Bankruptcy Trial

  • The Syncora Apology…and what the judge said about sanctions

    Bond insurer Syncora has apologized to mediators in the Detroit bankruptcy case. Because of that, Judge Steven Rhodes decided attorneys for the Bermuda-based company will not face sanctions. Here’s what he said:

    The court had entered an order to show cause directed to Syncora and its attorneys why they should not be sanctioned for the scandalous and defamatory aspect of their second supplemental objection to the plan. In the meantime, Kirkland and Ellis, on behalf of itself and Syncora, has apologized to Judge Rosen and to Mr. and Mrs. Driker for its conduct. The court concludes that those apologies in the interest of justice resolve the issue of sanctions and accordingly, the court here today will be entering and order that vacates the order to show cause and dispose of that issue.

    Here is Syncora’s apology.

    Last month, Syncora’s attorneys in a court filing criticized  Chief U.S. District Judge Gerald Rosen for showing “naked favoritism” toward pensioners while leading negotiations between the city and the creditors. Syncora has argued for months that the Detroit Institute of Arts collection should be monetized to pay all creditors, not protected as it is in the “grand bargain” which also brings outside funding to the city’s pension funds.

    Syncora accused Rosen and an additional mediator, Eugene Driker, of being “agenda driven, conflicted mediators who colluded with certain interested parties to benefit select favored creditors to the gross detriment of disfavored creditors.”  The city asked the judge to strike Syncora’s filing from the record and to sanction the creditors’ attorneys. 

    Rhodes rejected Syncora’s claims and ordered the creditor’s objection be struck from the case docket. “Syncora’s highly personal attack on Chief Judge Rosen in the objection was legally and factually unwarranted, unprofessional and unjust,” Rhodes wrote. “Justice requires the court to strike the attack from its record.” The judge had also ordered Syncora attorneys to explain to him why they should not face sanctions.

    Now, with the settlement reached and the apology filed, Rhodes won’t force the bond insurer attorneys to do that. Here’s the order he issued late today.

    Syncora Notice of Settlement – and Apology


  • Day Eight: Detroit’s Bankruptcy Trial

    After a three-day postponement so the city and some of its creditors could negotiate, Judge Steven Rhodes is back on the bench. Here’s what’s happening in the courtroom today:

    4:05 p.m.

    Another actuary is on the witness stand. It’s Alan Perry, from Milliman, the city’s actuary firm that analyzes pension financing. He’s being questioned by city attorney Evan Miller, who works out of Jones Day’s Washington D.C. office.

    4 p.m.

    Most of the day in court was, well, not the most headline-generating. But here are a couple other media reports about what happened earlier to catch you up.

    First, the day opened with Syncora confirming it had reached a settlement with the city and reviewing some of the details of the deal. Bloomberg Reporter Steven Church wrote this piece, which ran on the Washington Post’s website.

    Throughout the day, the Detroit Free Press live blog is updated constantly, in a Twitter-like fashion but with longer posts, and can be found here. Reporter Matt Helms will answer your questions too if you post. From The Detroit News, the latest stories and Tweets from Robert Snell and other reporters can be found here.

    3:13 p.m.

    Kopacz’s task was to determine the feasibility of the city’s Plan of Adjustment. But first, she testified, she developed a definition for “feasibility” for this case.

    “Is it likely that the city of Detroit, after confirmation of the Plan of Adjustment, will be able to sustainably provide basic municipal services to the citizens of Detroit and meet the obligations in the plan without the probability of a significant default?” she said.

    She based her analysis of the plan on that….and she’ll update her expert report after the city files its next Plan of Adjustment, expected later today.

    2:44 p.m.

    Before the trial witnesses resumed testifying this afternoon, Martha Kopacz took the stand. She’s the court-appointed expert witness hired by Judge Steven Rhodes to help him determine whether the city’s Plan of Adjustment is feasible and what challenges it might present. Here is Judge Rhodes’s order appointing her. Kopacz works for Phoenix Management, a Boston-based restructuring firm. To day, Judge Rhodes has authorized about $1.2 million in consulting fees and expenses for Kopacz and her team.

    Today’s hearing was needed to address motions made by creditors challenging some of her credentials as an expert witness and seeking to exclude portions of her testimony. Two bond insurers previously had challenged Kopacz’s qualifications and expertise but they dropped them after Syncora reached a tentative settlement with the city.

    UPDATE: Here’s what the judge eventually decided.

    The city’s pension systems continue objecting to her testimony as it related to pension issues. “It exceeds the scope of her engagement under the Appointing Order,” attorneys for the pension system wrote, “Kopacz admits that she lacks special knowledge, training or education regarding public pensions.”

    Judge Rhodes spent nearly an hour reviewing her background and experience. He also asked her about her understanding of today’s hearing.

    “We’re here today because the retirement systems have an objection, and I don’t mean that in a legal sense, but there are a couple paragraphs in my report that they really don’t like,” Kopacz said. “This is not my testimony as to my opinion. In terms of what I did or didn’t do, I know there were objections raise as to not doing enough or doing too much or something like that.”

    He also asked her about her experience with public pensions.

    “I will never say that I like it but you can put your head in it and you can understand it when you have to,” she said. “There are some things that are very complicated about it but at the end of the day, it’s about obligations. It’s about investments. It’s about finance, and that can be understood by most people as long as someone is willing to teach you about it.”

    Kopacz said today she “ultimately” got what she needed from the city but didn’t get all the documents or information she wanted. “I can’t even count how many documents we looked at,” Kopacz said.

    In May, her attorney filed a letter with the court stating, in part, that the city’s accounting firm, Ernst & Young, was not providing her with complete financial information about the city. Kopacz wanted the information on which the city is relying to make multi-year financial projections.

    12:15 p.m.

    One of the actuarial consultants, Glenn Bowen,  who reviewed the city’s pension fund performances and forecasts spent nearly two hours on the witness stand. At the end of questioning by city and creditor attorneys, Judge Steven Rhodes had some questions of his own. Here are a few and Bowen’s response.

    Judge: Addressing the investment return assumption, is there one correct assumption that should be applied like everywhere or is it fair to say that there is an acceptable range of such interest rate assumptions?

    GB: To specifically answer the first part, there is definitely not one assumption and to the second part, we believe there is a range of reasonable assumptions but it is not an absolute range. It varies by plan.

    Judge: What are the factors that impact where within a range a pension plan would choose its investment return assumption?

    GB: … The concept is when the actuary gets done or the actuary gets done with doing their mechanics … we should recommend a range in which the rate of return is more likely than not to fall. … We recommend to the sponsor that is our expected range based on your particular asset allocation. Where the plan sponsor decides to fall within that range depends upon their tolerance for risk.

    Judge: That issue, the issue of the sponsor’s tolerance for risk, is that something that the actuary makes a recommendation on or actually gets involved in helping the client to assess?

    GB: That’s not something that the actuary recommends and from the standpoint of assessing … The lower investment return you assume you’re going to have over time, the more cash you’re going to put in up front.

    Judge: Is it the role of an actuary for a plan sponsor ever to say to the sponsor, “Under the guidelines that we as actuaries use, you should not use the investment return assumption that you have chosen to use”?

    GB: I would say it’s close to that, not exactly. … The trustees for the system, are free to choose their rate of return. … To the extent we feel it’s outside of the range of responsibility, we have a duty to disclose it.

    Judge: Did you ever say to the city here that the city and this pension plan should not chose 6.75 percent?

    GB: We did not.

    10:16 a.m.

    The resumed making its case to Judge Rhodes about why the Plan of Adjustment should be confirmed. The first witness of the week is Glenn Bowen, a principal and consulting actuary with Milliman, the actuarial firm the city used to evaluate the Police and Fire Retirement System and the General Retirement System.

    (As will come up in later testimony, the systems also had an actuarial firm, and the Official Committee of Retirees, the group mandated by bankruptcy law, used a third firm to evaluate pension system investments, forecasts, funding needs and other issues.)

    10:04 a.m.

    Judge Rhodes concluded that creditors who want a delay in the trial to respond to the Syncora settlement deserve some time to prepare. But he left it to attorneys to determine how much and we’ll find out this afternoon what they come up with.

    Here’s what the Judge said:

    As the Court discerns the motion for adjournment here, there are three relatively distinct grounds for it, and the issue before the Court is whether these grounds constitute extraordinary cause of the delay or continuance that is sought here. The three are that the Syncora withdrawal from the defense of the city’s case causes FGIC and the other objecting parties, mainly the Macomb Drainage District, to take over those parts of the defense that (Syncora) had taken responsibility for in the division of labor. The second is the strong potential for FGIC to need  to retain experts that Syncora had retained or maybe it’s only one. So that it can properly pursue its defense of the city’s case in the absence of Syncora and its experts and the third is the potential need to file supplemental objections to what will be the 7th amended plan to be filed here promptly along with any potential need for additional discovery relating to those supplemental objections to the amendments in the plan.

    The Court must conclude that the first two of those asserted grounds do not constitute extraordinary cause for any adjournment and to the extent the motion is based on those two grounds, it is denied. There is merit in the city’s position that Syncora’s negotiations with the city over the past several weeks have been well known, and in those circumstances it seems to the court that it was incumbent upon all of these parties, consistent with their obligations to their clients, to prepare for the contingency that in fact Syncora might settle at some point, and that preparation would have include necessarily preparation to take over for the examination of the witnesses that Syncora was going to cover and, absent of an agreement regarding experts, locating experts.

    In this regard the court will also note parenthetically but importantly that nothing in FGIC’s motion or its presentation today identified any steps that FGIC took in regard to cross examination preparation or locating and preparing an expert since the agreement in principle was announced last Tuesday night or addressed how those five days was insufficient to meet its preparation needs. On the other hand, the Court must conclude that the city’s filing of an amended Plan (of Adjustment) incorporating its settlement with Syncora does require the court to accommodate the interests of FGIC and the Macomb Drainage District and other objecting parties to have an opportunity to examine that plan or the amendment to it and to file supplemental objections to that plan as they deem appropriate, to take discovery as necessary in relation to that and to prepare to address the Syncora settlement as part of this confirmation hearing. Having said that, however it’s less clear to the court how the details of that should play out and so accordingly I’m going to ask counsel for FGIC and Macomb and any other objecting creditors to meet and confer with counsel of the city to see if you can come to some agreed upon schedule or plan that will accommodate the interest of the city in the prompt as possible resolution here and in the objecting parties interest in adequate opportunity to address the news plan and perhaps we can do that over the lunch hour and let the court know where you stand at that time.

    I think that’s as much as we can do on that now and I will ask the city to proceed with its case.

    9:38 a.m.

    Before the confirmation hearing continues, attorneys for the city presented terms of their deal with bond insurer Syncora, first reported last week.  It includes a fractional payment of what the insurer is owed for a pension financing deal, leases on parking lots and the Detroit Windsor Tunnel and credits toward future purchases of property from the city.

    The deal also will require the city to file a new Plan of Adjustment, which attorneys say will be done today. Two creditors, bond insurer Financial Guaranty Insurance Company and Macomb County, asked the judge to delay the trial.

    FGIC attorney Alfredo Perez said the bond insurer needs time to prepare an objection to the new plan as well as an additional expert report. He also said “one or two depositions” would be needed. “We really wanted to ask for two weeks in our motion last night but we decided that probably wasn’t do-able,” Perez said.

    “There’s a new, very complicated deal that Syncora has entered into, which needs to be analyzed by all the parties to determine what objections they may have,” said Allan Brilliant, attorney for Macomb County.

    Several creditors filed a motion Sunday evening asking for a delay in the trial.

    Judge Rhodes is deciding whether to grant the delay request.

    By in Bankruptcy Trial, Feature
  • Day Seven and Trial Postponed: Syncora settlement causes delay until Monday

    Detroit’s bankruptcy trial is postponed until Monday because of a tentative agreement between the city and one of its biggest creditors: bond insurer Syncora.

    During a 10-minute hearing this morning, attorneys for the city and the Bermuda-based company told Judge Steven Rhodes they need a few days to finish details of their new agreement. They filed a joint motion Tuesday evening asking for today’s hearing.

    They asked for a postponement of the trial until they can finish terms of the deal. Syncora would no longer be objecting to the city’s restructuring plan, which could significantly shorten the trial, currently scheduled into October.

    “There are other factors with the settlement that would have to be put into the plan,” said city attorney Heather Lennox, of the Jones Day firm. “We are in the process of redrafting the plan. There are a few mechanical issues that need to be worked out.”

    Emergency Manager Kevyn Orr gave a copy of the preliminary terms to the city council last night. They include Syncora receiving some cash, a lease to operate the Detroit-Windsor Tunnel and a downtown parking garage as well as credit toward purchase of future assets the city might sell.

    Ryan Bennett, a Syncora attorney, told the judge the agreement requires two banks, UBS and Bank of America, to release Syncora from its insurance obligations related to a pension financing deal. The banks in April settled with the city as part of the case for $85 million on about $280 million of debt.

    “This intended result is not just a partnership for the plan but a partnership for the future of Detroit,” Bennett said.

