. He credited the mediation process as the “only way” settlements were reached.
“I must also note the courage and the dedication of the DRPFFA … along with the same efforts of the DRCEA … in making the difficult choice to reach an agreement withe the city,” Plecha said.
Representing the Official Committee of Retirees, Claude Montgomery urged Judge Rhodes to adopt the plan. “The official request comes only from the city but we would ask you to approve the global settlement,” Montgomery said.
Here are highlights of what else he said:
On the varying impacts of the cuts of cost-of-living allowances (COLA) for retirees, depending on their age:
“If you don’t have very long to live, COLA doesn’t mean very much to you. If you have a long time to live, COLA means a lot to you.”
On the 6.75 percent rate presumed for pension investments:
“It’s a negotiated number. A higher number means fewer benefits cuts but greater city susceptibility to financial risks.”
Representing the state, Steven Howell, of Dickinson Wright, made some closing statements in support of the Plan of Adjustment. “Although the filing of Chapter 9 has not been popular, there’s no question it was the right thing to do,” Howell said. “In this confirmation hearing, many of the city’s witnesses has since testified to the strides the city has made in improving services to its residents. … We cannot allow the city to fall back and continue its downward spiral.”
The state is providing $195 million to the city’s two pension funds and has financial oversight of city operations and pension fund management, according to terms of the Plan of Adjustment that were passed by the Legislature and signed by the governor earlier this year.
Also in the courtroom audience: Rep. John Walsh, R-Livonia, who chaired the committee that first considered the “grand bargain” bills in the Michigan Legislature.
Judge Rhodes asked Bennett what he thought the two or three top risks were to the feasibility of the Plan of Adjustment. Here’s how Bennett answered:
Everyone recognizes that there has to be flexibility in implementing the (restructuring initiatives) going forward, and it’s impossible sitting here in 2014 to decide exactly how money is appropriated in like 2018 or 2019 should be spent. I know that your Honor has confidence in Mayor Duggan and his administration – it’s a very impressive group. We don’t know how long they’re going to stay. We have to make guesses about who’s going to be there in the future. I would say the risks that are controllable are sticking with the plan and using the money, the huge amount of budget surpluses are projected and earmarked … earmarked for critical investments in critical areas. To the extent that they’re deployed or adjusted in any way, it’s got to stay for that: critical purposes in critical areas that may evolve over time to a degree but what we don’t need is the use of that money for other purposes that someone might decide is more politically expedient.
Bennett also said a risk is if there is misspending or the perception of misspending of the $1.7 billion budgeted over the next decade for improving city services. “Either would be a huge problem,” Bennett said.
He also said the city needs to regularly invest in critical infrastructure and services, for example, an information management system.
When Rhodes asked about how the city can ensure pension obligations are met, Bennett said:
The national labor organizations have to put pension funding high on the bargaining list.
Before breaking for lunch, Judge Rhodes told Bennett he wanted him to clarify what the plan intends to do with respect to 1983 claims. The “1983” refers to the Civil Rights Act, and the creditors include litigants who have lawsuits against the city relating to, for example, police misconduct and wrongful convictions.
Here’s some background about those cases:
The presumed interest rate for pension investments was an often-visited topic during witness testimony during the bankruptcy trial, and Bennett re-visited it during his closing statements.
(The Plan of Adjustment sets the presumed rate of return at 6.75 percent, which is at the low end of large public pension funds nationally.)
Bennett said in his closing arguments that the interest rate should be considered a reflection of how much risk the city is taking, and given the city’s situation, having low risk is the “reasonable” approach.
Bennett made an economic, cause-and-effect argument against the city raising taxes to pay debt, as some creditors had suggested during the trial.
“Municipalities in today’s world are really competitors with other municipalities,” Bennett said. “It’s happening every day when people are deciding where they are going to live. … It’s important: what does the community offer and what does it cost to live there.”
He recounted Mayor Mike Duggan’s testimony, who said the city is just “10 percent” of where it needs to be in terms of providing city serices.
“He started talking about the fact that people are going to compare us with what’s going on in the suburbs,” Bennett said. “Your Honor … in many places we have shown you that Detroit’s taxes are the highest of any city in Michigan and in places we’ve shown you and the record has shown you that our services are not. … Far from it, unfortunately. Hopefully we’ll get there.”
Raising taxes would only drive away residents, Bennett said, and existing ones may choose to not pay any more.
“We already have a delinquency problem. It would only get worse,” he said.
Raising taxes to generate more income is “not sensible” for Detroit, city attorney Bruce Bennett said.
He reviewed testimony that the Michigan Legislature is not likely to pass measures that would allow Detroit to raise taxes, a necessary provision because the city is near its taxing limits under state law.
“I think we all know that to be right,” Bennett said.
The city did “extensive” work to determine how to monetize its assets to reduce debts, sometimes paying creditors, sometimes creating other deals, city attorney Bruce Bennett, of Jones Day.
One example: “The entire cost of Belle Isle came off the city’s books. Therefore, money was saved … and generated to be used for other purposes,” Bennett said.
