DETROIT (Reuters) - With the threat of a city bankruptcy looming, Detroit city workers and retirees are pushing back against the state-appointed emergency manager, filing lawsuits to limit his options and refusing to accept demands to keep details of their discussions secret.
One lawsuit, filed in Ingham County Circuit Court in the state capital Lansing, seeks to stop Governor Rick Snyder from allowing the emergency manager, Kevyn Orr, to file Chapter 9 municipal bankruptcy. That lawsuit claims Orr’s plan to significantly cut vested pensions would violate strong protections in the Michigan constitution for retirement benefits of public-sector workers.
A second Detroit employee lawsuit challenges the 2012 Michigan law that created the emergency manager position.
In his June 14 proposal to creditors, Orr listed pensions as unsecured debt of the city. Payment on pensions, retiree healthcare and $641 million of general obligation bonds all would be made from the city’s proceeds from $2 billion of notes Orr plans to sell as part of his restructuring plan.
The plan, if enacted, would be expected to result in significant cuts in pension payments. Although the city currently lists $643.7 million in unfunded pension liabilities, Orr in his report said the number is closer to $3.5 billion if “more realistic assumptions” are taken into account.
Meanwhile, a lawyer for the United Auto Workers union, which represents some city workers, refused to participate in a meeting with Orr’s representatives after declining to agree to mandatory secrecy requirements demanded by Orr’s staff.
The lawyer, Michael Nicholson, said Orr’s representatives wanted an agreement that he would not repeat anything he learned in the meeting to anyone outside of the meeting. The secrecy agreement also required a pledge that the union would not use information from the meeting in any future court proceedings.
“It was polite enough,” Nicholson said. “I was willing to stay but I wasn’t going to agree not to talk about it publicly.”
Nicholson said Orr, who has spent most of his career as a corporate bankruptcy lawyer, is treating Detroit’s financial restructuring as he would a corporate situation.
Nicholson, as attorney for the UAW, worked on bankruptcies involving General Motors and Chrysler. Orr was involved in the Chrysler case through his previous job at law firm Jones Day.
Pensions generally are considered off limits in bankruptcies, Nicholson said. “It’s very, very rare for any entity to go after people’s pensions because it puts people in the poor house,” he said.
The push back from labor groups is a new front in a growing resistance to Orr’s efforts.
Last week, Detroit sued bond insurer Syncora Guarantee, claiming the company interfered with its efforts to reach a deal to terminate interest rate swap contracts by blocking the release of casino tax revenue.
This week, another bond insurer, Ambac Assurance Corp, voiced its objection to Orr’s plan to treat general obligation bonds similarly to other unsecured debt by offering bondholders just pennies on the dollar.
A spokeswoman for Snyder could not immediately be reached for comment.
Reporting by Bernie Woodall; Additional reporting by Karen Pierog and David Bailey; Editing by Will Dunham