Detroit EM says bankruptcy filing unavoidable

Detroit's emergency manager says creditor concessions were needed quickly to avoid bankruptcy

Associated Press
Mich. gov. says lawsuits led to bankruptcy filing

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Protesters rally outside The Theodore Levin United States Courthouse in Detroit, Wednesday, Oct. 23, 2013. The city of Detroit for months has disclosed the awful condition of its finances. Now it’s up to a judge to determine if the largest public bankruptcy in U.S. history really can go forward. An unusual trial starts Wednesday, pitting Detroit’s emergency manager and his legal team against unions and pension funds that claim the city isn’t qualified to scrub its books clean under Chapter 9 bankruptcy. (AP Photo/Paul Sancya)

DETROIT (AP) -- Detroit's emergency manager testified Monday that he had thought as late as June that a bankruptcy filing could be avoided but that he knew time was running out for the city and its creditors to agree to concessions.

Testifying on the fourth day of a trial to determine whether Detroit is eligible to fix its finances in bankruptcy court, emergency manager Kevyn Orr said he received a couple of counterproposals from creditors after laying out the city's position in mid-June, but none from unions or retirees before filing for bankruptcy protection on July 18.

"Anyone paying attention knew the time had come to make some very difficult decisions," Orr said of a June meeting with hundreds of the city's creditors. "We were in a financial emergency and were going to have to move very quickly."

Detroit must show it is broke and tried in good faith to negotiate with creditors. Attorneys who oppose the filing seeking the largest municipal bankruptcy protection in U.S. history have tried to build a case that bankruptcy was a predetermined course or inevitable outcome.

Orr said Friday that filing for bankruptcy wasn't a condition of his employment but that it was clearly an option; a state review team declared the city was in financial emergency to clear the way for Orr's hiring. Attorneys representing unions and pension funds say the bankruptcy filing was an inevitable outcome for the city, which didn't hold genuine talks, and therefore the case should be thrown out.

Orr said he sought authorization from Gov. Rick Snyder on July 16 to file for bankruptcy amid a "mounting level of conflict" that included several lawsuits filed against him and the state as well as a lack of "any real counterproposals."

"The situation seemed to be growing more and more precarious and somewhat out of control," Orr said. "It was clear to me that there was going to be no other way (for an) orderly resolution of the city's problems."

He said Monday that after he took the job he saw firsthand the high crime, blight and deplorable conditions of police equipment and facilities in Detroit.

"I knew things were bad," Orr testified. "It was somewhat shocking ... just how dire it was."

Anthony Ullman, an attorney representing retirees, also grilled Orr on Monday. He wanted to know why Orr and his team did not mention in the proposal to creditors that the city sought to cut public pensions, which are protected in the Michigan Constitution. Orr said it was widely known and discussed at the time, and argued that federal law would trump the state as it relates to pensions protections.

Orr, a bankruptcy expert who represented automaker Chrysler LLC during its successful restructuring, has said the city is saddled with $18 billion in long-term debt. He and Police Chief James Craig both have testified about the city's dire straits.

"Detroit spends more than it takes in. It is clearly insolvent on a cash-flow basis," Orr testified as he read from a report he issued in spring after 45 days as emergency manager.

Orr is expected to continue his testimony after Snyder, who is scheduled to testify Monday afternoon. The trial could end next week, but a decision on Detroit's eligibility appears to be several more weeks away. The judge has set a Nov. 13 deadline for lawyers to file legal briefs on certain issues.

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