He also discussed the creation of the regional water authority, the Great Lakes Water Authority, which was a product of bankruptcy-related negotiations about the future of the Detroit Water and Sewerage Department (DWSD).
“The city looked at DWSD from a variety of different perspectives,” Bennett said, with a focus on raising money for the city’s general fund.
“Certainly the city did tons of work in this area. Others, of course, had very strong views about whether DWSD or any part of DWSD’s value could ultimately make it to the general fund because of its special status essentially as a utility that performs work for fees.”
But not every city asset was part of a settlement in the case, Bennett pointed out. He cited the Coleman A. Young International Airport, commonly known as City Airport.
“There really isn’t an immediately available alternative but it has to be kept alive for other good reasons. So that’s a failure, couldn’t accomplish anything significant there but it wasn’t for lack of trying,” Bennett says.
City attorney Bruce Bennett, of Jones Day, is addressing the reasons why the Detroit Institute of Arts collection does not need to be sold to pay debt. He recounted what some of the witnesses said when they testified earlier in the trial.
“There really isn’t a dispute that the DIA is a nationally recognized cultural institution that contributes to the city. It contributes to the image of the city. It contributes to the city’s rehabilitation. It might even contribute to bringing residents back,” Bennett said. “It is most assuredly a reasonable decision for Detroit to make to keep a world class art museum.”
Judge Rhodes interrupted Bennett’s statement to pose a question.
“What do we say to the pension claimant whose pension is impaired as a result of that decision?” the judge asked.
“We say to pension claimants in this what we say to other creditors,” Bennett said. “There’s no law that says a pension creditor has to be paid by causing a city to sell its assets.”
Judge Rhodes has taken a break to take a phone call. He also requested a meeting in the jury room with city attorney Thomas Cullen, of Jones Day, and a representative from the city law department.
He’ll resume closing arguments at 10 a.m.
“I think many of our pro se objectors do object to the DIA settlement in the way that it protects the art in this context, in this bankruptcy, from their pension claims,” Rhodes said.
“I’m going to cover it. We’ll cover it very thoroughly,” Bennett said.
City attorney Bruce Bennett told Judge Rhodes that the Detroit bankruptcy case proves that municipal bankruptcy is not about simply distributing city assets to pay claims. Bennett praised the settlements the city’s reached with creditors – totally about $7 billion of the city’s $18 billion in debt – because they don’t sell off the assets.
“Instead they are deployed in a way they are used only in the context that the creditor receiving the asset is going to have to invest money, participate in the city’s rehabilitation in order to extract assets,” Bennett said.
For example, the FGIC settlement includes the bond insurer, or its development partner, receiving the land where the Joe Louis Arena currently sits, with the provision they will develop the site as a hotel, office and retail space and condos.
City attorney Bruce Bennett, of Jones Day, began his closing argument by pointing out how quickly the Detroit Chapter 9 case moved from filing to trial conclusion … and why the speedy schedule is good for the city.
“Few if any press accounts about this case, and frankly even every article about the city of Detroit published outside the city of Detroit, refers to the fact that the city is in bankruptcy case,” Bennett said. “This isn’t good. It isn’t helping. It doesn’t do much to attract residents and business to the city, which as we’ll see later is extremely important to the city’s overall recovery.”
Finishing the bankruptcy trial is important for the city’s image, Bennett said.
“Even today many people who read articles which have reported the parade of settlements, … don’t fully understand the extent of progress already made or fully understand that the end really is in sight,” Bennett.
He repeatedly praised the relatively short time frame from filing to today’s closing arguments.
“It was a priority very early on for the debtor, the emergency manager, the entire professional team that we were going to put his case on a fast track,” Bennett said. “We think we’ve succeeded in this regard with your help. … The fact that we’re going to have an ultimate conclusion in this kind of time frame is terrific.”
The Plan of Adjustment now is “very broadly consensual” Bennett said, with all major financial creditors supporting it.
“Of course the case did not start out that way. It’s hard to think of any major constituency that was not involved in major litigation concerning some aspects of its rights with the city,” Bennett said.
Before closing arguments began, attorneys for bond insurer Financial Guaranty Insurance Co. and holders of some pension debt reported they had finalized a settlement with the city.
“Just in the nick of time we’ve resolved each and every one of the pending issues. We, did reach agreement on language that reservation of rights language, that would go into the confirmation order,” said Alfredo Perez, FGIC attorney from the Weil Gotshal & Manges firm.
FGIC also filed an updated term sheet, which was read into the record.
Department of Financial Services waived notice period so FGIC has the ability to enter into the settlement, Perez said.
Jonathan Wagner, of Kramer Levin, who represents holders of about $1 billion in pension debt through the Certificates of Participation, said his clients also were now supporting the city’s Plan of Adjustment.
“I don’t think there’s any suspense here but i’m happy to report that we’r withdrawing our objection,” Wagner said. “My two-hour statement is now reduced to zero.”
