04.02.14

One More Lap.  The Sixth Circuit U.S. Court of Appeals in Cincinnati yesterday partially granted the Motor City’s request that filings in the seven appeals be done in one lead case. At the same time, the federal appeals court denied a motion that some of the parties made to have the cases fully briefed by the end of May instead of mid-June. (14-0106 Carl Williams, et al., 14-1208 Police and Fire Retirement Sys, et al. v. City of Detroit, Michigan; 14-1209 Official Committee of Retirees v. City of Detroit, Michigan; 14-1211 Michigan Council 25 of the Ame, et al. v. City of Detroit, Michigan; 14-1212 Retired Detroit Police & Fire, et al. v. City of Detroit; 14-1213 International Union, UAW, et al. v. City of Detroit, Michigan; 14-1214 Detroit Fire Fighters Association, et al. v. City of Detroit, Michigan; and 14-1215 Retired Detroit Police Members v. City of Detroit, Michigan.

Unartistic Fighting. The Official Committee of Retirees, the Detroit committee representing the Motor City’s retirees in its municipal bankruptcy, yesterday demanded that the Detroit Institute of Arts turn over nearly a century’s worth of records about the value and ownership of the city-owned museum’s masterpieces—mimicking the subpoena the Motor City’s bond insurer, Syncora Guarantee Inc., served on the world class art museum last Friday, seeking “all documents and communications relating to the conveyance of all” assets from the former Detroit Museum of Art to the city in 1919, when Detroit turned the museum into a city department. In addition, the committee served New York City auction house Christie’s Appraisals with a subpoena for records related to its report valuing 1,741 pieces of city-purchased art at $454 million to $867 million. The subpoena also would require the DIA to turn over all historical ownership records “for every object and work of art” in the 60,000-piece collection. The action came less than 24 hours after Monday’s submission by Kevyn Orr of its revised plan of adjustment—including the proposed revision which would impose steeper reductions in pension payments if retirees refuse to quickly settle the bankruptcy and give up rights to pursue a sale of DIA’s priceless art. (The revised version proposes to reduce police and firefighter pensions by 6 percent and non-uniform general retiree pensions by 26 percent if they were to agree and not pursue a sale of city-owned art; in contrast, if they were to not agree, the reductions would escalate to 14 percent for retired police and fighters, and 34 percent for general city retirees.) The retiree committee effort appeared to be intended to obtain a fuller accounting of the museum’s overall worth in an attempt to potentially force the issue of selling DIA assets to satisfy the city’s liabilities―a gambit that while potentially valuable in the short term, could have significant adverse consequences for a sustainable future for the Motor City.

 

Shake Up. Detroit’s pension fund representatives yesterday also challenged emergency manager Kevyn Orr’s proposed shake-up in the structure and management of the pension funds―even as both sides are in confidential mediation talks, referring to the plan’s proposal to replace the current pension boards as “tantamount to a takeover:”

“This is when we are supposed to be in good-faith negotiations and court-ordered mediation…The plan as proposed is best described as completely unrealistic for the operation of these important pension funds for first responders and city workers who dedicated their careers to the City of Detroit. Indeed, such radical and irresponsible concepts could very well derail mediation and ensure protracted litigation.”

Bruce Babiarz, a spokesman for Detroit’s police and fire retirement system, said the revised plan is “dead on arrival: We believe it is unacceptable and disingenuous to introduce in a (plan of adjustment) a host of issues that have never before been discussed with the pension funds, such as board governance.” Under the proposal, the city has proposed to the federal court the creation of two new pension funds and trustee boards responsible for oversight: each new board would have five voting members, two nonvoting members, and a CEO, with board members required to have financial expertise and no affiliation with the city’s government or its unions. The trustees could be appointed by the emergency manager or by current board members, although, according to the city, as of yesterday, no final decision had been reached with regard to whom would make the appointments. Michael VanOverbeke, general counsel for the General Retirement System, said significant changes have been made in the existing board and that proposing a change in trustee management does not reflect positive steps already taken. Carole Neville, an attorney for the retire committee, noted: “In my many years of practice, I have never seen a plan intentionally designed to harm retirees in so many ways as this one…It is unfortunate that the city has taken this approach. Unless significantly altered, the retiree committee has little choice but to oppose this plan and to explore alternative recoveries.” Some of Detroit’s creditors have been eyeing the museum as a possible source of cash to ease the cuts due to the Motor City’s bankruptcy.  Such a move, however, could jeopardize the unprecedented and innovative effort by national foundations and the governor and bipartisan leaders in the Michigan legislature to put together an $865 million package to aid Detroit’s retirees―funding that is contingent on a settlement of pension claims in the bankruptcy.

Motor City Bonds? The Motor City yesterday missed a second payment on its outstanding general obligation bonds, with the city’s spokesperson, Bill Nowling,  making clear Detroit does not intend to make the $47.6 million annual principal and semi-annual interest payment that was due yesterday―the Motor City had previously defaulted on a $9.4 million interest payment last October, a default that had triggered the credit rating agencies to drop the city’s rating on more than $600 million of unlimited and limited tax GO bonds to D, and added to the legal complexities of the largest municipal bankruptcy in the nation’s history, as three bond insurance companies that guaranteed payments on much of the Motor City’s general obligation bonds sued Detroit over the default and the diversion of property tax revenue earmarked to pay off bonds that had been approved by Detroit voters. Despite Judge Rhodes’ urging that the city and its insurers settle, no settlement appears on the near horizon; but the revised plan of adjustment the Motor City submitted to the federal court late Monday proposes a slightly deeper cut for owners of bonds the city has deemed to be unsecured, reducing what the city is offering to pay to 15 percent, down from its previous plan level of 20 percent.

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