Say plan is racist attack mounted by state that owes Detroit $1.5 B, vow appeal
Call city’s failure to disclose interest rate on ASF clawbacks fraudulent
Bankruptcy Judge Rhodes more interested in FGIC settlement, trial end
Daily media insults pro se testifiers
By Diane Bukowski
October 16, 2014
Detroit—City retirees and citizens, all without lawyers, faced off against Emergency Manager Kevyn Orr and other corporate profiteers in court Oct. 15, as the largest Chapter 9 bankruptcy case in U.S. history proceeded to a close at breakneck speed.
Those who testified had filed objections to the Plan of Adjustment (POA), then compiled motions and briefs, identified witnesses, and stood proudly in court to present their cases. They had been given only one day’s notice, a phone call from the bankruptcy clerk, to appear at the hearing, which lasted about three hours. U.S. Bankruptcy Judge Steven Rhodes had previously killed many other motions by pro se objectors.
“We have stayed the course, and are taking it to the end,” objector Cecily McClellan of the Detroit Active and Retired Employees Association (DAREA), told VOD after the hearing. “We won’t just go away. We have resources and we are planning an appeal, not only for what’s fair and just, but also for leverage. Most judges don’t like being appealed.”
Fredia Butler, a dignified well-dressed senior citizen, who attended the hearing with Stop the Theft of Our Pensions Committee leader Ezza Brandon, hit the nail on the head during her testimony.
Orr the overseer, Snyder the master
“This Plan of Adjustment will send many retirees into poverty, people who worked many years with the promise and hope they could live a decent life at the end,” Ms. Butler said. “I am an African-American, and I know from our history that they always put someone who looks like us in charge. Kevyn Orr is the overseer. [Gov. Rick] Synder is the master. Detroit did not have to be placed in bankruptcy. It is a power grab, taking our tax dollars to give to corporations for profit, a planned racist act, involving reductions in pensions, benefits, and unjust clawbacks. . . .[by] Wall Street.”
She also noted the seizures of the city’s assets including the Water Department, Belle Isle, and art owned by the city in the Detroit Institute of Art.
Detroit is the only city in the U.S. undergoing bankruptcy proceedings filed by an unelected official, Orr. Stockton and San Bernadino, CA filed over a year before Detroit did, but have not yet reached the POA stage.
They have so far held off on pension cuts and their bankruptcy plans do not include asset seizures, which are forbidden under Chapter 9 “unless the debtor consents.”
In this case, U. S. Bankruptcy Judge Steven Rhodes early on recognized Detroit Emergency Manager Kevyn Orr as the debtor, in response to a motion by his “former” employee, Jones Day, which Rhodes recognized as representing the City of Detroit.
U.S. Bankruptcy Judge Steven Rhodes heard the mostly Black objectors as he awaited a settlement with the city’s largest hold-out creditor, Financial Guaranty Insurance Corporation (FGIC), on a claim of $1.1 billion, the following day. He said during the hearing he expected to hold closing arguments by Oct. 21 or 22 next week.
Former two-term City Councilwoman JoAnn Watson said the state has a conflict of interest in “shepherding” Detroit into bankruptcy.
Michigan owes Detroit about $1.5 B, says Councilwoman Watson
“The state is a debtor to the city,” she explained, saying it owes Detroit at least a billion and a half dollars.
She cited a recent report from the Michigan Municipal League which showed that the state has deliberately withheld $732 million in revenue-sharing to Detroit over the last 10 years. She also said the state reneged on an agreement between former Governor John Engler and former Mayor Dennis Archer to increase revenue-sharing in exchange for decreasing taxes on non-residents. As a result, she said, the city lost an additional $224 million in revenue sharing and $600 million in non-resident income taxes.
“The City of Detroit’s executive and legislative branches never saw the bankruptcy filing, the most historic in the U.S.,” Watson continued. “Over 2.3 million citizens repealed the Emergency Manager law in 2012, but the state re-enacted basically the same law. If the executive and legislative branches had an opportunity to deliberate on the bankruptcy, there might have been a decision to litigate the swaps and recoup some of that money.”
Watson referred to the interest-rate swaps associated with the $1.5 billion Pension Obligation Certificates loan of 2005-06, but Judge Rhodes responded that Orr filed litigation which is before him now. He referred to the entire loan, which Orr filed suit against on Jan. 17, calling it “void ab initio, illegal, and unenforceable.”
Orr/Jones Day have reportedly offered to withdraw that lawsuit in exchange for a settlement with FGIC.
Many object to non-disclosure of 6.75% interest rate on annuity clawbacks; Orr: “I don’t know”
Much of the testimony centered on a 6.75 percent interest rate attached to the so-called “claw-backs” from retirees’ annuity savings funds (ASF), large cuts which would last the lifetime of retirees and beyond, affecting their beneficiaries. While retirees themselves contributed the money, Orr/Jones Day contended the payments they received included interest rates that surpassed the going rates of return.