Detroit Emergency Manager Kevyn Orr returns to the witness stand in the city’s bankruptcy trial today, and according to city attorneys, he could testify most of the day. We’ll have updates here with highlights of this testimony. Here’s what he said yesterday.
Court is in recess until tomorrow, when Orr will return to the stand. Roger Penske is also expected to testify.
Attorney Ed Soto, who represents bond insurer Financial Guaranty Insurance Company, is first to cross examine Orr. FGIC, with roughly $1.1 billion in claims, is the largest creditor without a settlement with the city. The Plan of Adjustment calls for paying them roughly 6 cents on the dollar.
Soto began by asking questions about the city’s different treatment of classes of creditors in the Plan of Adjustment, specifically that pensioners lose less than financial creditors like FGIC.
After a short cross examination, Kresge CEO Rip Rapson is finished testifying. Creditors attorneys now will cross examine Kevyn Orr.
Because of scheduling issues, creditors’ attorneys postponed cross examining Kevyn Orr this afternoon, and Rip Rapson, the chief executive of the Kresge Foundation, is on the witness stand.
Kresge, he said, has invested about $1.4 billion in Detroit in grants and direct funding for programs, personnel and projects including the Detroit Future City planning initiative. That commitment will continue. Kresge has pledged $100 million toward the “Grand Bargain” that funds pensions and protects the collection at the Detroit Institute of Arts from sale.
City attorney Greg Shumaker questioned Rapson about why the foundation officials believed the DIA was worth such an investment.
“Its’ one of those defining institutions of Detroit life,” he said. “The contribution to the grand bargain is above and beyond what we would normally spend.”
Detroit City Council members are not calling Orr as much as they used to, he quipped during his testimony. But he described positive working relationships with them.
“With most of the council member I’d like to think it’s quite good and personable,” he said.
He also repeated his earlier testimony describing a good relationship with Mayor Mike Duggan, including talking about what would happen when Orr’s tenure is up.
“We had a long series of discussions about transition. Frankly for the last nine months he’s supported me on restructuring side and I’d like to think that I’ve supported him with operations,” Orr said of Duggan.
“Why not sell the city’s assets and increase creditors’ recovery?” city attorney Greg Shumaker asked Orr when court resumed after a lunch break.
“For several reasons. I believe that under the statute, both the state (emergency manager) statute and the federal law, I’m not required to sell assets. We leased assets: Belle Isle, which required approval, and we have liened assets for financing, which requires approval. But we haven’t sold anything. I believe for the city come back, it needs the assets that it has. It’s not as if the city has a great number. Some are notable, the DIA for example, but I believe we’ll need those assets, particularly the DIA, as it’s one of the most important cultural institutions in the city,” Orr said.
Shumaker asked what could be sold.
Orr answered: 380 parks, the Detroit Zoo, the Michigan Science Center, four golf courses, a cemetery. “But we haven’t sold any of those,” Orr said.
Orr said the Plan of Adjustment seeks to improve city services simply to reach acceptable levels in national standards. “We are not trying to reach gold-plated service levels,” he testified.
Provisions of the $1.7 billion provided over the next decade to improve infrastructure and city services will be focused on updating and improving procedures and systems to save money but also to make “compliance” easier. For example, Orr described how he saw people waiting four hours to pay tax bills. “When you have a barrier to compliance like that, that means you’re going to get noncompliance,” he said, meaning people won’t wait that long to pay bills.
“You want to put out restructuring initiatives that help people comply if they want to. You want them to get fair service for their taxes,” he said. “You want to make sure the city works in an adequate way, the way it should, in a way they’re expecting so that they themselves are willing to comply.”
Part of Orr’s testimony covered a mini comparison of pensioners and financial creditors and how they were treated in the Plan of Adjustment — how their claims were reduced — and how Orr concluded, partially, how much they should be reduced.
“When I look at the expectations of the relative parties, I’m well aware that financial creditors have processes, procedures, due diligence, underwriting, analysis, access to ratings agency reports and property reports relative to debt issuance and have a better capacity to handle the risk … as opposed to the average individual or work of the city,” Orr said.
City attorney Greg Shumaker asked why it was important to understand that dynamic.
“You’re trying to understand or at least trying to balance competing interest as best you can,” Orr said. “No one said there was an unlimited pot of money. Everybody agreed had limited assets to pay these obligations.”
But he said he balanced what “access” to information about risk, interest rates and other “costs” related to debt different parties had. Sophisticated financial creditors had more. Pensioners had less.
“The average worker doesn’t have that ability to price the cost and the risk or build into their instrument certain recoveries as those risks rise up. The average worker just expects to be paid,” he said. “They were going to receive their pensions. That’s what the city had promised, that’s what the system had promised, that’s what the state constitution had promised. Many of them had no reason to believe that was not going to occur and they had planned their affairs on that basis.
Shumaker asked Orr how pensioners viewed the city’s pension obligations.
“They felt very strongly they had to be protected and observed,” he said.