    After the hearing Bennett said other riverfront property might become part of the deal, which would also include Syncora withdrawing its current appeals in the case.

    In court, attorneys representing other creditors in the case, including retirees, told Judge Rhodes they weren’t yet sure if they would object to the deal because they haven’t had time to review it.

    Alfredo Perez, who represents another bond insurer, Financial Guaranty Insurance Co. (FGIC),  told the judge he learned about the agreement the night before and had seen some documents related to it but he hadn’t had time to analyze it or talk to his client about its effect on their case.

    “We would request that the trial be continued until Monday. At that time we’ll be able to assess what we’re going to tell you,” he said. “I’ve read it twice and I’m still having a hard time understanding it. … We don’t have any values. We’re trying to figure out what the values are.”

    Claude Montgomery, who represents the Official Committee of Retirees, said the Syncora agreement COULD negate the committee’s support of the Plan of Adjustment.

    “We are, as you know, a plan supporter,” Montgomery told the judge. “We do not know what our positions are with respect to this document that circulated last night.”

    Rhodes granted their request for a postponement of the bankruptcy trial until Monday so the city and Syncora can continue to negotiate … and everyone else can determine what the deal means to the historic bankruptcy case.

    Syncora Settlement_KDO Memo to CC

    By in Bankruptcy Trial, Feature, WDET
  • Syncora Settlement: City, bond insurer ask for delay of trial

    The city and bond insurer Syncora are asking Judge Steven Rhodes to delay the bankruptcy case because they’ve reached a tentative agreement, according to documents filed tonight in federal court.

    In a Joint Motion filed at 7 p.m., the Bermuda-based bond insurer and the city said they “have reached an agreement in principle and need 48 hours to address certain conditions and logistics.” They also noted that “if this agreement is finalized within this time period as we expect, it will profoundly alter the course of the proceeding and litigation plans of the remaining parties.” (The motion appears below.)

    Just 86 minutes later, Judge Rhodes granted the request. Instead of resuming the bankruptcy trial for its seventh day at 8:30 a.m. Wednesday, he will hold a hearing on the request to postpone the trial until Friday.

    Syncora stands to lose hundreds of millions of dollars in Detroit’s bankruptcy, and the bond insurer’s attorneys have been among the most aggressive in the 15-month-old case. An agreement between the city and the Bermuda-based insurer would remove one of the biggest obstacles to confirmation of the city’s plan of adjustment.

    But the Detroit Free Press’s Nathan Bomey reports that for the deal to go through, UBS and Bank of America need to “agree to release the insurer from its insurance on the swaps,” the controversial pension financing deal engineered by the Kilpatrick administration. In 2005 and 2006, the city secured $1.4 billion in pension financing, insured by Syncora, that later had its floating interest rate converted to a fixed rate in the deal that’s known as the “interest rate swaps.” Casino tax revenue, worth about $16 million monthly, was pledged as collateral.

    Here’s some history of the case.

    In April, as part of the bankruptcy case proceedings, Rhodes approved an agreement for the city to pay $85 million of the $285 million owed on the swaps deal and keep the casino tax revenue instead of paying it to banks. (The city, under Emergency Manager’s Kevyn Orr’ direction, is suing the service corporations, challenging the legality of their existence.) Now, according to Bomey’s story today, the banks need to release Syncora from insuring the deal for the company’s deal with the city in the bankruptcy case to be consummated.

    The Detroit Free Press bankruptcy reporting team wrote that the deal with Syncora included getting 26 cents on the dollar as well as other conditions. The Detroit News reported that among the agreement’s terms was a 20-cents-on-the-dollar payment to Syncora.

    The News reported last week that a deal with Syncora was imminent, as did WDIV this week in this report.

    9.9.14 Joint Motion for Hearing Adjournment

  • In Bankruptcy Court: The water deal…and what they said about it in court

    photo (22)Because of the deal announced earlier today for a new regional water authority, attorneys for Oakland and Wayne counties said they would withdraw their objections to the Plan of Adjustment this afternoon. Macomb County will not.

    That’s because it’s actually the Public Works Commissioner, Anthony Marrocco, who is objecting to the Plan of Adjustment…and it was County Executive Mark Hackel who signed off on the water deal.

    Here’s the Detroit Free Press FAQ about the agreement.

    “We are not prepared to waive our objections to the plan. We are having talks with the city,” said Allan Brilliant, an attorney for Macomb County. “We’re trying to resolve our remaining DWSD objections and we’re hopeful that will lead to a resolution of our issues. In the meantime we’re evaluating the Memo of Understanding which as (city attorney Heather) Lennox says has a lot of contingency that have to be resolved before it goes into effect and what effect it might have on our objections.”

    Judge Steven Rhodes was clearly not happy.

    “I’m not going to resolve any turf battles between the county commissioner and the county executive. I’ve got enough to do in this case,” Rhodes says.

    Meanwhile, he lauded both Oakland and Wayne counties for agreeing to the formation of the Great Lakes Water Authority.

    photo (21)Wayne County’s attorney, Max Newman, of the Butzel Long law firm, thanked Judge Rhodes for sending the issue to mediation.

    “It was extremely beneficial in bringing about this historical settlement,” Newman said. “We truly appreciate it.”

    The judge was complimentary back.

    “Let me take this opportunity to thank you and especially your client for the hard work that went into reaching this settlement and for bring the motion that led to the order for mediation,” Rhodes said.

    Jaye Quadrozzi, attorney for Oakland County, extended her gratitude to the judge and his team.

    “You and your staff have devoted and enormous amount of resources and it’s impressive to watch how hard and how diligent everyone in this courtroom has worked,” she said.

    Lennox said while the “framework” for the authority is in place, “there is still a lot of work to be done” including some documentation, governmental consents, permits and getting the consent of creditors and bondholders.

    “While this is really a momentous step, there is still an amount of work to be done,” she said.

    Here is what the city filed with the court today about the deal, including the Memo of Understanding.

    Here is the city’s news release about the agreement.


    9.9.14 Notice of Executive of Framework

    By in Bankruptcy Trial, DWSD, Feature
  • Day Six: Detroit’s Bankruptcy Trial

    The afternoon court session started with attorneys for Oakland and Wayne County telling Judge Steven Rhodes they would drop their objections to the city’s Plan of Adjustment. Macomb County will not. Here’s why.

    Meanwhile, Terri Renshaw is on the witness stand. She’s a former city staff attorney and a member of the Official Retirees Committee in the bankruptcy case.