Retirees did not discover the facts about the rate until a July 17 and July 21 bankruptcy hearing after they had already voted on the plan. Retiree Stephen Wojtowicz brought it to light then. During the Oct. 15 hearing, many demanded that both the interest and the entire ASF clawbacks be eliminated from the plan.
City retiree and former City Council candidate Wanda Jan Hill calmly and professionally queried Orr himself as part of an apparently thoroughly researched presentation on that issue. She went back through the various Plans of Adjustments (there are now seven) as well as numerous other documents that failed to include any mention of the 6.75 percent interest rate.
“It was never presented or listed as part of the official record until April 10, when it was included under ‘other factors,’” she told Orr. “It was not mentioned when dealing with the ballots April 17, but you had already decided on the claw-backs. Did you know about the interest rate at that time?”
“I don’t know, I would have to look at my notes,” Orr replied. “It was not included in the disclosure statement. There was some information on the city website. I don’t know if the documents sent to the retirees were put on record with the court.”
Jones Day attorney Heather Lennox rushed to the witness stand to make up for Orr’s lack of expertise. Coughing nervously, she argued that ballots listed the actual amounts resulting from the additional interest, and that the actual percentage was in the disclosure statement, and was discussed at two informational meetings for retirees in metro Detroit.
She said she assumed pensioners understood the complicated ASF process at the time of their retirement.
“We have to stop dealing with assumptions,” Hill retorted. “For 30 years and more, people set aside spendable cash so they would be in a position to live in comfort during their retirement. It should have been plainly explained in the ‘plain language statement.’ We needed the calculation and the reason for it. The [lack of disclosure] was nothing but a ruse.”
Retirees would likely have voted against plan if ASF interest rate disclosed
She argued that if retirees had known about the interest rate, they may have voted against the plan.
Elaine Thayer, representing her city retiree mother as well as her “significant other,” called the lack of disclosure of the interest rate “fraud” under the legal definition of the term.
Retiree Walter Knall blasted the ASF cuts and the undisclosed interest rate.
“I have engaged in no fraud or deceit with regards to my own annuity, which I subscribed to according to pension fund standards, and therefore I am not liable [for repayment],” he testified. “The idea that me and my fellow retirees should be asked to pay back tens of thousands of dollars from our savings funds is outrageous and illegal.”
He concurred with objections including citations of state and federal laws violated, wich were filed by Law Department retirees James Karwoski and John P. Quinn. Karwoski is himself an attorney who did not testify, but said he has participated in the bankruptcy hearings by cross-examining witnesses and plans to participate in closing arguments as well. He said he felt the retirees who did testify did very well in presenting their cases.
Retirees McClellan and Yvonne Williams-Jones called David Kausch, chief actuary for the global firm Gabriel, Roeder and Smith (GRS) to the stand. GRS has done actuarial reports for Detroit’s retirement systems for 75 years. Earlier, it contested the Orr/Jones Day estimate that the systems are underfunded by up to $3.5 billion, based on a report by Milliman, Inc. that was never completed. They issued a statement in June criticizing the Milliman estimate, available at link below story.
Kausch testified that the General Retirement System is 70 percent funded as of June 30, 2013. In 2012, it was 77 percent funded, and in 2011, 83 percent funded. Those percentages actually exceed those of the State of Michigan and other large cities in the U.S.
Kausch said long-term solvency is based on cash contributions to the system from both employees and employer over time. The City of Detroit stopped its federally-mandated contributions to the System when it declared bankruptcy, so they are not included in the 2013 report.
It does not intend to reinstitute them until 2023 under the proposed Plan of Adjustment. It wants to replace them with a one-time “Grand Bargain” payment of $816 million that is not yet fully in place and nowhere near commensurate with what payments would have been.
Kausch said the Great Recession of 2008, caused by Wall Street itself, was responsible for losses to pension systems across the U.S. He said the retirement system is gradually recovering along with the economy.
For solvency, he said, “the city must make contributions on a continued basis.” Under the Plan of Adjustment, he said, the city has proposed adjusting interest rates down to 6.75 percent.
“That means they are assuming the system’s assets are not going to grow as fast,” Kausch said. He explained that means the city’s required contributions will increase in order to maintain required payments to retirees.
Stephen Wojtowicz, who first exposed the 6.75 percent interest rate on the ASF recoupment, pointed out that while the system lost money during the Great Recession, in other years it earned rates as high as 22 percent while paying out only the standard 7.9 percent to retirees and returning the remainder to the system as a whole.
Many local mainstream media reports mocked the retirees’ testimony and questioning of witnesses as unprofessional, although Attorney Karwoski said it was handled very well. In a covertly racist and insensitive comment, Christine Ferretti of the Detroit Free Press, a young white reporter, said Ms. Butler “was allowed to wear a floppy hat,” and left out the essence of her testimony that the bankruptcy is a profound racist assault on the people of the nation’s largest Black-majority city.
In contrast, Reuters reported largely on Ms. Butler’s testimony (see link below) and a local TV anchor was seeking her out for an interview during the break. However, Ms. Butler had already left.
Related stories cited above: