Bankruptcy Court

  • In Bridge: Individual objectors in bankruptcy court

    Most were retired Detroit workers. A few have law degrees. One is a former city councilwoman. They’re 15 “pro se” objectors in the city’s bankruptcy case, individuals without attorneys whom U.S. Bankruptcy Judge Steven Rhodes has allowed to testify, present evidence and question witnesses during the city’s ongoing bankruptcy trial. Here’s Bridge Magazine’s piece about them and what they said in court.

  • Day 20: Detroit’s Bankruptcy Trial

    The city and several creditors announced some major settlements today in the bankruptcy case. Here’s what’s happening:

    10:39 a.m.

    A few more items from this morning’s session:

    Detroit Emergency Manager Kevyn Orr says the city’s attorneys and consultants will contribute back $5 million toward the settlements.

    Court will be in recess until Tuesday morning.

    Here’s the settlement agreement, filed in bankruptcy court this morning.

    10:25 a.m.

    While the settlement between the parties is big news, a few more hurdles need to be jumped:

    Detroit Emergency Manager Kevyn Orr said he will ask the city council to approve the deal as early as next week. “I hope I could appeal to their good graces,” Orr told Judge Steven Rhodes.

    An attorney for the holders of the pension debt certificates, Thomas Moers Mayer, said he has not seen the settlement documents and term sheets and needs to take it to his clients. He said he expects they will be similar to what has been previously negotiated, but with some acceleration of payments, the differences may be material. “We just won’t say yes now,” Mayer said he was told by his client. “There is a chance I’ll have to come back and make some oral arguments if my guys see the documents and there is some problem.”

    10:20 a.m.

    City attorney Corrine Ball, of Jones Day, called it “big news” before she summarized the agreement the city reached with bond insurer Financial Guaranty Insurance Co. and holders of pension debt.

    In part, it includes plans for tearing down the Joe Louis Area and redeveloping the riverfront west of the site. Ball said the development could include condos, a hotel and retail site that would support conventions at Cobo Hall.

    As with bond insurer Syncora, which settlement its $1.4 billion claim last month, the city and FGIC will create a “Development Agreement” that will include “credits” toward future purchase of city assets. FGIC also receives bonds from the B notes and new C note classes in the Plan of Adjustment.

    “We think it’s a very subtantial settlement for us,” said Alfredo Perez, FGIC attorney.

    10:00 a.m.

    The first settlement reported today was between the city and the Macomb County Public Works Commissioner, Anthony Marrocco, who had a $26 million claim related to construction and repairs of the Macomb Interceptor Drain Drainage District.

    The settlement lowers that amount to $22 million and resolves other litigation. The commissioner’s objection to the city’s Plan of Adjustment will be dropped.

    “Thank to you and everyone for your hardwork in achieving this settlement. Please extend my special thanks and appreciation to Mr. Marrocco,” Judge Rhodes told that attorneys.

     

  • Day 19: Detroit’s Bankruptcy Trial

    It’s fewer attorneys and more pensioners today in bankruptcy court. Judge Steven Rhodes has scheduled several “pro se” objectors who will testify and question witnesses. Pro se objectors are individuals without attorneys, and today’s hearing will include their opposition to parts of the Plan of Adjustment.

    One of them already appeared: Estella Ball questioned Detroit Emergency Manager Kevyn Orr on Day 16 of the confirmation hearing.

    10:22 a.m.

    After she questioned Emergency Manager Kevyn Orr and city attorney Heather Lennox, of Jones Day (see below), city retiree Wanda Jan Hill had a few minutes to testify.

    She told Judge Steven Rhodes that he should “strike the 6.75 percent interest rate from the clawback” of annuity payments some general service retirees will make as part of the bankruptcy settlement.

    “Just as deals or adjustments were made for Syncora and FGIC and I can sort of say the police and fire, Id’ like for you to strike a moderate deal with the retirees. I’d like for you to allow Mr. Orr or someone in his camp to provide us with information about the makeup of this clawback. … There are a lot of questions that are not answered that we need to know. “

    Here is Hill’s objection filed last summer against the city’s Plan of Adjustment.

    10:05 a.m.

    With city attorney Heather Lennox on the witness stand, retiree Wanda Jan Hill continued her questioning about if and how retirees were notified about the 6.75 percent interest rate attached to retirees’ annuity savings fund recoupments before they voted on the Plan of Adjustment earlier this year.

    According to Hill, the ballots relied on the term “other factors” and did not disclose a 6.75 interest rate would be part of retirees’ payback of some of their annuity savings funds to the city. After Emergency Manager Kevyn Orr couldn’t sufficiently answer Hill’s questions (see below), Lennox took the stand to discuss the issues Hill raised about the interest rate on the “clawbacks.”

    Here are some excerpts of their exchanges.

    Hill to Lennox: “What did you know and when did you know it?”