The Syncora settlement, which came just last month, was significant Orr said. The deal reduces by about three-quarters the Bermuda-based bond insurer’s roughly $400 million. It also, Orr testified, negates several Syncora legal actions and suits related to the Detroit bankruptcy that eventually could have cost the city up to $10 million.
“It was costing the city not an insignificant sum of money to defend those claims from that litigation,” Orr said. “I expected them to go, on appeal, all the way up to the Supreme Court. I expected it to go on for years.”
The settlement involves a cash payment, some city property, a parking garage and an extension of the lease for a Syncora subsidiary for the Detroit Windsor Tunnel.
The development agreement, which is part of the settlement, gives Syncora 15 months to develop several parcels of property along East Jefferson near the Detroit River, and construction needs to be completed within three years.
“It has an option for Syncora, and this can change, to have access for certain option prices for certain pieces of property along the East Jefferson-River corridor,” Orr said. He expects parking and residential development there.
Syncora also would spend $13.5 million to develop the Grand Circus Park parking site. After recovering that cost of capital improvements to the garage, Syncora would pay the city 25 percent of its parking revenues.
Orr said Syncora has experience operating “subterranean” sites, such as the tunnel, so it made sense for the city to allow them to acquire and operate an underground parking garage.
Before the morning recess, Judge Steven Rhodes announced how much time each side has left to make its case in the Plan of Adjustment confirmation trial.
The city has 31 hours and 45 minutes. The objecting parties have 54 hours 3 minutes.
The amounts represent reductions of 4 hours for the city and 10 hours for creditors, possible because of settlements reached since the trial started.
“The court has observed that both sides have been very crisp and efficient in presenting their case, which the court appreciates,” Rhodes noted.
Orr testified there were practical, legal, economic and symbolic reasons to have certain classes of creditors support the Plan of Adjustment.
Having the city’s pensioners vote in favor of the Plan of Adjustment, he said, was important in part to avoid a “cramdown” scenario in which the bankruptcy court judge could “force” the plan through and, in part, to make it easier to confirm it.
“It was also important to get buy-in from the pension and the retiree health care class because as I said before, we were trying to develop a consensual plan here in the city. The city has had enough kind of conflict and strife. When we, meaning the restructuring team, leave, we’d like to leave the city in a position that parties believe they had a voice in this process,” he said, “and there’s buy-in going forward.”
Here’s more on the “Grand Bargain,” from Orr who is on the witness stand and revealed a bit about Lansing politics…and a lack of faith in the future.
The state contribution to pension funds was proposed by Gov. Rick Snyder early in the year, originally for $17.5 million payments annually for 20 years. But Orr said that proposal was revised to a one-time, $195 million payment before the Michigan Legislature passed the package of bills in June.
That way, he testified, future politicians can’t change it.
“It evolved to a net present value funding mechanism where the state would fund a lump sum on the front end and would be factored out,” Orr said.
Part of Orr’s strategy in forming the terms in the Plan of Adjustment is to “get the city out of the debt business,” he said.
That’s why the plan, which describes how Detroit will restructure its finances and city services – if it’s approved by bankruptcy Judge Steven Rhodes – puts in place funding for the city to operate and pay debt for 10 years without seeking additional financing.
“We’re trying to keep the city out of the capital market for a decade,” Orr said.
His statements came during his testimony related to the issue of the city-owned artwork in the Detroit Institute of Arts collection. City attorney Greg Shumaker, of the Jones Day law firm, was questioning Orr about whether he had considered pledging the museum’s assets as collateral for any loans to raise funds for the city.
Orr had not, choosing to protect the artwork.
“When you pledge any collateral as debt, there’s a risk it will be seized,” he said.
Orr is testifying about the “Grand Bargain,” the deal that brings foundation and state money to the pension funds in exchange for not selling the collection at the Detroit Institute of Arts to raise money to pay creditors. The agreement also prevents some litigation against the city or state related to the reduction of pensions in the bankruptcy case or challenging the emergency manager law.
In valuing the Grand Bargain, Orr is using the $816 million figure, which is what it’s worth over 20 years. The present day amount is $661 million.
The DIA, the board of the foundation and the Michigan Attorney General disputed creditors’ claims that art could and should be sold to raise money for financial creditors. “There were other parties in the museum community who had voiced their opposition to any plans to sell the art,” Orr said.
DIA officials made clear to Orr that they would legally defend every single piece of art in the museum from forced sale, he said, noting some “high net worth individuals” would support the effort.
“I had every reason to believe their intent was sincere and they had the means to carry it out,” Orr said. “I think it’s fair to say it would be lengthy and intense litigation.”
Orr’s testimony resumed with a discussion of the city’s settlement with bond insurers of the Limited Tax General Obligation bonds, Ambac Assurance Co. and BlackRock to reduce the $164 million they were owed. Here’s what we reported when the deal was announced.
The settlement includes a 34 percent payout on the insurers claims, Orr said. The bond insurers, as part of the deal, agreed to support the city’s Plan of Adjustment and release their proof of claims and pending litigation.
