Legal Challenges

  • Orr on DWSD: The EM speaks to the Chronicle

    Detroit’s Emergency Manager Kevyn Orr sat down with the Michigan Chronicle, one of the state’s leading African-American newspapers. In a wide-ranging interview, Orr and Publisher Bankole Thompson discussed the Detroit Water and Sewerage Department, specifically what happened with negotiations to create a regional authority, how that proposal collapsed and how privatizing the department might work.

    Here’s one exchange:

    Michigan Chronicle: Can you explain what you meant by leasing as an option?

    Kevyn Orr: We were going to create an authority, which would essentially lease the department and operate it and pay the city a lease payment. That would be $47 million a year. Our county partners don’t want to do that. That’s fine. So we are going to move away from the lease concept more to a contract. There are operating contractors out there who would bring greater efficiency to the system. That’s what they do. We would also entertain requests for information about an outright purchase.

     

  • Bankruptcy Court: New PoA due Monday, swaps deal updated

    In a court filing today (see below), attorneys for the city of Detroit say they will file an updated Plan of Adjustment and Disclosure Statement on March 31 and requested other court deadlines be adjusted accordingly.

    “This amended Disclosure Statement will include many revisions in response to informal requests for the inclusion of additional information in the Disclosure Statement provided to the City by various parties,” the city’s attorneys wrote.

    Judge Steven Rhodes granted the city’s request. The deadline to file objections to the Disclosure Statement is now April 3. The city will file a Consolidated Response by April 10.

    Detroit Free Press Business Writer Nathan Bomey says of the amended plan and statement:

    The new documents could include new offers to creditors. They could also include different financial projections that would affect payouts to creditors and investments in city services. …The new plan of adjustment is likely to incorporate the city’s recently renegotiated settlement with Bank of America Merrill Lynch and UBS, which agreed to accept $85 million to eliminate a $288-million pension debt interest-rate bet that helped plunge Detroit into bankruptcy.

    Meanwhile, according to The Detroit News, two investment banks will no longer be required to support the city’s Plan of Adjustment in exchange for a debt settlement deal the city had worked out with them, according to court filings from Wednesday.

    UBS AG and Bank of America’s Merrill Lynch Capital Services and the city earlier announced they had reached an agreement of $85 million in the “swaps” deal, originally totaling $286 million. Rhodes has twice rejected agreements between the banks and the city, calling them too costly for the city and ordering the parties back to negotiations. The deal is backed by about $15 million in monthly casino tax revenue. That’s money the city could use for services and operation if the settlement agreement is approved.

    The News’ Robert Snell and Chad Livengood write of the new agreement:

    Language was removed requiring the banks to support the city’s debt-cutting plan. Instead, the banks have agreed to support the debt-cutting plan as long as the settlement is included in the city’s restructuring blueprint. … In a late Friday night 1,700-page court filing, the banks’ attorneys warned that if Rhodes doesn’t approve this third deal, “costly and hotly contested litigation will ensue that will likely take years to resolve.”

    3.27.14 Emergency Motion for Extensions

  • Status Update: Is the grand bargain threatened?

    It’s an ambitious and unprecedented plan: $365 million from private foundations, $100 million raised from the Detroit Institute of Arts, $350 million from the state of Michigan, paid over two decades in $17.5 million annual appropriations. The funding is included in Detroit Emergency Manager Kevyn Orr’s proposed Plan of Adjustment, filed with the bankruptcy court last month, and seeks to ensure some funding for pensions so that the museum’s collection isn’t sold to pay retirees.

    The $815 million deal is called “the grand bargain” and, as The Detroit News columnist Daniel Howes writes today,

    It would cushion a harsh blow to city pensioners even as it would protect the DIA’s envied collection from the predations of creditors.

    One of the deal’s architects is Chief U.S. District Judge Gerald Rosen who is acting as mediator in the bankruptcy case.