    Lennox responded by recounting the development of what attorneys called the “plain language statement” that was include with pensioners’ ballots. “We reached stipulation with the Retirees Committee,” Lennox said. “In that stipulation that was filed with the court on June 4th, we did specifically include that interest percentage because people had been asking about it. It was also in a letter dated June 4th that went out to retirees who were affected by the correction and the recoupment.”

    Hill: “You said it was not exact. Nowhere in those documents did it tell you there was a 6.75 percent interest tacked on to the ASF recoupment amount so it was not exact. That’s one of the reasons I’m standing here. It was not exact. … That plain language document was, in my view, the ideal document for you to spell everything out, the 6.75 percent. The ‘other factor’ phrase should have fallen by the wayside. … Since it was a plain language document, it should have been plainly explained to us what the clawback was. I think that has a lot of retirees, including myself, all up in arms because you’re taking money away from us but you’re not giving us the right to know what is all the money going for?  … I stil say that “other factors” was used as a ruse to allow you to come back at some other time to say, ‘oh, that was easy. Let’s try to get that money from them on “other factors.” ‘ “

    Hill: “Who came up with the word phrase ‘other factors?’ Who’s responsible for that?”

    Lennox: “The language that was included in all of the documents that you received was drafted initially by the city but it was heavily, heavily reviewed and edited by many, many people who represent the retirees such as the Retirement Systems counsel, the Retirees Committee counsel. We had counsel for the two largest retirees associations in the city that reviewed and comment on that. We also had counsel for the public safety unions, for AFSCME and for the UAW … I would say that those word phrases were the combination for very, very many people who were trying to make things clear and simple for the retirees.

    Hill: “So you don’t know who came up with the word phrase “other factors” therefore you don’t know what “other factors” entails?”

    Lennox: “No ma’am. I said that working was … a very collaborative process to put that language you refer to in those document. I think many people had a hand in that.”

    9:45 a.m.

    The first pro se objector was Wanda Jan Hill, who criticized the lack of communication between the city and retirees about the 6.75 percent interest attached to the recoupment of some annuity savings fund monies.

    Hill wanted to question Heather Lennox, a Jones Day attorney working for the city. City attorneys objected, and Judge Steven Rhodes first had her question Emergency Manager Kevyn Orr.

    Here are excerpts of that exchange.

    Hill: “My motion was relevant to the nondisclosure of the 6.75 percent (interest rate attached to the “clawback” of Annuity Funds from some general service retirees). I don’t know how much of the workings you were involved with that information not being disclosed, but can you explain to me and the court how much involvement did you have with the 6.75 percent interest not being provided in the relevant documents that Class 11 in particular needed in order to make a sound decision?”

    Orr: “I was involved in that process.”

    Hill: “To what extent, relevant to it being a nondisclosure issue?”

    Orr: “I don’t want to mislead you. I don’t look at it as a nondisclosure issue. Without getting into the discussions that occurred between counsel, between the retirement committee (during) the mediation process in terms of getting to that number. I think what I can say is there was no affirmative decision made not to include it in the Disclosure Statement. The concept was there was going to be communication with the Retirees Committee, which we asked this court to empanel, so there would be a conduit of information going back and forth to retirees. My understanding is that information was provided in at least one slide deck that the committee put out to retirees. There were a number of other fliers and communications that went out to retirees prior to the deadline for voting … In addition, I understand there were special discussions with members of that committee as well as members of other groups to try and explain that process. I don’t think there was an intent necessarily not to include it in the Disclosure Statement.”

    Hill: “I beg to differ. In my research I found that the phrase “other factors” was used instead of being forthright and putting all the cards on the table therefor that gave me the impression that it’s something that you don’t want us to know. So when “other factors” was used in at least 10 different documents, it raised a red flag.”

    Then Hill presented a chart of various documents the city filed in the case. She highlighted when the phrase “other factors” was used and when the 6.75 interest rate was specifically mentioned.

    “It was under the guise of ‘other factors,’” she said. “The 6.75 percent interest was a very important number. … this report shows the research that I did relative to life expectancy and ‘other factors.’ …. Every time it was mentioned in a document, this was the phrase that was used. “

    Hill: There was enough space and enough room to break down “other factors” I have a real problem with the fact that ”other factors” was not explained.

    She directed Orr to the April 17 document that corrected how voting by pensioners on the Plan of Adjustment would occur.

    “You can let me know: was the information relevant to the clawback and the ASF … was that known at that time? Did you know you were going to do the clawback?” she asked Orr.

    He replied, “Ma’am. Sitting here right now, I can’t recall. I’d have to look at my notes.”

    Hill: “I’m going to assume you had some idea of what you were going to take from the retirees.”

    Orr: “There were general discussions that I think are covered by the mediation order (preventing public discussion about them), but I think it’s fair to say around that time there were discussions going back and forth.

    Hill: “So the money was an issue at that time.”

