"Banking On Bankruptcy: Emails Suggest Negotiations With Detroit Retirees Were Designed To Fail"
Even before one of their own was appointed emergency manager of the city, lawyers who were consulting with Michigan officials over the winter believed Detroit should move into bankruptcy proceedings that would free the city to walk away from its commitments to retirees. Emails between Kevyn Orr — now Detroit’s emergency manager but at the time an attorney for the law firm Jones Day — and his colleagues show the lawyers believed moving directly to bankruptcy would be better for the city than going through a serious negotiating process.
In one email, an assistant to Gov. Rick Snyder (R) promises to set a meeting between Orr and someone “who is not FOIAble,” suggesting an intent to evade transparency laws. In another, Jones Day lawyers suggest to Orr that elevating Detroit’s bankruptcy in national media coverage would “give you cover and options on the back end to make up for lost time there.” Orr rejected that suggestion as unhelpful. Jones Day continues to represent Detroit in the proceedings, which could take a year or longer.
The messages made public thusfar show Jones Day attorneys defining bankruptcy as inevitable in their own words.
“It seems that the ideal scenario would be that Snyder and Bing both agree that the best option is simply to go through an orderly Chapter 9 [bankruptcy],” one Jones Day attorney writes to Orr in the emails. “Appointing an Emergency Manager, whose ability to actually do anything is questionable given the looming political and legal fights, would only serve to kick the can down the wrong path and unreasonably delay any meaningful resolution of Detroit’s problems.” Defining bankruptcy as the only route to a “meaningful resolution of Detroit’s problems” casts further doubt on the intent of the negotiations that followed Orr’s appointment in March, but a spokesman for Orr called those doubts “absurd.”
The emails were released in response to a Freedom of Information Act request by Robert Davis, a local labor activist with a troubled history. Davis faces federal corruption charges over school board funds that were spent on an advertising campaign. When the charges were filed in 2012, Davis called them politically motivated and said he is innocent.
One January exchange shows Orr reluctant to take on the emergency manager job, and concerned that the law empowering Gov. Rick Snyder (R) to appoint such officials “is a clear end-around the prior initiative that was rejected by the voters in November.” One January 31, Orr wrote that the entire emergency manager system “appears to merely adopts [sic] the conditions necessary for a chapter 9 filing.”
Orr’s assessment of the emergency manager process reinforces retiree advocates’ arguments that Orr’s actions once appointed were not good-faith negotiations with city employees, but an effort to check necessary boxes prior to filing for bankruptcy. In June, when Orr issued a proposal to retirees and bondholders in lieu of declaring bankruptcy, analysts wrote that the proposal appeared designed to be unpalatable, paving the way for the bankruptcy filing. Orr and Snyder have made clear that the bankruptcy resolution will include some cuts to retiree benefits, which are about $1,600 per month for most of the city’s 21,000 pensioners. “They made me some promises, and I made them some promises,” 76-year-old retired police sergeant William Shine told the New York Times. “I kept my promises. They’re not going to keep theirs.”
Some legal hurdles may prevent the city from reneging on pension promises in bankruptcy, but the outlook is uncertain.