Judge puts manager on the spot over pensions

Orr: Federal law can trump in bankruptcy


DETROIT — A judge deciding whether Detroit can go through a multibillion-dollar makeover in bankruptcy court suddenly challenged the city’s emergency manager Monday over remarks made during the summer suggesting pensions would be safe in any restructuring.

Emergency manager Kevyn Orr had told the public before the July bankruptcy filing that pensions were “sacrosanct” under the Michigan Constitution.

Judge Steven Rhodes interrupted friendly questioning by a city lawyer on Monday and asked Mr. Orr, “What would you say to that retiree now?”

Mr. Orr, near the end of his fourth day on the stand, answered in legal terms, saying rights to a full pension could be trumped by federal law in a bankruptcy.

“That’s a bit different than sacrosanct,” the judge said.

Attorneys for unions and pension funds, worried about benefit cuts, have challenged Detroit’s eligibility to fix its finances in bankruptcy.

Detroit is the largest city in U.S. history to choose Chapter 9.

Some creditors claim the city failed to hold “good-faith” negotiations with them before the July filing, a key step that’s needed to be eligible to recast $18 billion in debt, including $3.5 billion in underfunded pensions.

Steve Kreisberg, national director of collective bargaining at the American Federation of State, County, and Municipal Employees, said he attended at least four meetings with Mr. Orr or his staff before the filing.

“We were expressly told they were not negotiations,” Mr. Kreisberg told the judge.

The exchange between Judge Rhodes and Mr. Orr was the day’s dramatic high point.

It’s not uncommon for a judge to ask a witness to repeat testimony or clarify something, but Judge Rhodes asked a pointed question about how the state-appointed manager views the most controversial aspect of the bankruptcy.

Detroit has 23,000 retirees, and the state constitution since 1963 has protected public pensions. AFSCME estimates that the average rank-and-file retiree gets no more than $19,000 a year.