    Orr: “I believe there were discussions being had.”

    Hill: There was enough space and enough room to break down “other factors” I have a real problem with the fact that ”other factors” was not explained.

    She directed Orr to the April 17 document that corrected how voting by pensioners on the Plan of Adjustment would occur.

    “You can let me know: was the information relevant to the clawback and the ASF … was that known at that time? Did you know you were going to do the clawback?” she asked Orr.

    He replied, “Ma’am. Sitting here right now, I can’t recall. I’d have to look at my notes.”

    Hill: “I’m going to assume you had some idea of what you were going to take from the retirees.”

    Orr: “There were general discussions that I think are covered by the mediation order (preventing public discussion about them), but I think it’s fair to say around that time there were discussions going back and forth.

    Hill: “So the money was an issue at that time.”

    Orr: “I believe there were discussions being had.”

    Hill: “I think so too because the media talked a lot about what they were going to take from us. … There was an idea of how much money was going to be needed. … By the time we got to Plan of Adjustment Three, you knew that other factors were going to be an issue. I don’t think you would have included ‘other factors’ if you didn’t think it was going to be an issue.”

    Then the judge interrupted.

    “I think what Miss Hill is trying to get to here is whether any of the city’s filed documents specifically disclosed that there was a 6.75 interest rate associated with the ASF recoupment or clawback,” Rhodes explained to Orr.

    Orr: “What I recall, your Honor, is I don’t think it was include with th Disclosure Statement. … There were other documents included on the city’s website. I don’t know if the fliers” and other information provided to retirees included the number.

    “In the circumstances, I think we have to have Miss Lennox testify to the extent to which she can fill in what Mr. Orr doesn’t know.”

  • Q: Who are bankruptcy’s Pro Se Objectors? A: Real people

    As part of the bankruptcy trial, Judge Steven Rhodes is including a handful of individual objectors – people who don’t have attorneys – called “pro se” objectors.

    One of them already questioned Emergency Manager Kevyn Orr and then testified herself. But most of them are expected to begin testifying Wednesday and will cover a variety of topics including: the “clawback” of the annuity savings fund; the voting procedure by various creditor classes (including pensioners) on the Plan of Adjustment; interest rates being used to calculate investment returns.

    Last summer, Rhodes invited 80 individuals to testify about their objections. Here’s a report of that day in court. Some of those are returning during the trial phase. We spoke with Gloria Williams and Steven Wojtowicz in advance of their testimony about their objections and what they’re expecting in court.

    We also interviewed Laura Bartell, professor of law at Wayne State University, about the inclusion of these individuals in the bankruptcy proceeding. She says it’s “not normal.”

    Here’s a transcript of that conversation:

    Sandra Svoboda: Why is the judge including these pro se objectors in the trial?

    Laura Bartell: An objector doesn’t lose the right to object merely because he or she does not have counsel. So if an objector has something relevant to bring before the court, the objector should have an opportunity to stand up in court and make his or her point.

    SS: What role do these objectors play in the bankruptcy trial?

    LB: These particular objectors do not have any dramatic points to make. Most of them are asking for an opportunity to question witnesses about the treatment of their pension claims, about the clawbacks, that sort of thing. We’ve already had one pro se litigant cross examine one of the city’s witnesses on feasibility but they have minor issues about whether the plan is fair and equitable, whether it’s feasible and the judge is going to allow them to question witnesses or present witnesses as they wish to make their points on those issues.

    SS: Is this a normal part of bankruptcy procedure?

    LB: It’s not normal to have pro se objectors. It’s only an unusual situation where you would have individuals not represented by counsel who were objecting to a plan either in Chapter 9 or in Chapter 11.

    SS: Does Judge Rhodes allowing these objectors shed any insight into his thoughts and his handling of this bankruptcy case?

    LB: This is consistent with his solicitude for the individuals who are being affected by the bankruptcy case. He wants to give them every opportunity to make their points publicly because part of that is an emotional resolution. If you can have the sense that you have made your point, it has been heard by the authority figure, that is Judge Rhodes, then even if he overrules your objection you at least feel you’ve gotten a fair shake.

  • A Retiree’s View of Bankruptcy: Previewing her testimony in court

    Retiree Gloria Williams is the former director of elections for the city of Detroit, where she also was a manager of computer applications. She filed this objection and is scheduled to testify during the confirmation hearing. She spoke with Sandra Svoboda, bankruptcy reporter and blogger for WDET and Next Chapter Detroit. Here’s that interview, with a transcript below.

    Sandra Svoboda: Why did you file an objection in the bankruptcy case?

    Gloria Williams: Because of the inconsistencies in the way the balloting took place. First they sent us two ballots. Then they said they made a mistake and they sent us more ballots and it wasn’t clear as to which ballots should be returned, what was going to happen if you’d already returned your ballot and then you send your new ballot in. It wasn’t really clear as to what was going to happen to all of those ballots. Why I was really concerned was there wasn’t an accounting in the final documents as to what happened to the ballots and there’s no audit of the balloting process.