Orr also gave a short lesson in municipal finance, explaining the difference between Unlimited and Limited Tax General Obligation bonds (UTGOs and LTGOs). The UTGOs may be backed by a higher amount of tax revenue, and municipalities are able to raise tax or millage rates to pay them. “LTGO has a limit on the amount you can raise to service the bond debt,” Orr said.
In legal filings against the city’s effort to reduce their payments, the UTGO bond insurers argued that they were entitled to special liens and equity lines, Orr testified. “The LTGOs tried to draft a little bit in their papers on the UTGO theory,” Orr said. “But it wasn’t as strong.
Following that, Orr described how the city addressed its obligation for retiree health care, the “largest unsecured portion of debt obligation the city had,” he said. “”We had no money reserved for these liabilities.”
In June 2013, the city estimated its “OPEB” liabilities — Other Post-Employment Benefits, which includes health care, vision, dental and death benefits for retirees — at between $5 billion and $5.7 billion.
“Being the single largest portion of unsecured claims, even at the lower number the retiree committee actuaries focused on, that would have been a significant liability for the city, and there was a risk it would continue to grow so it would have made trying to propose a plan at least for the initial 10 years, very troubling,” Orr said.
That estimated changed to $3.8 billion after the city and attorneys for pensioners and employees negotiated.
Orr said he couldn’t give details of all the discussions because of the continuing gag order preventing release of information from mediation in the bankruptcy case. But he said the parties shared data, reviewed interest rates and information from three different actuarial firms. The city, the Official Committee of Retirees and the pension systems each hired their own actuarial firms to vet data points including the number of retirees, actuarial projections about future costs and other financial forecasting.
“There was a number of information floating between” the three firms, Orr said. “We were going back and forth with data, based on the amount of claims, mortality rates, things like that,” Orr said.
Ultimately they settled on the city providing a $450 million note and the formation of Voluntary Employee Benefit Associations, which would handle retiree medical benefits.
“The city would be getting out of the health care business,” Orr said.
As part of WDET’s partnership in the Detroit Journalism Cooperative, WDET’s Bankruptcy Reporter and Next Chapter Detroit Blogger Sandra Svoboda teamed up with Bridge Magazine’s Mike Wilkinson to look at Mayor Mike Duggan’s campaign finances. They look at his Super PAC from last year’s election, and discuss the other fundraising efforts he has underway. Theircollaborative reports are the first to document Duggan’s campaign finances and funding in a transparent way. Wilkinson and Sandra talked with WDET’s Pat Batcheller about their two articles.
Here’s a transcript of the conversation:
Pat Batcheller: A new fund has been created to help raise private money to pay for some of the projects that the Mayor would like to initiate and then also, you’ve taken and extensive look at how Super PAC money played a significant role in the last mayoral election and how that may change municipal elections across the country. Let’s start with you Mike, on the, what you uncovered regarding this new nonprofit called the Detroit Progress Fund. What is that exactly?
Mike Wilkinson: We learned about this about a week ago that Mayor Duggan had a birthday party over on the riverfront where people were invited to bring their checkbooks so that they could put some money into the Detroit Progress Fund, and it turns out that it was created back in February and the goal of it, well, it’s considered a social welfare nonprofit, a 501c4 and they’re going to use the money to promote the mayor’s agenda.
PB: We’ve seen funds like this before, of course, the Kilpatrick Civic Fund and Gov. Snyder’s NERD fund, both of which raised significant amount of controversy for each politician. The mayor obviously is cognizant of the pitfalls of that, I would think, otherwise, he wouldn’t go down this road. What is he going to do to ensure that he doesn’t fall into those traps?
MW: One of the things when we asked the mayor’s staff about this, they were very quick to respond that it’s going to be different in terms of transparency. By IRS rules they only have to give a limited amount of data every year when they make their filing but they’re going to disclose, unlike what Snyder did initially with the NERD fund and Kilpatrick with the Civic Fund, they’re going to disclose who their donors are, they say, and they’re going to disclose what the money gets spent on. Kilpatrick did not do that and part of what he did end up spending it on, golf clubs and some other personal stuff, ended up adding to his time that he’s now spending in federal prison. And in the NERD fund’s case, the revelation of the fund led to a lot of embarrassment for the governor and he shut it down and said that if he creates a new fund he will disclose.
PB: What kinds of things could this fund be used for?
MW: It’s limited by IRS rules. You can’t get involved in the direct partisan politics. What Kilpatrick had aid he was going to do and what is allowed is I think some of the voter education efforts, but what we can see from the records that are filed with the state, the Detroit Progress Fund is not going to be going into that. It’s more to support the mayor’s agenda, and the one example that John Roach, a spokesman for Duggan gave us, is in the event when they have a high-ranking official somewhere else in the country who’s coming to Detroit to interview for a job, that the fund would be able to pick up the travel and defray the costs so that the taxpayers would not have to.
