Gov. Snyder primed for historic appearance in Detroit bankruptcy trial

Gov. Rick Snyder spent almost three hours testifying in the Detroit bankruptcy trial, saying he authorized a Chapter 9 filing because the city was hemorrhaging money but claimed attorney-client privilege when asked about sensitive discussions regarding the fate of retiree pensions.

Snyder was the first Michigan governor in modern history to testify under oath in open court and faced rounds of questions from lawyers representing retirees, pension funds and labor unions, who are fighting Detroit’s bid for bankruptcy relief.

He followed Emergency Manager Kevyn Orr to the witness stand during a day of testimony that featured the two key architects of Detroit’s historic bankruptcy. Orr will return at 9 a.m. Tuesday in U.S. District Court.

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Gov. Rick Snyder

Gov. Rick Snyder

Detroit is in a financial crisis, but that does not mean the city’s problems should be fixed by hurting retirees and slashing their pensions, a lawyer said today.

Retiree lawyer William Wertheimer tried to get Gov. Rick Snyder to agree with his argument after the governor tried justifying the Detroit bankruptcy filing by pointing to shoddy city services and decades of financial problems.

“I have concerns about retirees also. I am concerned about the 700,000 citizens of Detroit, the citizens of Michigan, which includes these retirees,” Snyder said.

“I did not ask if you had any concerns,” Wertheimer said. “I’ll ask you the same question again. Try to answer that.

“Would you agree that the problems you’ve identified, that have to be resolved and resolved quickly, that it does not mean they have to be resolved on the backs of city retirees?”

“You are asking me to speculate,” Snyder said. “There isn’t even a plan on the table.”

Emergency Manager Kevyn Orr proposed slashing pensions in a restructuring plan given to creditors in June. But there is no restructuring plan filed in bankruptcy court.

A plan to adjust Detroit’s debts would come after the bankruptcy judge determines whether the city is eligible for Chapter 9 relief.

skyline bridge 2

Gov. Rick Snyder said Detroit was hemorrhaging cash, a financial crisis that worsened as each day passed.

Snyder said he viewed a Chapter 9 bankruptcy filing as a last-ditch option to reverse a decades-long economic and financial slide in the state’s largest city.

Gov. Rick Snyder

Gov. Rick Snyder

“It was the last resort,” Snyder said while being questioned by Matthew Schneider, chief legal counsel for Attorney General Bill Schuette. “When you looked at the entire process, I tried to be very diligent about this in a very difficult situation.

“This is still a crisis today. This is an unacceptable situation.”

The testimony came after almost three hours of questioning from lawyers for city retirees, pension funds and unions, all of which are trying to kick Detroit out of bankruptcy court. Snyder’s testimony appeared aimed at convincing U.S. Bankruptcy Judge Steven Rhodes that Detroit is insolvent and that officials negotiated in good faith with creditors before filing bankruptcy July 18.

“I worked in good faith,” Snyder said. “People are suffering — the 700,000 residents of Detroit.”

skyline river

Gov. Rick Snyder chose not to attach any strings to the Detroit bankruptcy filing that would protect vested retiree pensions because he did not want to slow down the historic case.

Snyder made the admission while testifying during Detroit’s bankruptcy eligibility trial. The city wants U.S. Bankruptcy Judge Steven Rhodes to find Detroit is eligible for Chapter 9 bankruptcy relief, a bid opposed by retirees, pension funds and unions.

Gov. Rick Snyder

Gov. Rick Snyder

Pension fund lawyer Ron King asked the governor why he didn’t approve a bankruptcy filing on the condition that it would not cut vested retiree pensions, which are protected by the state constitution.

“I made the decision not to put any conditions because my concern was this is an extremely difficult process, we are in a crisis mode and have serious issues here and felt it could be an issue causing more delays,” Snyder said. “I have confidence in the judicial process.

“I believe I am following the constitution and the constitution of the United States, which treat pensions as a contractual obligation,” which can be altered in bankruptcy court, Snyder added.

Snyder addressed the historic opportunity afforded by Detroit’s bankruptcy.

“This problem has been accumulating for 60 years that have not been solved before and there are not that many problems of this magnitude in our country,” Snyder said.

AFSCME lawyer Sharon Levine

AFSCME lawyer Sharon Levine

A union lawyer asked Gov. Rick Snyder if he knew why the city did not approve concession deals with the city’s biggest union that would have saved more than $100 million before filing bankruptcy.

“I don’t recall,” Snyder testified.