    This morning, researcher Caroline Sallee finished her testimony. As a manager in Ernst & Young’s Quantitative Economics & Statistics practice Sallee was responsible for creating the City’s 10- and 40-year property tax and state revenue sharing projections. Here is her report. She was followed by Fire Commissioner Ed Jenkins and Police Chief James Craig. (See below for their testimony.)

    2:30 p.m.

    After discussions about the regional water deal, Terri Renshaw took the witness stand. She’s a former city law clerk and a member of the Official Retirees Committee in the bankruptcy case. She’s being questioned by Claude Montgomery, one of the attorneys for the committee.

    More about the committee is here and in this Detroit Free Press article.

    11:49 a.m.

    The first creditor attorney to question Chief Craig is Barbara Patek. Her bio is here. She represents the Detroit Police Officers Association. She asked him about leadership, the union and restructuring the department. Craig said there was not always agreement between the department and the DPOA, but “was always a willingness” to talk.

    The second creditor attorney to question Chief Craig was William Arnault. His bio is here. He represents bond insurer Syncora. He started with questions about what factors related to the bankruptcy affected morale within the department and about the department’s ability to recruit new officers.

    11:34 a.m.

    Detroit Police Chief James Craig has been outspoken about the need to place civilian employees in some of the roles sworn officers are currently holding.  For example: “Dispatchers have been sworn police officers,” he said. “In most departments today, dispatch functions are performed by civilian staff.” He also said vehicle maintenance officers would be changed to civilian employees.

    And what will happen to the sworn officer currently serving in those positions? Hertzberg asked.

    “They’ll be deployed to the field,” Craig said.

    11:28 a.m.

    Under questioning from city attorney Robert Hertzberg, the Detroit Police Chief said there were many workplace issues causing some officers to leave.

    “Pay, benefits … working conditions,” Craig said. “They just felt like with everything the city has faced over recent years, they were concerned about the future of staying.”

    Related to working conditions, the department has cameras in some police cars, but Craig said they are dated and need replacing. Radios have sporadic outages. “Certainly that’s a core issue for officer safety,” he said. “It puts them at risk.”

    But Craig also identified recent improvements: detectives are posted in all 12 precincts, crime is down by 19 percent.

    10:57 a.m.

    Shortly after James Craig became Detroit’s police chief in July 2013, he saw what he thought was a beat up taxi cab on the street.

    “I found out it was actually a police vehicle that was in service,” he said. “When I took a closer look I found out that the department’s fleet was certainly in need of replacement.”

    Craig is on the witness stand, being questioned on direct examination by city attorney Robert Hertzberg. Craig started 37 years ago as a Detroit police officer. He left the department, one of 1,500 officers laid off, and he went to Los Angeles in 1981 where he started as an officer and rose through the ranks. He ultimately retired as a “Captain 3.”

    Hertzberg asked him more questions about what it was like when he came to Detroit last year.

    “It was very clear that the morale was at the very bottom for rank and file officers. It was also in my judgment that the department lacked leadership and accountability and lastly something that became obvious was the fact that the department had no credibility with the community it served. The local community and surrounding communities,” he said.

    Here’s Craig’s bio on the city’s website.

    10:24 a.m.

    At the end of Jenkins’ testimony, Judge Steven Rhodes had a few questions. Here’s one of the exchanges:

    Judge Rhodes: You were asked whether the investments the city foresees for the fire department will permit the department to meet the standards of the National Fire Protection Association, and you said you thought it would come close. In what respect will it not meet those standards?

    Jenkins: We can always use more money but in terms of those standards, 49 companies is great. When I came on, we had 82 companies and we were able to respond to multiple large-scale fires. …I believe $158 million will do a great deal to help the fire department but we’re about four years behind in terms of training and equipment. … If we get this money, it’s going to be spent wisely. I can’t say it will be perfect but it will be very close.

    10:17 a.m.

    Macomb County’s attorney, Debra O’Gorman, who is from New York, also cross examined Ed Jenkins, the city’s fire commissioner. She’s pointing out that any testimony he gives about fire fighters is not based on any systematic study “Just some anecdotal converseations with a few people?” she asked.

    “Yes,” Jenkins said.

    10:15 a.m.

    The first attorney to cross examine the fire commissioner is Stephen Hackney who represents bond insurer Syncora. He’s asked questions about the effect of the bankruptcy on fire fighter morale and discussed the dynamics of any citywide revitalization on the department’s work.

    For example, Hackney raised the earlier statistic of how many runs are made to vacant buildings, presuming those runs wouldn’t have to be made after the city’s blight removal efforts.

    “A healthy city doesn’t burn,” Jenkins said.

    9:46 a.m.

    Jenkins said the fire department plans to build seven or eight new “super stations” in locations throughout the city. Older stations would be “shuttered and closed.”

    fire station weddingNo testimony on what would happen to them…but here’s a photo from a lovely wedding I went to last weekend in a former station on West Lafayette Boulevard. The property has been sold and turned into a charming event space


    9:35 a.m.

    Fire commissioner Ed Jenkins’ testimony is contradicting, slightly, some previous testimony in the city’s case. For example, restructuring expert Charles Moore testified that fire department response times were 9 minutes while Jenkins said 7 to 8 minutes was the norm. There as also the exchange about the pop cans serving as alerts for faxes for run notification. (See below.)

    9:25 a.m.

    A few more tidbits from Detroit fire commissioner Ed Jenkins’ testimony:

    *The Plan of Adjustment provides for $158 million in improvements for the department.

    *About 1,150 people currently work in the department. About 770 are fire fighters, but 1,019 are needed. About 220 are Emergency Medical Services technicians, but 260 are needed.

    *The department makes about 30,000 runs annually. About 70 percent are to vacant homes.

    *The average age of a fire station is 90-100 years old. Many of of them have had to be shored up to support modern fire fighting equipment.

    *At one point, the department only had four ambulances operating for the entire city.

    *In an answer to Hertzberg’s question about why vacant buildings burn, Jenkins said, “I know pigeons don’t smoke so I know there are some unscrupulous individuals that purposefully set fire to these buildings.”

    *EMS handles up to 110,000 runs a year.


    9:19 a.m.

    Ed Jenkins is on the witness stand, called by the city’s attorneys. He’s the city’s Executive Fire Commissioners, a post he’s held since April. He’s being questioned by city attorney, Robert Hertzberg, who’s with the Southfield firm Pepper Hamilton. Jenkins’ career also includes work as a Detroit fire fighter and lieutenant. He’s also a Certified Public Accountant and worked at Coopers & Lybrand and Delphi Corp.,

    The city’s Plan of Adjustment contemplates some $158 million in upgrades and improvements for the fire department. According to the city’s Chief Financial Officer, John Hill, who testified at the bankruptcy trial last week, about $59 million is to be spent on the department’s fleet, including the replacement of vehicles. The city also would invest $71 million in capital improvements, including the repair and replacement of several fire stations. Another $20 million would go toward equipment.