    SS: You’re referring to of course, the voting on the Plan of Adjustment that was done by the different classes of creditors, yours being the retirees or pensioners.

    GW: Correct. You have to understand that there are thousands of retirees who are out there who are in their 70s, 80s, 90s who would be totally confused with how the balloting took place.

    SS: Did you raise these concerns before or during the voting process?

    GW: Well, I wasn’t concerned until the results came back and I read through the results and didn’t see where they accounted for those ballots. They didn’t say how many they had received that were invalid, how many were duplicates and those ballots were never accounted for plus in every election, I don’t care what kind of election it is, that election is supposed to be audited by some independent agency and it wasn’t.

    SS: Have you received notice as to when you’ll be testifying during the confirmation process? What are you anticipating that will be like?

    GW: They did send me documentation and they said I would have to interview the balloting company over the phone because they weren’t coming. (laughs) And I thought that was disrespectful if nothing else.

    SS: What do you plan on telling the judge about your objection?

    GW: I really don’t want to reveal that right now because I don’t want them to be prepared for the answer. (laughs) So I would rather do that when I get to court, that way they will, you know, won’t have time to research and find this case and that case against what I’m proposing. It’s just that after there were so many questions about the balloting process, they should have volunteered to have someone else, some other company review what they did just to validate their process.. So I thought that was odd that they didn’t do that.

  • From a Pro Se Objector: A preview of bankruptcy case testimony

    Steven Wojtowicz retired from the Detroit Water and Sewerage Department after 31 years of work. He’s one of the “pro se” or individual objectors Judge Steven Rhodes is allowing to testify or question witnesses as part of the city’s bankruptcy trial.

    In advance of this testimony this week, he spoke with WDET/Next Chapter Detroit’s Sandra Svoboda. Here’s the document he filed with the court requesting time during the trial.

    Here’s a transcript of that conversation:

    Sandra Svoboda: Why file an objection in the bankruptcy case?

    SW: My original objection was that obviously I thought the recoupment was unfair, the ASF recoupment was unfair but adding on the interest rate wasn’t in the documentations and during the negotiations for the pensions the 6.75 percent was never brought up. It wasn’t brought out, up until the ballots were sent out that people, some people knew about the 6.75 percent if they attended the presentations or received the revised ballot or talked to someone about the 6.75 percent. That was my biggest objection that you know adding on that interest doubles the recoupment amount.

    SS: What have you seen as some of the big issues in the trial so far?

    SW: It seems like they’re just interviewing people I don’t see any big changes other than doing some negotiations with some of the banks and some of the insurance companies. I don’t see much changing I guess for the bankruptcy. Everything just seems to be what it is is going to be what it is, what they decided before the confirmation hearing. I’m not sure if Rhodes is going to bring up anything about our annuity and the interest rate. I’m not sure. I haven’t heard anything positive about that.

    SS: What are you anticipating your testimony will be like?

    SW: In the docket that they came out with response to my objection, a couple of things that they mentioned now here, one things, the 6.75 percent what they said is they clarified the 6.75 percent and added it into the bankruptcy documents but my other questions was the recoupment with interest never ends. It’s a lifetime annuity. But they responded back in that latest docket that no, this ends after you pay back your recoupment. It stops. But in the ballot and in their presentation it says that this goes on for a lifetime. I asked to get a clarification of that. That’s going to be one of my questions.

    SS: Do you feel like your testimony made that change happen?

    SW: I think so because that’s the only place I see it is in their response to my objection. So I would think so. I get a clarification like again, I can’t find it in the bankruptcy documents but it’s in that one docket from the attorneys from the city. So I’ve got to get a clarification on that.

  • Day 18: Detroit’s Bankruptcy Trial

    The confirmation hearing for the city’s Plan of Adjustment is continuing, and after an early morning glitch, we now have sound in the media room. Witnesses for bond insurer Financial Guaranty Insurance Company (FGIC) and holders of pension debt are scheduled today.

    Before the hearing started, attorneys for FGIC told Judge Steven Rhodes they expect to announce a settlement this week. “Pro Se” objectors, people without attorneys, are scheduled for tomorrow.

    The first witness is William Fornia, a pension consultant.

    I’ll be back with more from court later this afternoon. I’ve got to go fundraise on air on WDET, 101.9 FM or stream it from www.wdet.org. It’s our Pledge Week where we welcome new members and thank our sustaining friends!

    11:21 a.m.

    During the second half of the morning court session, Fornia was questioned by city attorney Evan Miller, who challenged some of his projections. Fornia also took questions, largely about procedures for calculations of pension costs, from Claude Montgomery, who represents the Official Committee of Retirees. The committee is supporting the Plan of Adjustment.