The exchange between the governor and American Federation of State, County and Municipal Employees lawyer Sharon Levine came more than an hour into Snyder’s historic testimony in the city’s bankruptcy trial.

Levine questioned Snyder on Emergency Manager Kevyn Orr’s restructuring proposal given to creditors during a June 14 meeting.

In it, Orr proposed treating classes of creditors equally. The city’s largest secured bond debt would be restructured with new bonds. Unsecured bonds and other debt, including the city’s two pension funds, would divide $2 billion in “non-recourse participation notes” payable once the city’s financial condition improves.

Levine emphasized that the proposal left retirees wondering exactly how much they would lose in annual pension benefits.

Gov. Rick Snyder

Gov. Rick Snyder

“A retiree, reading that proposal, can’t tell what their $18,000 a year (pension) is going to be reduced to and can’t tell what their pro-rata share of the $2 billion note is going to be and doesn’t know if they are going to be allowed to assert a claim, isn’t that correct?” Levine asked.

“The first two questions, yes,” Snyder said. “The third is a legal question.

“If you don’t understand it, how is an 86-year-old retiree going to understand it?” Levine said.

The lawyer’s retort drew several yelps and shouts of “Whoo!” from people gathered at federal court and watching a closed-circuit feed in an overflow room.

Gov. Rick Snyder

Gov. Rick Snyder

Gov. Rick Snyder said he didn’t recall talking to Emergency Manager Kevyn Orr about having the state pick up the tab for Detroit retiree pensions.

Yet he also claimed the question came up during a discussion attended by the governor’s attorneys.

“Did Mr. Orr come to you at any point…asking whether or not the state would share in the financial burden of some or all of Detroit’s pension liabilities?” UAW lawyer Peter DeChiara asked.

“That would have been asked in meetings with attorneys present,” Snyder said.

“I am asking if that conversation ever occurred,” the lawyer said.

“I don’t recall it ever being brought up,” Snyder said.

“You don’t recall but if it did, it happened in front of attorneys?” DeChiara asked. “Is that your testimony?”

“I don’t recall,” the governor said.

Gov. Rick Snyder refused to say whether he thinks there must be significant cuts to Detroit retiree pensions as part of the city’s restructuring.

Snyder cited attorney-client privilege or refused to be pinned down during questioning from UAW lawyer Peter DeChiara, who quizzed the governor about Emergency Manager Kevyn Orr’s restructuring proposal.

Gov. Rick Snyder

Gov. Rick Snyder

In a June 14 proposal, Orr said he wants to pare an estimated $3.5 billion in pension debt — a figure the city’s pension funds dispute as over-inflated by at least $2 billion. Orr contends federal bankruptcy laws empowering insolvent municipalities to cut debts override the state’s constitutional protection of contractual pension obligations.

“At the time you read the language in the proposal, did you agree with the position that there must be significant cuts?” DeChiara asked.

“No. I think it’s speculation at this point,” Snyder said.

The city’s July 18 bankruptcy does not propose any pension cuts. Those cuts would come in a plan of adjustment if the city is eligible for Chapter 9 bankruptcy relief.

“I’m asking you about the time you read the proposal, did you agree what was set out,” in the proposal, DeChiara asked.

“It has to go through negotiation,” Snyder said. “The numbers could be difficult, but to say it’s impossible to get to, I’m not going to say that.”

The lawyer tried again.

Peter DeChiara

Peter DeChiara

“Do you agree there must be significant cuts to accrued pension liabilities?” DeChiara asked.

“It depends on the plan and the judge’s approval,” Snyder said.

“I’m asking if you agree with (Orr’s) proposal?” the lawyer asked.

“No plan has been submitted,” the governor said.

“I’m asking if you agree with that position,” the lawyer asked.

“I don’t necessarily know there has to be,” pension cuts, the governor said. “It’s not my decision to make that call.”

“Did you speak to Mr. Orr about using Chapter 9 to eliminate pension liabilities in the city?” DeChiara asked

“Those were discussions with attorneys present,” Snyder said.

“Are you refusing to answer the question?” the lawyer asked.

“Yes,” the governor said.

Gov. Rick Snyder’s top lawyer recommended placing conditions on a Detroit bankruptcy filing regarding the treatment of vested retiree pension benefits — conditions that were nowhere to be found when the city filed Chapter 9 in mid July.

A lawyer for Detroit retirees produced a July 12 email from Snyder’s legal counsel Mike Gadola to the governor, who recommended placing conditions on the bankruptcy. The email was sent six days before the city filed bankruptcy.