    Under questioning, Jenkins attempted to debunk the pop-can-on-the-fax-machine story, saying it dated back to the 1980s when a device was put on printers as a “convenience” alert in case the person in charge of answering the phone walked away. Last week, one of the city’s witnesses testified that instead of having modern alert systems, fire stations were receiving faxes to notify them of calls and addresses. In order to ensure they would hear the alerts, fire fighters placed pop cans on the fax machines so they would fall off when a fax came in. The noise would alert them to the call.

    Here is the Detroit Free Press story about the device.


    By in Bankruptcy Trial, Feature
  • Day Five: Detroit’s Bankruptcy Trial

    The city has had three witnesses on the stand today, so far, as the bankruptcy trial moves into its second week.

    First Charles Moore returned to the witness stand. He’s a restructuring expert with the firm Conway MacKenzie, one of the city’s financial consultants that did revenue and expenditure forecasting. On Friday, he was questioned on direct examination by city attorney Robert Hamilton, of the Jones Day firm. Then attorneys for some creditors cross examined him: bond insurer FGIC and Oakland and Macomb counties. Today began with cross examining from Jamie Fields, who represents several employees, retirees and beneficiaries, according to court filings.

    After Moore finished, city Chief Information Officer Beth Niblock testified for nearly two hours. She was followed by Caroline Sallee, of Ernst & Young, who did tax revenue forecasting as a city consultant.

    5:04 p.m.

    Testimony is complete for the day, with Syncora attorney Douglas Smith in the midst of his cross examining of the city’s witness Caroline Sallee.

    In rapid questions, he started out by asking her everything she is not an expert in: real estate, revenue projection, tax collection, accounting. Basically Syncora continues to attempt to proverbially poke holes in the city’s testimony and evidence relevant to revenue forecasting. If Syncora can show revenue will be higher, it can argue for more money to creditors.

    4:39 p.m.

    Caroline Sallee remains on the witness stand being questioned by a city attorney. Here are a few items from her testimony in Detroit’s bankruptcy trial about how she calculated tax revenue projections:

    *The city will continue to see population declines for 40 years.

    *Detroit’s population is currently about 7.2 percent of Michigan’s total, and that is expected to drop to 6.3 percent by 2020.

    *Residential properties account for about half of the city’s parcels, while commercial properties are about a quarter. Since 2007, home values in the city have decreased by 63 percent.

    *Even if Detroit’s real estate value increases, it won’t mean a revenue windfall because of state law regarding tax collection on the assessed (taxable) property value. “Assessment would follow the market but your taxable value would be restrained. … the taxable value is like you’re carrying a weight. It goes up more slowly (because it’s capped every year by state law). It can only grow at the rate of inflation or 5 percent, whichever is less,” Sallee said.

    *After the city finishes its citywide property appraisal, she predicts a value drop, with property values in 2019 being half of what they were in 2012.

    *Population decline becomes “less negative” over time. “Employment trends follow that too,” she said.

    3:01 p.m.

    As a manager in Ernst & Young’s Quantitative Economics & Statistics practice Sallee was responsible for creating the City’s 10- and 40-year property tax and state revenue sharing projections. Here is her report.

    Under questioning by city attorney Geoffrey Stewart, from the Jones Day firm, Sallee explained the five steps she used to forecast Detroit’s general operating property tax revenues:

    1-Forecast taxable value by property class.

    2-Select the tax rate. (For Detroit it’s 19.25 mills.)

    3-Calcluate tax levy.

    4-Adjustment for legal and policy changes.

    5-Apply an effective collection rate. (For Detroit, it’s about 50 percent on residential properties.)

    “For a residential property there’s a number of reasons they’re not collecting,” Sallee said. Tax bills may be sent to the wrong property, people may refuse to pay or be unable to pay. “What we’ve seen in the data, there are fewer residential payers but it’s much higher for commercial payers,” she said.

    2:27 p.m.

    After about 90 minutes of questioning by a city attorney, creditor attorneys got their chance with city Chief Information Officer Beth Niblock.

    Under cross examination from bond insurer Syncora attorney Stephen Hackney, Niblock admitted she has fewer employees, including contractors, in Detroit than she did in her previous job in Louisville. She also said she’s expressed concerns that there are too few resources to accomplish the city’s technology improvements included in the Plan of Adjustment, but that they are needed.

    “The hope is improving the IT systems will improve everybody’s ability to do their jobs,” Niblock said.

    2:14 p.m.

    City CIO Beth Niblock began testifying after lunch about planned initiatives to upgrade technology for city employees and operations. She called them “reasonable” and said they would address many of the current needs.

    Chief Financial Officer John Hill, who testified last week, is overseeing the adoption of a new financial management/human resources system. Court documents put the price of that at $26.2 million.

    Niblock says another 75 IT initiatives are taking place throughout the city’s departments with “the bulk of them” happening in the police, fire and human resources departments.

    As far as specific areas to address, Niblock, under questioning from city attorney Robert Hertzberg, here are some of the initiatives Niblock identified and what she said about them:

    Microsoft Application Update, estimated at $13.5 million. City employees currently work on several different versions of Microsoft office products. Updating the software would allow, for example, employees to better share documents because they would be using the same version of a product.

    Data Center Back Up, $10.9 million. “We need to have a supplemental back ups center so that we can put servers and have equipment to have redundancy and resiliency in the network.”

    Hardware upgrade, $11.7 million. This include modern desktop and laptop computers. “It will also address the network hardware. We have old routers and switches on the network that need to be updated,” she said. Additional server and storage upgrades are included.

    Citywide imaging and document arrangement, $5.4 million. The city currently store paper files, but this initiative would allow electronic record keeping.

    Worktrain upgrade, $3.6 million.

    Citywide network infrastructure, $4.2 million.

    Active directory service migration, $2.0 million.

    ERP system maintenance, $2.8 million.

    Helpdesk Structure, $2.0 million.

    Operating System Upgrade, $1.0 million.

    SQL Server Support, $700,000.

    12:05 p.m.

    Detroit’s Chief Information Officer Beth Niblock testified about the horror show that is the city’s technology infrastructure:

    The weekend power outage took out the city’s data center. Code has been in place for 25 years. Software is generations behind. Antiquated desktops take 10 minutes to book. Email is atrocious. She loses sleep over the city’s payroll system.

    Court is on a lunch break now, but I’m expecting some afternoon testimony about how the city’s Plan of Adjustment and its proposals to invest in technology will help city services run more smoothly and eventually save money.

