Emails revealed in a Detroit bankruptcy court on Tuesday show that a top Michigan government official thought that Detroit emergency manager Kevyn Orr had failed to make a good-faith effort to resolve the city’s troubles without entering into a bankruptcy that would allow him to cut retiree pensions. The move “looks premeditated,” former state Treasurer Andy Dillon warned in a message sent eight days before the city’s attorneys raced into a courtroom to initiate the largest municipal bankruptcy in American history.
Dillon supported the decision to use bankruptcy protections to resolve the city’s financial impasse, but believed the city and state officials pushing for the filing had failed to demonstrate that they had negotiated properly with creditors, which is precisely what retirees are arguing in court this week in hopes of derailing the process.
The ongoing trial to decide whether or not the city is eligible for bankruptcy protections is the last line of defense for 20,000 city retirees and 10,000 active city workers. Orr and Gov. Rick Snyder (R) have vowed to cut pensions should the bankruptcy proceed. They claim the city’s pension funds are underfunded by $3.5 billion — a figure which independent experts have criticized as “pension voodoo” and unreliable. If the judge rules for the city, the cuts will leave retired firemen like David Allen and former librarians like Gwendolyn Beasley with tough choices about how to keep making ends meet after lifetimes of service to the city.
Dillon’s claim is key to the retirees’ case. In order to be eligible for bankruptcy protections, the city must demonstrate that it made a sincere effort to reach an agreement with the pension funds and other entities to which Detroit owes money, but was unable to do so. Previously disclosed emails between Orr, Snyder, and a Snyder aide named Richard Baird had cast doubt on that question of good-faith negotiating, as all three men seemed to agree that bankruptcy was the only viable path for the city. Dillon’s July 10 email is even clearer than the previously released messages and indicates that the top budget official for the state believed the city risked losing in court.
“I don’t think we are making a case why we are giving up so soon to reach an out-of-court settlement,” Dillon wrote. “Looks premeditated.” Later in the message he wrote that he supported the decision to file for bankruptcy, but thought the city needed to cross some Ts and dot some Is to make sure a judge would accept the filing. “We don’t even say they rejected the city’s proposal… I agree with the recommendation but I don’t think we made the case,” he wrote.
When asked about the emails by lawyers representing pensioners on Tuesday, Dillon went further. The former Treasurer testified that the proposal Orr delivered to creditors like the pension funds and the investors that hold the city’s bonds was impossible for creditors to accept, according to the Detroit News’ Robert Snell. “I didn’t know how anyone could practicably cut a deal and walk out of the settlement room” after seeing Orr’s proposal, Dillon testified. At the time Orr issued the draft proposal, municipal finance experts warned that it seemed designed to fail. If Orr could make a lowball offer that creditors were bound to reject, it would strengthen the city’s case that it had tried and failed to negotiate a solution without entering into bankruptcy. Together with the concern about the appearance of premeditation voiced in the email, Dillon’s testimony Tuesday provided a big lift to the retirees’ case that Snyder and Orr rushed into bankruptcy in hopes of cutting pensions.