“The conditions could also include such items as pre-approval for anything having to do with vested pension benefits (general obligation) bonds or the disposition of certain assets, or assets greater than a certain amount in value. We would need time to figure out what those conditions should be if the govenror is included to impose them,” Gadola wrote.

After being shown the email, Snyder said it was not a mandate but a possibility to include conditions on the bankruptcy filing. In the end, there were no conditions attached to the city’s July 18 bankruptcy filing.

Gov. Rick Snyder

Gov. Rick Snyder

The decision to approve the biggest municipal bankruptcy in U.S. history was “tremendously difficult” but the right call, Gov. Rick Snyder testified.

Snyder was questioned during Detroit’s eligibility trial about his decision to green-light the city’s Chapter 9 filing in mid July. The filing came amid a flurry of lawsuits filed against Detroit that had the potential to block the governor from approving a bankruptcy petition.

Detroit retiree/employee lawyer William Wertheimer asked Snyder what prompted him to approve the bankruptcy case.

“It was more the filing of the lawsuits,” Snyder said. “Bankruptcy is the very last resort and these actions showed there wasn’t a meeting of the minds and not a mutual understanding to resolve this short of bankruptcy.

“That was part of my decision-making process; when I was comfortable signing a letter authorizing bankruptcy. It was a tremendously difficult decision to make, but the right one.”

Gov. Rick Snyder

Gov. Rick Snyder

Gov. Rick Snyder said he has not talked to Emergency Manager Kevyn Orr about a plan to adjust Detroit’s debts and slash retiree pensions if the city is granted Chapter 9 bankruptcy relief.

The governor was asked about his discussions with Orr and the potential impact on retiree pension benefits, which Orr has said he wants to cut while restructuring about $18.5 billion in debt.

Snyder said any suggestion that retiree pensions will be slashed is “speculative.”

First, a bankruptcy judge must decide whether Detroit is eligible for bankruptcy relief. If eligible, Detroit would file a plan of adjustment by the end of the year.

“Did Mr. Orr say anything or indicate to you that he is going to propose a plan that will not adversely impact retirees?” Detroit retiree lawyer William Wertheimer asked.

“I have not discussed a specific plan with Mr. Orr in any regard,” Snyder said.

The attorney followed up by asking the governor whether Orr has said anything contrary to public statements the emergency manager has made indicating he wants to use federal bankruptcy law to trump state constitutional protections of vested retiree pensions.

Snyder refused to answer, citing attorney-client privilege.

“Those discussions would have been made with (legal) counsel present,” Snyder said.

Earlier, Snyder said he did not know how much, on average, Detroit retirees receive in pension benefits each month.

Orr has said he wants to pare an estimated $3.5 billion in pension debt — a figure the city’s pension funds dispute as over-inflated by at least $2 billion. Orr contends federal bankruptcy laws empowering insolvent municipalities to cut debts override the state’s constitutional protection of contractual pension obligations.

Gov. Rick Snyder

Gov. Rick Snyder

Gov. Rick Snyder said the state will pay Detroit retiree pensions if a judge determines that Michigan has an obligation to bankroll vested pension benefits.

Snyder made the remark minutes into his history testimony Monday in the Detroit bankruptcy eligibility trial.

“That is a legal question,” Snyder said during questioning from attorney William Wertheimer, who represents several Detroit employees and retirees. “If the court decides we had a constitutional obligation, we would pay it.”

Snyder sat stone-faced while listening to Wertheimer’s questions about the law firm Jones Day trying to secure a contract to restructure the city’s finances. He appeared calm but was rapidly blinking his eyes in between questions.

Gov. Rick Snyder

Gov. Rick Snyder

Creditors in Detroit’s bankruptcy case called Gov. Rick Snyder to the witness stand just after 1 p.m., making him the first sitting governor in modern state history to testify in open court.

Snyder sat down at the witness stand just before 1 p.m. and was trailed into the courtroom by his bodyguard, who sat down a few feet away.

U.S. Bankruptcy Judge Steven Rhodes greeted the governor, who was dressed in a red-and-white striped tie and dark suit.

“Sir, please stand and raise your right hand,” the judge said.

Minutes later, a lawyer for several Detroit retirees and employees started questioning Snyder about his approval of the city’s Chapter 9 bankruptcy filing on July 18.

“Good afternoon governor,” lawyer William Wertheimer said. “Thank you for being here this afternoon.”

 

Protestors outside federal court Monday.

Protesters outside federal court Monday.