    10:55 a.m.

    Detroit chief information officer, Beth Niblock, took the stand at 10:50 a.m. She is currently being questioned by city attorney Robert Hertzberg, of the Southfield law firm of Pepper Hamilton. They are covering her education and career history.

    Niblock left the city of Louisville in February for the Detroit position after Mayor Mike Duggan drove to Kentucky and convinced her to move to the Motor City.

    10:22 a.m.

    When attorneys had finished questioning Moore, Judge Steven Rhodes spent nearly 40 minutes asking questions and hearing Moore’s answers. Some related to Conway MacKenzie’s contract with the city. Moore said the current contract runs out at the end of this month, but talks are taking place to extend it. Rhodes asked about what those discussion entailed.

    “Our goal from the beginning, and especially right now, is to have it set up so that the city can operate without our involvement. It’s very clear, and I certainly don’t like to speak on behalf of others, but I think Mr. Hill (the city’s chief financial officer who testified last week) has indicated we have not gotten to that point yet. So what we’re specifically talking about is when is that point and how do we get to that point,” Moore said.

    Rhodes also asked about Moore’s meaning use of the phrase “cultural deficiencies” during his direct examination.

    Moore’s answer: This is something that the court’s expert touched on and I agree with. There are pockets, way too many pockets within the city, that don’t necessarily feel that it is their responsibility to provide a certain level of service, that it kind of goes the other way around: people are there to be served. From that standpoint, it’s ingrained in the culture in many areas of the city within certain departments, that people don’t have to perform to a certain level. … The lack of resources to track and monitor how individuals and departments are performing has contributed to that, and there’s no question that all of the budget cuts that have been realized have left people somehow helpless … people not understanding or perhaps not feeling that they have to perform to a certain level and not having the management or leadership that holds people accountable.

    10:15 a.m.

    Moore estimates that fraudulent workers’ compensation claims total about $35 million annually with about $14 million within the Department of Transportation.

    Judge Steven Rhodes questioned Moore about how fraud, waste and abuse might be reduced within the city because of provisions of the Plan of Adjustment.

    “Within many of the collective bargaining agreements, the new agreements that have been struck, there are significantly more management rights that have been built in,” Moore said. “That will be an important element as well as having the right, qualified people in the management roles to carry that out.

    As part of the bankruptcy negotiations, the city and several employee groups reached five-year contracts. Some information about those is here.

    9:39 a.m.

    Moore on Friday offered as an example of how the Annuity Savings Fund investment program benefited city workers one particular retiree who invested about $100,000 and received a $1.4 million payout after 42 years of employment. That amounted to an interest rate of 13.6 percent, he testified.

    Under the bankruptcy’s Plan of Adjustment, if approved, the retiree’s repayment amount would be about $120,000, which leaves a roughly 13.2 percent interest rate over the life of the annuity.

    9:16 a.m.

    The first two people cross examining Moore, Jamie Fields and John Quinn, focused largely on the facts and assumptions Moore used to calculate and forecast related to the Annuity Savings Fund. That’s 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.

    Fields, a Detroit-based attorney, represents a group of employees, retirees and beneficiaries. Here is one of their objections to the Plan of Adjustment. Quinn has filed multiple objections, including this one, and dozens of retirees have filed joinders supporting his arguments.

    By in Bankruptcy Trial, Feature
  • Day Four: Detroit’s Bankruptcy Trial (with media round up)

    The first week (ok, four days because of Labor Day) wraps up today in Detroit’s bankruptcy trial, and we’ll be blogging from the courthouse when testimony resumes later this morning (See below). The city’s Chief Financial Officer John Hill will be back on the witness stand where he’ll continue to be cross examined by bond insurer Syncora’s attorney. Syncora, of course, objects to Detroit’s plan to restructure its debts as the Bermuda-based company stands to be paid 10 cents on the dollar for the hundreds of millions of dollars the city owes it.

    Meanwhile, here is our coverage from the first three days: Day One, Day Two, Day Three.

    And here’s a bit of the work from our colleagues who are sharing space in the media room during the trial:

    Detroit Free Press bankruptcy page. Detroit Free Press trial live blog Day Three.  The Detroit News bankruptcy page. The Detroit News trial live blog Day Three.

    WDIV’s Rod Meloni has been covering the case nearly full time. His latest work is here with links to previous stories. WXYZ’s Jim Kiertzner also regularly files about the bankruptcy. Watch his stories and read his blog here.

    Another diligent reporter is Steven Church from Bloomberg. His latest story, which takes more of a national perspective, is here.

    5:01 p.m.

    We are finished for the day. Charles Moore will return to the witness stand, as his cross examination is not finished.

    I’ve got some catching up here from some of what we heard today — I’ll do a separate posting over the weekend about the testimony related to the recoupment of Annuity Savings Fund monies from retirees.

    We’ll be back at 8:30 a.m. Monday. The city is expected to call Beth Niblock, who is in charge of information technology for the city.

    4:25 p.m.

    Earlier today, Charles Moore testified that Detroit fire fighters had balanced pop cans on a fax machine so that when an emergency transmission came in, the sound of the cans falling would alert them.

    Many of us in the media room thought that needed to be checked out and verified.

    Well, Tresa Baldas from the Detroit Free Press did. Here’s her story.

    She writes:

    Detroit is so broke that firefighters get emergency alerts through pop cans, coins, door hinges, pipes and doorbells. And they make these gizmos themselves … In most cities, fire officials say, when an emergency alert comes into a fire station, a series of bells sound off – like Morse code. Then an automated voice offers instructions on which engines go where. “Well, we don’t have that system here,” (Detroit Deputy Fire Commissioner John) Berlin said. “The firefighters modify … they improvise.”

    2:20 p.m.

    Perhaps we will get some additional information during the cross examination, but Charles Moore just testified that under the Plan of Adjustment, the mayor’s office would add $20 million in additional labor for “lean resources” but save $17.5 million in other budget items.

    The City Council budget shrinks, primarily because much of the planning commission functions are moved to another department. There is a planned $200,000 investment in staff training for council employees.

    36th District Court would have more of a paperless court system, so much of the $4.2 million in planned technology spending there would go toward that. Other resources are going toward improving the collection rates of tickets, judgments and “anything else the court could collect” from 20 percent to at least 50 percent.

    1:30 p.m.

    We’re back in session with Charles Moore still on the witness stand. Before the lunch break, he testified that the former Detroit City Airport would see nearly $16 million of upgrades if the current Plan of Adjustment is adopted, according to testimony this morning.