PB: And of course as we learn more about the Detroit Progress Fund, we know that a significant amount of money was raised for the last mayoral election to support Mike Duggan and his opponent last November, Benny Napoleon. Sandra, you looked into this as far as the influence that Super PACs had on this.
Sandra Svoboda: It was reported during the election last year that both candidates, Benny Napoleon and Mike Duggan, had Super PACs, What I don’t think we realized is how truly unusual that is. In the wake of the 2010 U. S. Supreme Court ruling, Citizens United, which really changed the game of campaigns because of the campaign finances restrictions being loosened on who can pay for what, candidates across the country have been able to use these Super PACs. Or, well, I shouldn’t say it that way. The candidates themselves don’t use the Super PACs because they’re not directly coordinated. But it’s clear when you look at the donors and even more so the expenditures in the Super PACs that they are clearly supporting certain candidates. It happened during the mayoral election which is kind of unique around the country. We don’t see that many big city mayor although the experts, the advocates for campaign transparency that we interviewed expect this to be a much bigger trend.
PB: And you’ve put together a database on Bridge so people can see who the big contributors were and there were some interesting but not necessarily surprising names of some of the biggest donors to the mayoral campaigns, names people are familiar with like Roger Penske, for example.
MW: Mr. Penske, who has long been a supporter of Detroit politics. He’s been a supporter of the city. He’s committed $10 million to the grand bargain in bankruptcy court. He personally gave the Turnaround Detroit Fund for Mr. Duggan $500,000. His corporation gave him another $500,000. He also gave $3500 to his direct campaign committee. So you have people who are able to give huge sums of money and what it does, what I find interesting, if you look back at what was considered the most expensive mayoral election before this one, you go back to, I think it’s 2005 and with Freman Hendrix and Kwame Kilpatrick, it was $5.4 million between two men. Here, Mike Duggan raised himself $2.8 million, another $3.1 million was raised in support of him but the $3.1 million was from only 246 people. They average well over $12,000 a donation. It took him 3,600 people to raise the $2.8 million. So you really narrow your focus of fundraising if you have several big backers. You don’t have to have the wide spread of support at least financially to run a campaign.
SS: And that’s the difference in the post-Citizens United era. There can be these unlimited amounts of fundraising going to campaigns through the Super PACs, not coordinated through the campaigns but certainly supporting. And we as voters, we as the public don’t necessarily know where that money’s coming from.
PB: So that’s why you created this database to give people an avenue to find out where the money came from. How does it work?
MW: If you were a regular citizen and you wanted to know who supported Mike Duggan, you would have had to go to two different places: to the Wayne County Clerk’s election database, contribution database, and to the Secretary of State at the Michigan level. What’s interesting about Duggan’s Super PAC is it started in Wayne County and then it moved to the state and unless you combine the two, you wouldn’t get a full picture. What we did was take that in addition to his campaign contributions and clearly identify which money was going directly to him and which was going to his Super PAC so you can see a fuller perspective and then you can see that the people who gave to the Super PAC, most likely, in most case also gave to the campaign. So you can tell there are these veins of support that run both ways.
SS: And thanks to the Internet and technology, this information is available to the public. What Mike did was put it in one site that you can get at BrigeMI.com where people can look themselves. They can see who contributed from their hometowns. They can run certain names. It really helps give a picture, a more complete picture of what’s going on in our politics.
PB: Were there any surprises that you found in the data?
MW: I think we all have known from the 2012 presidential campaign the vast amount of money that has poured into Super PACs. I don’t think I really understood there was this amount of money being spent locally. Kwame Kilpatrick had a leadership PAC called Generations. Some people Karmanos, Penske, well, I’m not sure about Penske, had given him a significant amount of money. So we saw it there. That money, he was allowed to give to other candidates but here we’re able to see people like Karmanos. We see Vanguard Health, which bought the DMC where Mike Duggan worked before. You see DTE putting in a lot of money. A Quicken Loans PAC. And you see there are people who have these reserves of wealth that they wanted to share on Mike Duggan’s vision, and I think it’s important going forward as Mike Duggan spends a lot of money to make the city, to improve the city to see if there’s any correlation. And it’s a transparency issue he’s talked about. He wants to be transparent and with our database on BridgeMI.com, we’re going to kind of help make it transparent.
SS: I think on a related issue, one of the things I hear in covering the bankruptcy is the number of people outside of the area, attorneys especially, and financial consultants, who are working on the bankruptcy. We see the same thing with Duggan’s campaign contributions. There is a lot of money coming from outside the city of Detroit and there is some criticism from within the city, people who don’t like that outside money is helping determine the outcome of elections.
PB: Not just the outside money but one could reasonably ask, I suppose, if these donors are giving these donations through the Super PAC and also through the Detroit Progress Fund, if they’re giving donations to these, are they getting something in return, and you’re not necessarily alleging that that’s taking place, but it is something that would certainly be a reasonable question.
SS: I think journalists call that “job security.” We have our work cut out for us in the next few years to look at this.
