Detroit's lawyers argue in support of bankruptcy

AP News
Posted: Oct 15, 2013 6:00 PM

DETROIT (AP) — Attorneys on both sides of Detroit's historic bankruptcy filing were in federal court Tuesday trying to convince a judge why he should or shouldn't allow the financially troubled city's Chapter 9 petition to go through.

Federal Judge Steven Rhodes also is expected to hear similar arguments Wednesday ahead of next week's trial to determine whether Detroit is eligible for bankruptcy.

City unions and retirees have said the July 18 bankruptcy filing by state-appointed emergency manager Kevyn Orr threatens pensions, which they believe are protected by the Michigan Constitution.

Orr has said federal bankruptcy law supersedes state law. He said Detroit has $18 billion or more in debt and that the city's two pension systems are underfunded by $3.5 billion.

Rhodes said Tuesday that Orr's bankruptcy petition has not cut city pensions.

But an attorney for the city's retiree committee said the "threat of a filing is not the harm all by itself."

"It was preceded by an announced plan . and a series of other events and statements made, which evidence a desire to violate the state constitution," Claude Montgomery told Rhodes.

Orr and his restructuring team are looking for ways to cut away the city's debt. They met with unions, pension officials and other creditors in June, offering pennies on the dollar for money owed by the city.

Retiree pension cuts need to be made, but the city is not looking to cut pension benefits, one of the city's lawyers told Rhodes.

Detroit is in mediation to negotiate pension cuts, said Bruce Bennett, an attorney with the Jones Day law firm.

"We never said our objective is to eliminate pensions," said Bennett, who also told the judge he doesn't think the state has any obligation to guarantee the pensions.

Orr was hired by the state in March to fix Detroit's finances. He recently announced a lease deal with the state that would make Detroit's popular Belle Isle park a state park. The state would operate and maintain Belle Isle, saving Detroit about $6 million per year.

But the state's promise to invest up to $20 million over the lease's 30 years was blasted Tuesday by Senate Appropriations chair Roger Kahn. The Republican from Saginaw Township said during a speech that there is competition for state park funds.

Also Tuesday, Orr accepted the resignation of Chief Financial Officer Jim Bonsall following an investigation of a complaint that the white official made an insensitive reference to the killing of black Florida teen Trayvon Martin.

Recently demoted Detroit finance director Cheryl Johnson wrote Orr that Bonsall created a hostile work environment. Johnson's letter says Bonsall asked during a meeting about the city's annual Angels' Night anti-arson patrols if he could "shoot someone in a hoodie."

Martin was wearing a hooded sweatshirt when he was fatally shot by neighborhood watch volunteer George Zimmerman.

Johnson is black. Bonsall apologized last week for the comment.

Orr's office said a search will begin for a replacement.