    Moore said the improvements are aimed at maintaining the operating certificate at the airport, officially known as the Coleman A. Young International Airport.

    “There are a variety of potential uses for the airport,” he said. “The airport under the FAA has to comply with federal guidelines and, in particular, the airport operating certificate is to ensure that there is a level of safety involved.”

    11:57 a.m.

    Detroit has about 300 parks, but nearly 200 have closed over the last several years.

    Mayor Mike Duggan wants them all re-opened, according to testimony today.

    That’s why the city’s Plan of Adjustment calls for the parks and rec department to spend $38 million to bring them back online along with a handful of recreation centers around the city.

    “This is a very significant initiative for the mayor,” Charles Moore testified. He’s a restructuring expert. “He has indicated this is very important for the livelihoods of the residents in the neighborhoods as part of re-opening those parks. There is a level of investment that is required.

    11:50 a.m.

    Restructuring consultant Charles Moore just discussed how the city’s Plan of Adjustment addresses the Detroit Department of Transportation. DDOT covered 16 million miles of routes in 2009, he said. That was down to 12 million miles last year.

    To cover those roads, Moore said the city currently SHOULD have 230 buses. “Unfortunately, right now, it’s only 190 or so. As a result of that, even though there are routes being driven, when there are not buses available, those riders don’t get picked up,” he said.

    Another concern: “The department has numerous safety issues for a variety of reasons,” Moore said. They have been related to: riders assaulting riders, riders assaulting drivers and workers’ compensation claims. Specifically, five drivers have been assaulted. Two of those were stabbed.

    Moore testified there are about 30 911s calls made each month by Detroit bus drivers. Cameras on the buses and additional security are planned.

    The plan proposes that $100 million is invested in the department and that fares are raised to generate revenue. Currently most fares are $1.50. “This contemplates in a step fashion that by the end of FY 2023 the fare will be $2.50,” Moore said.

    Clearing up worker’s compensation claims also should force some cost savings, he testified.

    11:36 a.m.

    While on the witness stand and questioned by city attorney Robert Hamilton, restructuring expert Charles Moore from the Conway Mackenzie firm walked through some of the public safety improvements and investments provided for in the Plan of Adjustment.

    “We turned over every rock in trying to under how the departments are operating now,” Moore said, “and how they might operate better.” That includes analyzing how an increase revenues including procuring grants, including from the federal government, and charging for services including false alarms and other things that cause the departments to make unneeded runs.

    As Detroit has 5 times the crime rate when compared to comparable cities, based on FBI statistics, Moore emphasized the importance of improvements in the Detroit Police Department as related to improvements in the quality of life in the city in general. He also addressed what’s proposed for the fire department.

    The city’s Plan of Adjustment calls for the following for the Detroit Police Department:

    $179 million in additional operating expenses.

    $91 million for the “fleet,” in part so that vehicles can be replaced every three to four years

    $175 million in technology upgrades including hand-held radios and better integrated communication and computer systems.

    $34 million for capital improvements, including new precincts and a new training facility, because the existing one “is in significant disrepair.”

    $150 million in cost reductions within the police department. Nearly $88 million of that would come from “labor efficiencies and attrition” in the police department. For example, “Newer officers coming on at the lower end of the pay scale,” Moore testified. It would not be a reduction uniformed officers but in administrative positions.

    For the Detroit Fire Department, Moore said the need for improvements is clear: response times were 9 minutes for firefighters and 18 minutes for emergency medical services. The national standard is 6 minutes.

    $59 million to be spent on the DFD fleet, which includes replacements of vehicles.

    $71 million in capital expenditures that would repair and replace several fire department facilities. Some of the city’s older site don’t accommodate current equipment. Also, “Where firehouses are located is very important,” he said. About $30 million is intended to repair existing facilities. About $20 million would pay for equipment such as boots and coats.

    “I know from many discussion with the fire department, this has been a bit of a bittersweet process. Certainly on the one hand, having better equipment, being able to respond and do their job better is a positive, but they also recognize the Chapter 9 process has been difficult on employees,” Moore said. “They recognize it will improve the morale, but they also recognize it has been difficult on employees.”

    11:09 a.m.

    Restructuring expert Charles Moore is covering blight initiatives, that are provided for in the city’s Plan of Adjustment.

    Specifically, he described the comprehensive database done by the Motor City Mapping Project.

    And he gave some numbers:

    An estimated 80,000 properties are either blighted or showing signs of blight.

    It would cost an estimated $850 million to remove all of the blight in the city.

    Some $52 million from a U.S. Department of Treasury program that was intended to mitigate the foreclosure crisis will be used to remove blight, as city officials convinced the feds to modify provisions of the program.

    Moore also described “blexting,” a mobile app that allows individuals to text in the address of dilapidated structures around the city.

    “If they see signs of blight, they can enter it into a database so the city is aware of it and can perhaps take action before it gets too far,” Moore said.

    10:06 a.m.

    Now on the stand is Charles Moore. He’s a restructuring expert at Conway MacKenzie, a Birmingham, Mich.-based firm that is one of the city’s consultants.

    His testimony, based on research and analysis Conway MacKenzie has done since January 2013, largely focuses on projections that show under the Plan of Adjustment, the city would increase revenues by $438 million over the next decade while cutting $358 million in expenses.

    He’s being questioned by city attorney Robert Hamilton, who works at Jones Day in the firm’s Columbus, Ohio office.

    Meanwhile, here’s the city’s contract with Conway MacKenzie.

    9:54 a.m.

    Judge Steven Rhodes had questions of his own for Detroit CFO John Hill. Here’s part of their exchange.

    Judge: Are you familiar with the city’s plan?

    John Hill: Yes I am your honor,

    Judge: As the CFO of the city, what would you say are your responsibilities in the city’s implementation of the plan if it is confirmed?

