By Joseph Lichterman and Bernie Woodall
DETROIT, Oct 25 (Reuters) - Cuts to Detroit's publicpensions and retiree healthcare were inevitable given the city'ssagging finances, a top consultant for the city testified onFriday during the third day of a trial to determine whether thecity is eligible for bankruptcy.
Money owed to Detroit workers and retirees is a key factorin the case, which will also hear testimony by Kevyn Orr,Detroit's state-appointed emergency manager. Orr is expected toexplain efforts to negotiate with the city's numerous creditors,including retirees and pension funds, before deciding to filefor the largest-ever Chapter 9 municipal bankruptcy on July 18.
A key claim made by attorneys representing the city'sunions, retirees and pension funds is that Orr and his team wereintent on filing for bankruptcy and did not make best efforts tonegotiate with them prior to the bankruptcy filing. They alsoclaim that plans to cut pensions would violate the MichiganConstitution.
On Friday, city financial consultant Kenneth Buckfire saidhe did not have to recommend to Orr that pensions for the city'sretirees be cut as a way to help Detroit navigate through debtsand liabilities that total $18.5 billion.
Buckfire said it was clear that the city did not have thefunds to pay the unsecured pension payouts without cutting them.
"It was a function of the mathematics," said Buckfire, whosaid he did not think it was necessary for him or anyone else torecommend pension cuts to Orr.
"Are you saying it was so self-evident that no one had tosay it?" asked Claude Montgomery, attorney for a committee ofretirees that was created by Rhodes.
"Yes," Buckfire answered.
Buckfire, a Detroit native and investment banker withrestructuring experience, later told the court the city plans topay unsecured creditors, including the city's pensioners, 16cents on the dollar. There are about 23,500 city retirees.
On Thursday, Buckfire was questioned by attorneys from JonesDay, the city's attorneys in the bankruptcy filing and Orr'sformer employer.
This portion of the trial is to determine whether the cityis eligible to undergo Chapter 9 restructuring. To qualify forbankruptcy, Detroit must prove the city is insolvent and that itnegotiated in good faith with creditors, or that there were toomany creditors for negotiations to be feasible. The city alsomust prove it desires to enact a restructuring plan.
U.S. District Court judge Steven Rhodes, presiding over thetrial expected to last at least through next Tuesday, is notexpected to rule until at least mid-November whether the city iseligible to undergo restructuring in bankruptcy.
If Orr does not testify on Friday, he may do so on Monday,when Michigan Governor Rick Snyder also is expected to take thestand.
Rhodes is not expected to decide on the eligibility issueuntil at least Nov. 13, which is the date for attorneys fromboth sides to file with Rhodes documents explaining defendingtheir notions of what constitutes "good faith" negotiations.
The city has said about half of its liabilities stem fromretirement benefits, including $5.7 billion for healthcare andother obligations, and $3.5 billion involving pensions.
As the cross-examination of Buckfire began Friday morning,Bill Nowling, press secretary for Orr, said on Twitter, "thejourney up the River Denial continues for union and creditorsattorney(s)."
Buckfire said the city did not consider the stateconstitution's protection of pensions in creating itsrestructuring proposal presentation to creditors on June 14.
"We did give it some weight, but did not deem it relevant,"Buckfire said.
UAW attorney Peter DeChiara and Montgomery, the retireescommittee lawyer, made arguments on Friday morning to Rhodesthat Buckfire's testimony should not be allowed because he wasnot deemed an expert witness by the court.
Rhodes ruled that Buckfire's testimony would be allowed, inpart because he had become an expert after in-depth study of thecity's financial status.
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