    9:56 a.m.

    Of Detroit’s 21,390 current retirees, about a third live in Detroit, Fornia said.

    The actual numbers, from his testimony:

    7,450 Detroit retirees are city residents.

    13,940 live elsewhere.

    9:50 a.m.

    After more than two dozen witnesses called by the city to support the Plan of Adjustment, creditors are now making their own arguments, challenging provisions in the plan. Chief among them: the amount the city projects it will need to pay for its two pension funds: The Police and Fire Retirement System and the General Retirement System.

    The Plan of Adjustment uses a 6.75 percent interest rate for future investments by the funds. Today’s first witness, William Fornia, spent some time challenging that number. Fornia’s firm, Pension Trustee Advisors, is located in Centennial, Colorado.

    He called the 6.75 percent “excessively low.” The city’s witnesses called it “conservative.”

    “By being so low, it causes the claim to be higher. The pensions funds have earned their assumed rate of return over the last 25 years,” Fornia said. “It seems inconsistent they’re using rates as low as 6.75, it’s certainly inconsistent with common practice.”

    He’s being questioned by attorney Jonathan Wagner, who represents holders of the Certificates of Participation from the now-controversial 2005 pension funding deal.

     

  • On Michigan Radio: The art of appraising

    All through the Detroit bankruptcy trial, the spotlight has been fixed on the Detroit Institute of Arts, as the appraisals of the museum’s collection have been wildly different. Beverly Jacoby is a noted art valuation expert and founder and president of BSJ Fine Art in New York. She spoke with our Detroit Journalism Cooperative partner Michigan Radio about why there are wildly different values assigned to the art.

    Jacoby says there are several reasons for the wildly different values.

  • The Detroit Bankruptcy Attorneys: For the city and creditors

    Where the bankruptcy attorneys are from:

    Bankruptcy takes a lot of attorneys, that much is clear.

    Following is more information about the lawyers who have appeared during the city’s bankruptcy trial, along with links to their online bios, and their clients (the city or a creditor).

    We also pulled together the location of their home offices – above is the map of the states where they are, below is some detail of firm locations in Michigan and New York City, where we find the highest concentrations.

    (The city’s Jones Day team has five trial attorneys from the District of Columbia’s office, where Detroit Emergency Manager Kevyn Orr used to work.)

    Here’s a detail of the firms in metro Detroit:

    And here’s a detail of the firms in New York City:

  • Day 17: Detroit’s Bankruptcy Trial

    The city’s creditors who are objecting to the bankruptcy restructuring plan are now presenting witnesses, starting with Cynthia Thomas. She’s the executive director of the city’s retirement systems, the General Retirement System and the Police and Fire Retirement System. Earlier today, Detroit City Council President Brenda Jones and Mayor Mike Duggan were on the stand as the city wrapped up its presentation of witnesses in the bankruptcy trial. We’ll have updates throughout the day.

    4:07 p.m.

    The trial is adjourned until Tuesday, Oct. 14. Judge Rhodes thinks closing arguments will come the week of Oct. 20.

    4:04 p.m.

    At the end of Thomas’s testimony, Judge Steven Rhodes asked her some questions. Here’s part of their exchange:

    Judge: Why do we have an unfunded liability in the city of Detroit for its two pensions?

    Thomas: I believe the biggest contributing factor was in 2008, the crisis, the tremendous losses we suffered on our investments. We have an aging workforce. We’re called a mature plan where the retirees are like twice as many as the active employees so you have less contributions coming in and more benefits coming out.

    Judge: Is it fair to say that in the years of that recession, whatever they were, the actual returns were less and in some significantly less than the assumed rate of return.

    Yes, that’s fair.

    Judge: Is it also fair to say that it’s the city who bears the risk and the responsibility when that happens?

    Thomas: That’s a fair statement.

    ….

    Judge: If the assumed rate of return is lower, like 6.75 percent compared to 7.9 percent, is the city’s risk that it will incur unfunded liability lower or higher, all other things being equal.

    Thomas: The city’s risk is higher.

    Judge: Explain that to me I thought it was the opposite.

    Thomas: If the assumed rate of return then the city’s risk of having to contribute more is higher.

    Judge: Based on your experience with these two pension plans, do you feel you are qualified to judge the reasonableness of the rates of return of a pension plan.

    Thomas: No.

    3:43 p.m.

    The last time the Detroit pension boards changed the asset allocations of the roughly $6 billion they oversee was in 2013, Thomas testified.

    “There will be no changes until the plan is actually confirmed. There have been some discussions with the investment consultants taking into consider the changes the POA will bring but they aren’t going to make any changes prior to that. To do it efficiently you really have to plan to transfer assets of that size,” Thomas said.

    The pension boards are supporting the Plan of Adjustment because of a settlement reached with the city in April.

    3:37 p.m.