MW: One thing I find really interesting about the Super PAC and the transparency issue, is the wealth of electronic data has allowed us, we get to see who has sported Mike Duggan, now the Super PAC is not coordinated and it’s independent, but because of that transparency, Mike Duggan knows who supported him. And what I wonder if Roger Penske’s assistant calls up and wants a meeting with the mayor, does that meeting gets scheduled as a guy who gave $3,400 to his campaign committee or is it as a guy who gave $1 million to the Super PAC? I’m presuming the latter.
SS: And I think one of my favorite quotes in the story is Rich Robinson from the Michigan Campaign Finance Network, who of course is our statewide watchdog and compiles a lot of information campaign finance around the state he says nobody writes four-, five- and six-figure checks out of good humanitarian reasons.
PB: You can assume they’re wanting something in return. What do these funds tell us about where things are with Mayor Mike Duggan?
MW: He has a lot of support from people who have deep financial interests in the city. He also had a lot of support from people in the city. There were a lot of people who gave him $5, $10, $25. I think what we have to make sure as journalists and as watchdogs is just to keep an eye on: does anyone benefit more because of those contributions. We will be able to look at that as contracts are let, as decisions are made. I think when a guy like Roger Penske gives $1 million between himself and his corporation, I’m not sure he wants Belle Isle paved for the Grand Prix, I think he wants a voice in government. And I’m going to guess that he’s going to get it.
SS: I think also what it shows us is that the dynamics of national politics and the so-called dark money going through Super PACs is coming to local elections, and that’s something that as a journalist, the one agenda I’m allowed to have is the transparency and openness in government, and it kind of scares me that we might see that dynamic determining some of the smallest, most local elections.
MW: The good thing is because of the records that are out there. Because of databases like we were able to compile on BridgeMI.com, we are going to be able to keep an eye on it. Five years ago, this was a pdf at the Wayne County building. That was electronic but then a couple years before that you were given folders that were three, four, five inches thick for Kilpatrick. You would have had to wade through just tens of thousands of pages and people didn’t have the ability to do that. Well, now they do.
As a backdrop to the news today about an analysis showing the Detroit Institute of Arts collection is valued at up to $4.6 billion, a figure that could fall to $1.1 billion in actual sales if the art was put on the market, NextChapterDetroit.com brings you a bit of history about why and how the museum’s collection has been part of the bankruptcy case this year.
1-The artwork at the Detroit Institute of Arts is the city’s top asset, according to Detroit’s Disclosure Statement, the document designed to provide information to creditors so they can evaluate the city’s restructuring plans. The artwork, while not precisely valued in the May 5 document, was worth more than city-owned land, Belle Isle and the Detroit-Windsor Tunnel.
2-Prior to Emergency Manager Kevyn Orr filing for bankruptcy, Michigan Attorney General Bill Schuette issued an opinion that the artwork was protected from sale and “is held by the City of Detroit in charitable trust for the people of Michigan, and no piece in the collection may thus be sold, conveyed, or transferred to satisfy City debts or obligations.” His opinion has no force of law in federal bankruptcy court.
3-Bond insurer Syncora, who stands to lose nearly $300 million in the case, is one of the creditors that has been advocating for selling art to cover debts. Here’s what Syncora attorney Stephen Hackney said at an April hearing:
“The art has been a sort of noteworthy, highly publicized part of the case, and from our standpoint, a very important part of the case … The city is proposing to address the issues surrounding the art collection in a way, from our standpoint, that yields far less value.”
4-Bankruptcy Judge Steven Rhodes on April 28 granted Syncora’s request to view communication between Schuette and the DIA that preceded his opinion that the art was protected from sale to pay debt. In issuing his ruling from the bench, Rhodes said:
Plainly, the extent to which the art held by the Detroit Institute of Arts should be taken into account in evaluating whether the city’s plan meets the best-interest test of the bankruptcy code is a substantial issue in the case, one that has not been prejudged or determined by the court at all, and, of course, this ruling should not be construed to suggest one way or another how the court will or may rule on that substantive issue of confirmation.
5-In preparation for trial, the city and the DIA hired Artvest Partners, an art investment firm, to “assess the viability and practicality of selling art or otherwise monetizing the collection,” according to Bill Nowling, spokesperson for Detroit emergency manager Kevyn Orr.
6-The Artvest report disputes some of the findings in another report that was commissioned by some of the city’s creditors.
7-Issued today, the Artvest report cost $112,500. (Its author, Michael Plummer, co-founder of the Artvest firm and a former employee at both Christie’s and Sotheby’s, is scheduled to appear as an expert witness during the city’s bankruptcy trial in August.)
8-The report was issued just days after pensioners and other creditors needed to mail their ballots to meet the Friday deadline of the votes being received. Would this information have changed their minds? We’ll never know. As a related noted: The DIA has pledged to raise $100 million toward pension funding as part of the “grand bargain,” the agreement that also has, among other terms, the state paying $195 million and foundations contributing $366 million toward the pension funds.