    But it’s far from a done deal, and as the city’s bankruptcy case progresses, Orr is needing to secure terms of the deal, Howes writes. So is Gov. Snyder, who first proposed the state contribution in his budget presentation to the legislature’s Joint Appropriations Committee in February but has largely gone silent, at least publicly, on the plan.

    Howes says the deal needs to be getting done in Lansing before bankruptcy proceedings get much further:

    Put another way: any meaningful threat to the DIA fund and whether it can be used to bolster city pensions emanates from the state capitol, not bookish foundation heads or timorous board members unnerved by unhappy financial heavyweights in New York or the confrontation of a bankruptcy process unspooling with predictable rancor and litigation.

    Judge Rosen’s audacious gambit to tie a DIA rescue to a public-private plan to bolster city pensions is still very much alive. But it won’t last in perpetuity because it can’t — a fact the city’s unions, pension funds and retirees ignore at their peril.

     

  • Bankruptcy court seeks expert witness for Detroit trial

    “Cue a rush of resumes,” writes Nathan Bomey in the Detroit Free Press about Bankruptcy Judge Steven Rhodes’s order seeking an expert municipal finance witness in the city’s bankruptcy trial.

    Rhodes issued the “job posting” Monday, writing

    The Court seeks to appoint an expert witness who:
    a. Has outstanding qualifications in municipal finance and budgeting to provide an
    opinion regarding the feasibility of the City’s plan of adjustment.
    b. Has outstanding qualifications in municipal planning to provide an opinion
    regarding the reasonableness of the assumptions that underlie the City’s cash flow
    forecasts and projections.
    c. Is able to give an opinion that is based on sufficient facts or data and that is the
    product of reliable principles and methods and the application of those principles
    and methods to the facts of the case.
    d. Is willing and able to exercise fair, unbiased and independent judgment in the
    assignment

    The city would pay the witness’s compensation as approved by the court. A hearing on the order will be held April 2.

    Here’s the judge’s order:

    3.24.14 Expert Witness Documents

  • The Balloting: Preparing for 32k pensioner votes on the Plan of Adjustment

    The deadline is about a month away for mailing the 32,000 ballots to pensioners and eligible employees so they can vote on the city’s proposed Plan of Adjustment, and preparations are fully underway, The Detroit News reports.

    The voting process must be clear and explain what impact cuts will have on pensions and health care benefits, U.S. Bankruptcy Judge Steven Rhodes has warned city attorneys.

    That means each voter will get an explanation of what the Plan’s proposed pension and health care cuts means to them. The voter packages will include letters, ballots, return envelopes and a CD-ROM of the full plan. Ballots are due back to the court by June 30. Bill Nowling, a spokesman for Emergency Manager Kevyn Orr, told the News the proposed procedure and ballot, which the city and attorneys for pensioners have been discussing for weeks, will be filed in bankruptcy court this week.

    While the retirees and vested employees are among the 170,000 creditors who have a vote on the plan, if they don’t approve it, it doesn’t mean the parties go back to the table.

    If retirees and other creditors vote against the debt-cutting plan, Detroit could force cuts on creditors under a process known as a cramdown. Under bankruptcy law, if one class of impaired creditors supports the debt-cutting plan, Detroit can impose cuts on others and get the plan confirmed by Rhodes. The city’s plan, however, must be fair and equitable and not discriminate.

    The city currently has a deal with two investment banks, which would allow the “cramdown” to occur with other classes. The city’s current offer has general employees taking a 26 percent cut to pension payments and police and firefighters 4 percent. Those offers fall to 34 and 10 percent, Orr has said, if the groups don’t accept soon.

    Detroit News columnist Nolan Finley wrote over the weekend that retirees should take Orr’s offer:

    Detroit’s retirees are playing Russian roulette. They’re the key puzzle piece in settling the city’s bankruptcy. If they take the deal on the table, the process can wrap up rather neatly, and they’ll have much more in their pockets than was initially predicted. If they reject it on the delusional hope something will happen to hold them harmless from the city’s insolvency, they risk ending up with less cash. And getting the city out from under both bankruptcy and emergency management will become more complex.