    Individual objector Michael Karwoski is questioning Thomas. He filed this objection and 98 people filed joinders. His questions are covering pension fund governance, investment interest rate assumptions and the annuity savings fund recoupment.

    2:28 p.m.

    The city’s pension funds since March 2013 has used a 7.9 percent interest rate in forecasting returns on investments. “It’s a rate that was set with information from our actuary, asset consultant, our attorney, restructuring counsel, trustees,” Thomas said.

    The city’s Plan of Adjustment uses 6.75 percent, and attorneys for financial creditors are arguing for using a higher rate. The higher rate would mean the pension systems are better funded, based on the projections, and should translate to fewer city financial obligations and lower cuts to other creditors, their attorneys say.

    The 6.75 percent figure was reached during mediation and was proposed by the city’s actuarial firm, Milliman. (The pension systems and the Official Committee of Retirees, the court-mandated group, also have actuarial firms.)

    Thomas testified that Milliman has not asked her any questions about the system. She was asked about certain procedures as part of the bankruptcy process. The city set up a Pension Task Force but did not tell her about it nor ask Thomas or any staff to join the group, according to her testimony.

    Thomas was asked about this interview during her time on the witness stand.

    1:54 p.m.

    The city is done making its case, and the “objectors” have called their first 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.

    Noon

    After creditors and city attorneys questioned Duggan, Judge Steven Rhodes had his turn. He asked about the proposal for up to $325 million in exit financing that’s in the Plan of Adjustment and he must decide whether to approve.

    Here’s a portion of their exchange:

    Judge Rhodes: A substantial portion of that borrowing is for purposes of paying the obligations to creditors under the Plan, You understand that.

    Duggan: I do.

    Judge Rhodes: There is however a piece of that that’s not for that purpose, it’s for other purpose in relations to city operation and these restructuring initiatives. … My question is what is your judgment on the need for that financing for these purposes in this second group, the city operation purpose and the reinvestment purposes?

    Duggan: Your Honor, I’m probably going to get myself in trouble with the people I have to go back to the office with. I had extensive conversations with (court expert Richard) Ravitch about this and extensive conversations with (city CFO) John Hill about this, and I believe we need to keep the exit financing to the lowest possible amount. One of the troubling things we have seen is a $50 million overrun in consultant fees. I don’t think it’s a coincidence we’re going to get up to $50 million in the exit financing and the amount we’re seeing, $50 million in consultants’ fees. I’d be very disturbed if we had to borrow $50 million in consultant fees because the consultants didn’t stay on budget. John Hill thought $275 million was reasonable.

    Judge Rhodes: It was explained to me that the reason for the increase was the settlement with the limited tax general obligation bond creditors that involved a cash payment to them of approximately this amount. Do you know anything about that?

    Duggan: That’s the first I’m hearing about it.

    Judge Rhodes: Am I right? That’s what was explained to me?

    Thomas Cullen (a Jones Day attorney working for the city): Yes, your Honor, it was explained that was part of it, the decision to retire that note.

    Judge: Well, I don’t want to put you on the spot and if you’re not able to answer this question, that’s fine with me. But if that’s the purpose of this additional borrowing is to fulfill a settlement obligation, is that something you could support?

    Duggan: Your Honor, you’re beyond my expertise on that. I would defer to John Hill whether that extra $50 million is needed or not. I know philosophically he believed as do I that we should keep this borrowing as low as we can.

    11:35 a.m.

    Here are the last updates from Duggan’s testimony under questioning by city attorneys:

    On the inclusion of the Financial Review Commission in the grand bargain legislation:

    “There was no way the grand bargain legislation was going to pass without a financial review commission,” Duggan said.

    On what he sees as the risks of the Plan of Adjustment and the restructuring initiatives:

    “For the most part, I worry about things that are outside of our control,” Duggan said. Those include suburban casinos that would cause a decrease in the city’s annual $170 million it collects in taxes from the three downtown casinos and a decrease in state revenue sharing dollars. The plan projects a steady rate of that money.

    “It’s going to be really hard work to make sure that happens but those are things that I signed up for and I’m going to work really hard at them every day,” Duggan said.

    11:23 a.m.

    Here are a few more highlights of Duggan’s testimony.

    On the proposal from financial creditors to sell Detroit Institute of Arts assets to raise funds:

    “There’s a feeling of hope in the city. … To take the art institute out, it’s such a centerpiece of the city I think it would be a huge negative for our image. I think it would be a huge negative for people’s decisions and I think it would plunge the city into the kind of anger and turmoil that we’re trying to get away from.

    On the possibility of raising taxes in the city:

    “There’s no more inefficient way in the city of Detroit to collect tax revenue than in the property tax,” Duggan said.

    In addition, he said, there isn’t much money to be gained as one mill of property tax raises only $7 million.

    On negotiations in the bankruptcy case:

    Duggan was involved in the mediations regarding the Syncora settlement and the creation of the regional water authority.