Protesters carrying doctored photos of Rick Snyder with red eyes and devil horns greeted the governor outside U.S. District Court ahead of the his 1 p.m. testimony in Detroit’s bankruptcy trial.

There were about two dozen protesters marching outside the Lafayette entrance to federal court around 12:30 p.m. By 1 p.m., there were about 80-100, a considerably smaller group than the one that protested at the start of the trial last week.

Snyder is expected to spend as much as four hours on the witness stand while union, pension fund and retiree lawyers try to prove his authorization of Detroit’s July 18 bankruptcy was unconstitutional and violates state constitutional protections of vested pensions.

 

Snyder press

Gov. Rick Snyder is known for staying on topic when speaking with reporters. (Elizabeth Conley/The Detroit News)

As any member of the Capitol press corps knows, Gov. Rick Snyder rarely steers off message or gets tripped up by questioners.

Attorneys representing Detroit labor unions and retirees in the city’s bankruptcy found this out first hand on Oct. 9 when they deposed the businessman-turned-politician for three hours in his Lansing office.

Starting at 1 p.m., the Republican governor will face those same union attorneys for a rematch of sorts, but this time in a federal courtroom during the fourth day of Detroit’s bankruptcy eligibility trial.

Snyder is likely to be peppered with numerous variations of the same underlining question: Should pensions be cut in the bankruptcy?

Michigan Information & Research Service (MIRS), a Lansing newsletter, reported Oct. 11 that Snyder didn’t answer 15 percent of the 608 questions he was asked in his Oct. 9 deposition. MIRS also found Snyder asserted attorney-client privilege 14 times and his state attorneys asserted the privilege five different times while instructing their high-profile client not to answer particular questions from inquiring union attorneys.

Snyder also batted down seven questions as pertaining to legal issues and a dozen as speculative or hypothetical, according to a MIRS article titled, “Snyder Plays Dodgeball With Union Attorneys.”

Adhering to one of his mantras, Snyder largely stayed in his lane during the deposition.

Here’s one snippet from Snyder’s deposition while being questioned by New York bankruptcy attorney Sharon Levine, who represents the American Federation of State, County & Municipal Employees Council 25:

LEVINE: “…Did you have any conversations with Kevyn Orr with regard to your views on whether vested pension benefits should be modified or not modified as part of a restructuring for Detroit?”

SNYDER: “Those would have been subject to attorney-client privilege.”

LEVINE: “As we sit here today, what is your view of whether vested pension benefits should be modified or not modified as a result of a restructuring or plan of adjustment for Detroit?”

SNYDER: “I view that that’s part of the bankruptcy process. Those are not my decisions to make. There’s a plan of adjustment that will be presented by the city, assuming Chapter 9 goes forward, and that would be adjudicated by Judge Rhodes.”

LEVINE: “So is it your testimony today that you do not have a view?”

SNYDER: “I would — I’m not a decision-maker in that process with respect to deciding that the plan would be adopted or not, and there has not been a plan even presented at this point in time, so anything else would be speculative.”

LEVINE: “I’m asking you your view as to whether as part of that process vested pension benefits should be modified or should not be modified?”

SNYDER: “Again, I view those as primarily legal questions.”

A lawyer for Detroit retirees faulted Emergency Manager Kevyn Orr for failing to make clear in his June 14 restructuring proposal that he wanted to slash constitutionally protected retiree pensions.

“Why did you not mention that you were taking away pension rights protected under the Michigan constitution?” retiree lawyer Anthony Ullman asked.

“We mde a proposal and offered solutions, the proposal is what it is,” Orr said.

“You didn’t think that was something worth mentioning?” Ullman asked.

“I think everybody knew that,” Orr said.

Detroit’s restructuring law firm Jones Day used the threat of Chapter 9 bankruptcy while negotiating with the city’s creditors and emphasized the law’s ability to slash retiree pensions, according to testimony.

Anthony Ullman

Anthony Ullman

Retiree lawyer Anthony Ullman launched a cross examination of Orr by showing him pages from Jones Day’s presentation to the city in hopes of winning a lucrative restructuring contract in January.

Ullman questioned Orr about his interest in restructuring the city’s finances by slashing retiree pensions. Vested pensions are protected by the state constitution, but U.S. Bankruptcy Judge Steven Rhodes could conclude federal law trumps the constitutional protections.

Ullman asked Orr about the oath he took after being appointed in March. The oath includes the line: “I do solemnly swear I will support the constitution of the United States and the constitution of this state and that I will faithfully discharge the duties of emergency manager of Detroit according to the best of my ability.”

