Detroit bankruptcy trial veers off course as Gov. Rick Snyder takes stand

In more than three hours of often-contentious testimony Monday, Michigan Gov. Rick Snyder defended his decision to move Detroit toward a Chapter 9 bankruptcy.

Governor Snyder was the fifth and final witness for the city, which is being sued in federal court by a coalition of groups that says the bankruptcy was not necessary. The case hinges on whether Snyder and the emergency manager he installed, Kevyn Orr, were justified in seeking the biggest bankruptcy for a municipality in US history.

Yet the most heated testimony often centered on a different issue – one unlikely to influence Bankruptcy Judge Steven Rhodes in this case, but which could become the thrust of other legal cases to come. Labor unions, in particular, are worried that the bankruptcy is only a first step toward eviscerating city pensions.

Again and again, lawyers for the groups that oppose bankruptcy hammered Snyder and Mr. Orr on this point. And again and again, the two refused to take the bait.

The lawyers honed in on a proposal Orr submitted to creditors in June that put the city’s pension debt at $3.5 billion. Unions say the number is less than half that, and they maintain that a move to cut pensions would violate protections in the state constitution.

On Monday, Snyder said, “it’s speculation” that retiree pensions will suffer. “There isn’t even a plan on the table,” he said.

But Peter DeChiara, an attorney for the United Auto Workers (UAW), pressed the point. He asked the governor if he agreed with Orr that there ultimately must be cuts to the pensions. Snyder responded that the issue involved a phase of the bankruptcy that is not yet decided.

“It depends on the plan and the judge’s approval,” Snyder said.

“I’m asking if you agree with [Orr’s] proposal,” Mr. DeChiara said.

“No plan has been submitted,” Snyder answered.

“I’m asking if you agree with that position,” DeChiara said.

Snyder answered: “I don’t necessarily know there has to be [cuts]. It’s not my decision to make that call.”

“Did you speak to Mr. Orr about using Chapter 9 to eliminate pension liabilities in the city?” DeChiara asked.

“Those were discussions with attorneys present,” Snyder answered.

“Are you refusing to answer the question?” the lawyer asked.

Snyder answered: “Yes.”

Soon after Snyder left the stand, his office released a statement in which he said it is “important to resolve this case as quickly as possible” and that “bankruptcy was the last and only viable option to ring the financial crisis to an end and get the city back on a successful path.”

It is this point that is most central to the current case: Could bankruptcy have been avoided?

Orr, who took the stand before Snyder and continued testimony he started late Friday, stressed the urgency of bankruptcy. Within a few weeks of his appointment in the spring, he said the city’s total liabilities increased $4 billion to a total of $18.5 billion. As to the grade of service the city was providing residents up to that point, Orr said it was “C-plus.”

“I knew things were bad, but it was somewhat shocking how dire it was. Within a few weeks of coming on board, I was informed several of our employees had checks bounce. The cash flow was so tight,” he said.

He also suggested that the opposition was not interested in negotiations to avoid bankruptcy. He noted three lawsuits filed against the city this summer by creditors.

“It wasn’t showing a willingness to cooperate,” he said.

Orr balked when asked if he, or any of his team, were deaf to counterproposals from the opposition.

“If there was a serious proposal, I was a phone call away,” he said.