    “With the exception of those, I’ve had very little involvement in the other settlements,” Duggan said.

    11:12 a.m.

    City attorney Thomas Cullen, of the Jones Day firm, questioned Duggan during the direct examination portion of the mayor’s testimony. Cullen asked Duggan to give a summary of his opinion on the Plan of Adjustment. Here’s what Duggan said:

    “I support this plan and I believe it is feasible. I can’t predict a national recession. I can’t predict state revenue sharing cuts. I can’t predict casinos being approved but those are the risks I signed up for as the mayor. But I believe in this plan there are resources to be successful if we’re aggressive, we work hard and we don’t have any serious misfortune that’s outside of our control.”

    10:55 a.m.

    Despite the many improvements made during his tenure, city services aren’t at the optimal level, Duggan testified.

    “We’re probably about 10 percent of where we need to be,” he said. “There’s a lot but we’re building gin the right order. It’s going to be a multi-year process before people get the kind of services they deserve.”

    10:39 a.m.

    Here are a few more highlights from Duggan’s testimony:

    On transit: “If Detroiters are going to have opportunity to go to work and school, we’ve got to have transit,” Duggan said. “Three quarter of the buses are approaching the age of retirement.” A federal grant, announced last month, will provide $26 million for Detroit Department of Transportation improvements. “The city is hiring more drivers and will hire more transit police officers,” he said. “We’re are going to put out a schedule that we are going to honor.”

    On the roughly 275 parks the city owns: “In 2013, the city maintained 25 of them on a regular basis,” he said. Today, that number is 180. “It was good but it wasn’t enough,” he testified, so Duggan reached out to churches and businesses, and they adopted 75 parks. The groups mow the parks every 10 to 14 days and pick up trash three times a week.

    He said that effort is part of a new philosophy beginning to emerge in Detroit: partnering with city government, “not expecting city government to deliver all services.”

    On the 100,000 vacant lots: Some had not had grass cut since 2010, which Duggan called demoralizing. “If you’ve got a neighborhood with a few vacant lots, usually the neighborhood will pitch in and cut it,” Duggan said. But when there are several, it becomes overwhelming. Duggan said the city started mowing this year.

    “We cut them all once and now we’re halfway through the second cut,” he said. “If you drive through the city today the vacant lots are in far better shape than they were a year ago. These kinds of things are significant factors in people’s decisions about whether they’re going to stay.”

    10:25 a.m.

    Duggan testified that the negotiations for the recently ratified collective bargaining agreement with the Detroit Police Officers Association demonstrate how the Plan of Adjustment will guide the city’s operation.

    He said he talked to Emergency Manager Kevyn Orr about changes he wanted to make in the police department. “He said, ‘if you can work out a deal within the dollars of the Plan of Adjustment, go ahead,’” Duggan testified.

    The deal, announced last week, includes a base pay raise of 8 percent. Duggan said money was available because of reductions in sick days from 17 to 12, the elimination of the retention bonus and the replacement of uniformed officers in traffic, prisoner transport and crime statistics positions with retired officers who would not need benefits.

    It was ratified 80-20, Duggan said. “The officers now know they’ve got an immediate 8 percent pay increase and we’ve got the ability to bring back retired officers to paid position ad you’re going to see us be able to effectuate the Plan of Adjustment by putting more officers back on the street,” Duggan said.

    10:14 a.m.

    A few highlights of Duggan’s testimony so far:

    “One person doesn’t do a turnaround. You need to recruit a strong and deep team in order to deliver services to the public … You’ve got to plan two or three years ahead because you never know what’ coming up in the state of Michigan economically.”

    After he was Wayne County Prosecutor, Duggan became head of the Detroit Medical Center, which was in dire financial straits. “When I came in, we have 15 days cash on hand,” Duggan said. “The bankruptcy attorneys had already been hired.”

    Like Detroit, the DMC had problems with service delivery and leadership turnover. “We really had to rebuild the team from scratch,” Duggan said.

    Gov. Rick Snyder approached him about being the emergency manager of Detroit. “I told them I didn’t agree with the principle of an emergency manager and I wouldn’t be interested, but I started to think what’s the alternative,” he said. So in late 2011, he said to his wife, “Let’s move back to the city. Let’s see what happens.”

    His tenure at the Detroit Medical Center was “the most powerful” of his life, Duggan testified. “If there’s any place in the country where we’re getting past the racial divisions, it’s in an urban emergency room,” Duggan said. “I started to think it could be possible that we could break across the barriers in other parts off the city. I really felt like if I could meet everybody in the city we could get past those racial divisions.”

    9:48 a.m.

    Mayor Mike Duggan is on the witness stand.

    Also, before she left the witness stand, Jones pointed out  City Council Members Scott Benson and George Cushingberry have joined Saunteel JenkinsAndre SpiveyGabe Leland in the audience.