Among the Artvest report’s findings:
About two-thirds of the DIA’s collection is in four areas that have “fallen out of favor with collectors and that are underperforming their market peak in 2007”. The are: American Art pre-1950, Old Maser and 19th Century European Paintings, and Impressionist and Modern Art.
If the DIA collection were for sale, “few sales would be to other museums, both because other museums are likely to boycott such sales, as well as because funding constraints limit their participation in the marketplace at today’s price levels.”
If the DIA wanted its art auctioned, Sotheby’s and Christie’s might not participate. Sotheby’s parent company was based in Detroit from 1983 to 2006, and had a number of connections to the DIA. Christie’s “received unusually strong negative feedback from both the museum community and the art industry by merely conducting an appraisal.”
If the city sold art through an auction house outside of Christie’s or Sotheby’s, it could expect to lose 20-40 percent of potential selling prices.
Another issue raised in the report is the authenticity of some of the pieces. The DIA has works that are thought to be Modiglianis but have not been validated by the art worlds’ most trusted sources. And also, according to the report, the authenticity of some of the Old Masters paintings could be challenged during a review of them before a sale.
The iconic Diego Rivera murals would have little value if moved. According to the Artvest report, cutting them off the walls would seriously damage them.
A sale of the art, especially if ordered through a court decision related to settling debt, could result in “formidable legal obstacles and prolonged litigation.” Some of those obstacles, according to the report, are: items would need free and clear title to be sold, and the threat of future litigation could prevent that; it’s likely the Michigan Attorney General would take legal steps to prevent the sale, based on his opinion from last year; the heirs of DIA donors would be likely to “pursue every legal option necessary to stop or delay the sale of any of the art, potentially leading to years of litigation.”
The potential impact of selling the most valuable works would “deprive the museum of its core attraction, drastically reduce attendance and related revenues, drive away potential donors of future gifts and endowments, and in all likelihood, ultimately for the closure of the DIA due to a loss of economic sustainability, resulting in a full liquidation.”
-By WDET’s Sandra Svoboda
@WDETSandra and email@example.com
Earlier this morning the Detroit Journalism Cooperative released a poll.
It asked likely voters throughout the state about their feelings toward Detroit and the state funds that could go toward the bankrupt city to shore up pensions and, ultimately, prevent the sale of a portion of the art collection out of the Detroit Institute of Arts.
The poll found that there was widespread support for providing funds to Detroit. Specifically:
…roughly eight in ten respondents view Detroit’s financial health as very important or essential to the health of the state. Nearly two-thirds of people in the survey say it’s a top priority or important for their elected officials to address Detroit’s financial recovery. And they say they prefer Gov. Rick Snyder’s original 20-year plan for annual $18 million payments rather than a single lump sum payment to Detroit.
The poll also recorded a number of positive and negative responses. We visualized them. Of the 28 “positive” responses, this is what its word cloud looks like:
As you can see, “things” seem to be the most used word. In comments like: “Contracting work has gotten better, things seem to be improving.” And, “There’s an opportunity for some really good things to happen there.” Bull list below.
On the other side, 38 “negative” comments were recorded. It looked like this:
As you can see, “crime” seems to be the most used word when it comes to the negatives of Detroit. Not all that surprising. Many of the responses for the negatives were simply “crime.” There were a few variations of this such as “The crime rate,” or “Crime is too high.”
Here are the full responses:
Downtown looks good
They’re really trying to bring things back
The improvements to belle isle
They’re trying to improve the business climate to create more jobs
I like to go there, they have a lot of sporting events
Great cultural activities
It’s my favorite vacation spot
Detroit is moving forward with the bankruptcy the right way
It’s a great place going toward the right direction
They declared bankruptcy which is a step in the right direction
Contracting work has gotten better, things seem to be improving
The neighborhood is getting cleaned up
There’s a lot of hope in the people who live there to bring the city back
Now there’s a mayor who is working to improve the city
Gm is coming back
Greenfield village community
They have new elected officials who are going to manage the money
All the places to go there, like the sports facilities, opera house and detroit institute of arts
I’m from the bronx, it’s not much different from there crime wise
Things that have been neglected are starting to be fixed now
There’s an opportunity for some really good things to happen there
The tigers are winning
The current lack of corruption
The involvement of the state to help
Improvement in the economy
Sports bring money into the economy
It’s lost so much industry
Poor past leadership
The city government there is corrupt
The whole city isn’t safe and the leadership is terrible
There are too many murders
They’re full of poverty
Seeing all of the blight and good houses going to waste
The education level is bad there
Crime is too high
I understand they’re tearing down houses
They have so many problems
There’s still too much of a good ol’ boy network in detroit
They’ve failed to fix financial issues for the past 40 years
The bankruptcy situation
The crime rate
No one takes care of it
The failure to get justice
The city in general
People being moved out of their homes because of jobs lost
The high rate of illiteracy
Criminals with no pride in their city
The city is filled with greed
They’ve been ignoring problems for decades
Not being able to fix the bankruptcy issues
The lack of services
Bad government structure
The rundown areas
Crime rates are too high there
The economy isn’t being handled properly