    The bankruptcy trial is currently scheduled for July.

     

  • Orr’s Legacy: Lawsuits?

    It’s never too early to forecast a legacy, and in today’s Detroit News, guest columnist Paul Alexander boldly predicts Detroit Emergency Manager Kevyn Orr is paving a path toward litigation.

    …perhaps Orr’s legacy will be a plan that, instead of solving Detroit’s financial problems, will land the city in court fighting lawsuits for years to come.

    Pensioners losing income and health care, the Detroit Institute of Arts if the collection is sold, bondholders who held general obligation bonds that the EM reclassified from secured to unsecured…Alexander finds all have good reason to pursue litigation because of how Orr’s Plan of Adjustment proposes to treat them.

    Some have started the conversation:

    Union officials have promised a lawsuit over pension and health benefit reductions. Lawyers for bondholders and their insurers have promised lawsuits as well. Indeed, one insurer filed a lawsuit earlier this week.

    Detroit’s bankruptcy has been historic for any number of reasons. Perhaps its legacy of litigation will be added to that list.

  • Midweek Medley: Three important stories about Detroit

    Revenue-sharing arguments heat up

    A $6.2 billion “fiscal crisis”. That’s what a group of mayors and the Michigan Municipal League say the state created for local governments by reducing revenue sharing during the last several years, as reported by The Detroit News.

    The Michigan Municipal League’s new estimates of lost sales tax revenue from 2003-13 included $732 million for bankrupt Detroit, $46 million for Warren and nearly $21 million for Troy. Officials also argued that, even allowing for years of fiscal shenanigans, Detroit might have avoided bankruptcy.

    As Gov. Rick Snyder’s proposed budget includes provisions for contingent increases to some municipalities, the News piece presents what could play out this year — and how some municipal leaders view the options.

    Bus routes

    Readers of the Wall Street Journal gained some insight about Detroit’s bus situation. In a piece that highlighted the low rate of car ownership, the financial constraints related to the city’s bankruptcy and Mayor Mike Duggan’s early efforts to improve the system, the WSJ found:

    …the burden falls to the city’s Transportation Department and its fleet of 460 buses. The aging behemoths ply 36 routes daily, with about 6,000 stops, and a workforce of nearly 1,200. During the past four years, the city has hired two private management firms to try to turn around its operations. But poor use of federal grants, below-average bus fares and high absenteeism among drivers has led to lower revenue, subpar service and higher costs, according to the city’s disclosure statement filed last month in bankruptcy court.

    Will Emergency Manager Kevyn Orr manage to increase fares and obtain more federal funds to hire mechanics and drivers?

    State Support

    A recent poll suggests a majority of Michigan voters favor the proposal to provide $350 million in state funds over 20 years as part of Detroit’s post-bankruptcy finance plan. As reported by MLive.com, the poll was conducted in early March by a Grand Rapids-based public relations firm that has done pro bono work for the city’s emergency manager.

    The poll, commissioned by public relations firm Lambert, Edwards & Associates and conducted by Denno Research, surveyed 600 likely voters around the state on March 8 and March 9 with a 4-percent margin of error. When asked if they would support the state aid proposal for the purpose of keeping pensions from taking more than a 34-percent cut, 61 percent of respondents said yes, 25 percent said no and 14 were undecided, according to results released Friday. When asked if they’d support spending the money for the purpose of protecting the Detroit Institute of Arts collection, 53 percent said yes, 30 percent opposed the idea and 17 percent were undecided.

    The $350 million is part of the “grand bargain,” a deal to ensure DIA artwork is not sold and pensions are funded. Other components of the plan include $100 million from the museum and $365 million from foundations.