    9:47 a.m.

    Judge Steven Rhodes had his own questions for Jones.

    Judge: As you know, the plan does not provide for a public sale of the art at the Detroit Institute of Arts. Do you have a position whether the art at the Detroit Institute of Arts should be sold to pay creditors of the city.

    Jones: My position is per the city charter, the city should provide art and culture to the citizens of the City of Detroit and the art, protecting the art and the DIA is helping to follow the city charter of the city of Detroit.

    Judge: What is your understanding of why the city charter has that provision in it?

    Jones: Because the citizes of Detroit need culture and art provided to them. The citizens cry all the time about the taxes they are paying. The need something just outside of paying taxes as cultivation of the city.

    9:43 a.m.

    After city attorney Greg Shumaker finished about 30 minutes of questioning, Jonathan Wagner cross examined Jones. He’s an attorney for the holders of the Certificates of Participation (COPs), the controversial pension funding deal. He asked about the funding level of the Police and Fire Retirement System, where Jones is a trustee. The system issued a statement in March 2013, saying the plan was 96 percent funded. Today that figure is 89 percent.

    Attorney Ed McCarthy also questioned Jones. He’s an attorney for Financial Guaranty Insurance Company, which has a roughly $1.1 billion claim in the case as the insurer of the COPs. He asked about the $1.7 billion in the city’s Plan of Adjustment for city services, known as the Restructuring and Reinvestment Initiatives (RRI). “The city council and the mayor to the best of their ability will implement the allocation of the money that is in the RRI,” she said. Through his questions, McCarthy pointed out the City Council had not reviewed the value of the Detroit Institute of Arts collection, the economic value of the museum to the city, the number of annual visitors it has and other subjects before the council voted to transfer the DIA assets to a nonprofit, as part of the Grand Bargain.

    After McCarthy, Debra O’Gorman questioned Jones. O’Gorman represents the Macomb County Public Works Commissioner Anthony Marrocco, who has a $26 million claim against the city related to a pending lawsuit over the Macomb Interceptor Drain Drainage District.

    9:15 a.m.

    Here are some highlights of Jones’s testimony.

    On pensions being cut as part of the bankruptcy settlement:

    “When you work a job and you look forward to retiring, you look forward to the dollars that you will have to care for yourself and your family, to know that your pensions will be drastically cut and the money you expected to receive you will not be receiving, that definitely has an effect on you.”

    On the Financial Review Commission:

    “They will make sure the council and the mayor are doing what we should do to make sure we stay on track. … I was not at first in favor of it. There were some concerns on council of not having a role or not having a seat on the financial review commission and there were concerns about the amount of work council would be doing with them.”

    On the original structure of the Financial Review Commission (which did not include a member appointed by the Detroit City Council, as it does now): “All nine council members went up to Lansing and talk to the legislators as well as to testify that we felt council should have a seat on the financial review board,” Jones said. “Having someone look at the work we do and approve it for 20 years. We felt that if we could show we could do our job,… then the oversight commission should go dormant and not come in unless we can’t do our job which we felt we could.”

    On how council and the mayor will work together post-bankruptcy:

    “We will continue to collaborate and talk about the things the city needs to have adequate services. I’m sure he will collaborate with my colleagues to make sure we have no deficit and to make sure the budget is met.”

    On how bankruptcy will change Detroit:

    “I’ve been on council for nine years. I’ve watched the city fight to see do we pay Peter or do we pay Paul. Now we’ll be able to know who we’re paying and be able to have the money to pay them and be able to give the citizen services they deserve to have as a tax-paying citizen of the city.”

    8:58 a.m.

    Jones answered questions about whether she agreed with the bankruptcy filing. “I felt the bankruptcy could have been done by the city themselves rather than have an emergency manager there,” she said, adding she eventually changed her mind. “As we have progressed through the stage, and I have seen the progression that has taken place, I’m happy with the progression and the level of services the citizens are seeing. I think it’s helping to improve the city,” Jones said.

    City services are a popular conversation topic in Jones’s life. “I cannot go into a grocery store to go shopping, I cannot shop without a resident telling me about the level of services they have in the city of Detroit,” Jones said. “They are saying that the services are not adequate.”

    8:53 a.m.

    City attorney Greg Shumaker, of the Jones Day law firm, is questioning Jones, who is an at-large member of city council. City Council Members Saunteel Jenkins, Andre Spivey, Gabe Leland are in the audience.

    Jones says others will come after committee meetings. Jones says the mayor and the council have a good relationship. Shumaker asked her about the emergency manager. “I am happy to say Kevyn Orr and I have a good relationship, now,” Jones said, which was followed by courtroom laughter.

    Shumaker asked her if there was a time it was “less than good.” “I would not say it was less than good I would just say that we did not have a communication,” Jones said. She identified blight and public safety as the biggest problems facing Detroit, and said the city’s service delivery is “improving.”