    J: I believe that I have a number of different responsibilities in the implementation of the plan. One of the first responsibilities is to take the plan and really translate that into documents and processes that the city can respond to. The plan has utilities built into it, basically three different areas where it is actually uniquely different for the city. One is with people, one is with processes, another is with systems. All three of those things, I believe, are needed to move Detroit to a new future. So my responsibility is to make the plan real by putting in documents and in systems that can be acted upon. And then also to provide information. Accurate, complete, objective information to all of the parties that have an interest in the plan. I view, and I think some of the way that I’m approaching it comes from how I viewed the work that we did in Washington D.C.. Within this plan, there are a number of organizations companies, people who are not being paid what they were owed. No one can argue that question And the plan also allows the city to use some of the funds that would have gone to these other creditors but for the bankruptcy if they were available to invest in systems, processes and people in order to improve the city on a long-term basis and improve outcomes and also to try and put the city in a place where it would be able to pay something eventually to these creditors. It’s kind of the way that I boil it down and I think there is a fundamental responsibility for the city to report exactly what those funds are used for and report exactly what those funds were able to do as a result of being allowed to spend them. That’s how I approach my role. It’s also to make sure that the Mayor and the Council, other decisionmakers in the city have the information that they need in order to make real decisions, not decisions that are made on dated information or information that isn’t complete but decisions that are based on information that has been analyzed and studied and looked at. So the improvement in all of the processes including the creation of the financial planning and analysis group is to create that capacity in the city to use information at much higher levels to make these kinds of business decisions. I’ve also taken on the responsibility that if there’s a hole now that has to be filled at some point in either some of the HR processes or other places in the city, and I don’t have a responsibility for HR but I can’t get done what I need to do without that assistance so I’ve had to create that. So I believe that we can’t let existing structures stop us from moving forward in this plan so my responsibility is to identify all of the impediments associated with implementation of the plan and try and mitigate against those risks. That’s why I say it’s not going to be easy to implement If you go into this thinking it will be, I believe that you will fail.

    Judge: That’s a good Segway to my next question which is what challenges do you foresee that you will have in carrying out your responsibilities if this plan is confirmed?

    JH: I think the biggest challenge is racing against time. In the District we found that once there was a perception that the crisis was over, it was very difficult to get movement, and so we have to move very, very quickly to put the infrastructure in place and try to make sure that that crisis mentality in trying to get change done continues. The other issue is that this plan calls for a level of cooperation among a lot of different organizations within the government, particularly IT operation. Before Beth Niblock came, I had some concerns about me be in charge of IT as I have told you. … I am not an IT director. She’s one of the best. So it’s getting the resources at the leadership levels in government that can really make the difference … Do you know the mayor actually drove down to Louisville to meet with Beth in the evening and convince her to come here? That kind of dedication to go after the right people in the right places is exactly what I think we need. The work that’s been done by the Emergency Manager so far to help us with grants management in setting up that office of the CFO and all of the support we’ve gotten from the contractor and the people in the city has really given us a head start of what’s in the plan. That also gives me a lot more assurance that we can do this. So it’s the capacity to handle all of this at the same time which we’re working through, and to be able to attract the people and the resources that we will need … to lead this effort ultimately.

    Judge: What advice do you have for the Financial Control Board?

    JH: One thing that’s already built into the legislation is a close working relationship with the CFO. I think working with the city, the Mayor and the Council to establish at the very start, the type of reporting that is to occur on a regular basis. I would also tell them, don’t hesitate to act. I believe they will be able to keep up with the Financial Review Commission, but I also believe that the pressure will help to keep things on track, and it will be their responsibility to help make sure things are on track.

    The other think the Control Board (in Washington DC) did that I think was very helpful to the city and it’s kind of the relationship I have now with the Financial Advisory Board that’s in place, there are leaders that have expertise that I rely on now in order to help with some of the decisions that need to be made. They’re experts in finance, experts in IT, experts in HR. … I met with them, talked with them picked their brains and asked questions. I think being a part of providing that expertise to the city is a major part of the work they would do.

    Professional exercise rather than a political exercise, I also weigh more heavily. I understand the importance of politics in helping to solve these issues, but these are tough issues that require people who have deep skills and so the more of those individuals you can have on the board versus the political people, I think the better.

    8:40 a.m.

    Syncora completed its cross examination of Detroit Chief Financial Officer John Hill. Debra O’Gorman, representing Macomb County, had a few questions, mainly confirming that Hill had limited insights about the Detroit Water and Sewerage Department. (See opening statements for a brief discussion of how that relates to the city’s bankruptcy case…)

    On re-direct, city attorney Geoffrey Stewart asked a few questions to counter Syncora’s assertions that Detroit could raise taxes to generate more revenue (presumably to pay creditors what’s owed them instead of erasing debt through the bankruptcy). Stewart also clarified what differences  exist between Detroit and Washington D.C. , where Hill was involved in financial restructuring.

    In doing so, Hill mentioned the political dimensions of Detroit’s bankruptcy. His statement (below) has interesting (insulting?) implications for the city’s elected officials.

    Here are parts of what Hill said:

    In Washington D.C. “Congress acted quickly … The deficits never went as deeply as the deficits went here. Also, the Congress has exclusive jurisdictions over Washington D.C. The citizens of Washington don’t have a vote in the Congress of the United States, so the ability to act without political repercussions from people who elect you was also a factor that helped the Congress move very, very quickly.”

    And about the possible effects of raising taxes?

    “In some cases increasing tax rates actually lowers taxes. It’s getting into what’s commonly known as a death spiral. And Detroit, which is a highly taxed jurisdictions and also one that is obviously suffering from a long-term economic crisis, I would not at all think that raising the tax rates at this time would be an appropriate strategy here. In the District, although the top tax brackets were raised, there was also relief at the lower end and now the district is looking to lower taxes across the board. And remember, it’s a state and a city so it has state taxes. It has property taxes. It has income taxes. It has any taxes you would have in another jurisdiction. They also lowered the sales tax as well, and so I think it would be very difficult to imagine a scenario where this city would benefit from raising taxes.”







    By in Bankruptcy Trial, Feature
  • Opening Arguments: Who talked for how long?

    Here are the attorneys who made opening statements in Detroit’s bankruptcy case…and how much time they took (give or take a couple minutes)

    Supporting the Plan of Adjustment

    For the city of Detroit: Bruce Bennett, Jones Day law firm, 3 hours

    For the Detroit Institute of Arts: Arthur O’Reilly, Honigman law firm, 25 minutes

    For the Official Committee of Retirees: Sam Alberts, Dentons law firm, 28 minutes

    Objecting to the Plan of Adjustment

    For bond insurer Syncora: Marc Kieselstein, Kirkland & Ellis, 2 hours, 21 minutes

    For bond insurer FGIC: Alfredo Perez, Weil Gotshal & Manges, 1 hour, 4 minutes

    For holders of the Certificates of Participation (COPs): Jonathan Wagner, Kramer Levin, 5 minutes

    For a contract administrator for the COPs: Kristin Going, Drinker Biddle, 2 minutes

    For Oakland County: Jaye Quadrozzi, Young & Associates, 1 hour

    For Macomb County: Allan Brilliant, Dechert, 20 minutes

    For Wayne County: Max Newman, Butzel Long, 11 minutes

    For the UAW: Peter DeChiara, Cohen, Weiss and Simon, 5 minutes

    For AFSCME Council 25: Richard Mack, Miller Cohen, 5 minutes