“Were you speaking the truth when you took the oath?” Ullman asked.

“Yes,” Orr said.

Ullman showed Orr pages from the so-called Jones Day “pitchbook” that emphasized the benefits of “negotiating in the shadow of Chapter 9.”

“Is it fair to say Jones Day was using Chapter 9 as a threat in dealing with creditors?” Ullman asked.

“Your question implicates a threat Orr said. “We were trying to say there was an alternative.”

Ullman focused on a specific page from the pitchbook.

Kevyn Orr

Kevyn Orr

“It says creditors understand a troubled municipality has greater leverage in a Chapter 9 case,” he said. “Did I read that correctly?”

“Yes,” Orr said.

“Didn’t Jones Day say that having a viable threat was critical to being able to restructure debt?” Ullman asked.

“If that’s in the document, that’s what we said,” Orr answered.

Several times, Ullman prodded Orr to “just answer the question,” as the cross-exam focused on proposed pension cuts and whether the emergency manager had the power prebankruptcy to slash vested pension benefits.

“I don’t know,” Orr finally answered.

Ullman asked Orr what advice he received from his former colleagues at Jones Day.

The city’s bankruptcy team objected, citing attorney-client privilege.

“Sustained,” the judge said.

Kevyn Orr

Kevyn Orr

Detroit will spiral into a free-fall crisis if creditors succeed in kicking the city out of bankruptcy court, Emergency Manager Kevyn Orr said.

“If we do not go through Chapter 9, this city will continue to fail,” Orr testified at the end of direct examination in the Detroit bankruptcy eligibility trial.

If Detroit is denied Chapter 9 relief, the city will return to a 10-year trend of racking up $100 million annual deficits and resident flight that each year saw Detroit’s population shrink by the size of Romulus, Orr said.

A trio of lawsuits filed against the city earlier this summer did not initially concern Emergency Manager Kevyn Orr but later threatened to prevent a Chapter 9 bankruptcy filing.

“Frankly, I ignored them,” Orr testified Monday during the city’s bankruptcy eligibility hearing.

City bankruptcy lawyer Greg Shumaker asked that impression Orr was left with after being sued by the city’s largest creditors, two Detroit pension funds.

“It wasn’t showing a willingness to negotiate,” Orr said.

But the city was willing to negotiate in hopes of reaching concessions that could have avoided a bankruptcy filing.

But by mid-July, Orr concluded that after failing to reach multiple agreements with creditors and amid the threat of being blocked from filing Chapter 9, there was no other way to resolve the financial problems quickly except for a bankruptcy filing.

On July 16, he asked gov. Rick Snyder to approve a bankruptcy filing.

“Why did you recommend bankruptcy?” Shumaker asked.

“It seemed to me that after going through a series of negotiations…nobody was coming forward and I was running out of time,” Orr said.

Snyder sent his approval the next day, July 18.

“Why did you believe this Chapter 9 filing was in the best interest of citizens?” Shumaker asked.

“I believe the city had been dealing with issues both on the creditor side and in some of its city operations and work rules for a long time,” Orr said. “Finally, the city could deal with some of the necessary reforms.”

Emergency Manager Kevyn Orr started planning for a Chapter 9 bankruptcy as early as late June but the contingency planning did not undermine good-faith negotiations with creditors, he testified.

“Absolutely not,” Orr testified while trying to convince U.S. Bankruptcy Judge Steven Rhodes that the city is eligible for bankruptcy relief. “We were willing to accept any agreement that came over the transom.”

Detroit filed Chapter 9 bankruptcy on July 18.

Kevyn Orr

Kevyn Orr

The city tried Monday to fight allegations that Emergency Manager Kevyn Orr did not negotiate in good faith with creditors or sent powerless underlings to meetings before filing Chapter 9 bankruptcy in July.

Orr’s testimony was aimed at proving a key requirement in order to be eligible for Chapter 9 bankruptcy relief. Last week, unions and retirees argued Orr skipped meetings and sent underlings who were not authorized to negotiate.

“Did you tell any member of your team not to negotiate?” city lawyer Greg Shumaker asked.

“Absolutely not,” Orr said. “If there were serious proposal, I was a phone call away.”

“Did any creditors submit counter-proposals to you after the June 14 meeting or before July 18 (the day Detroit filed bankruptcy),” Shumaker asked.

One group did, but it was not enough to avoid a bankruptcy filing.

The roulette wheel spins in the "superpit" area at the Greektown Casino in Detroit on September 14, 2011.

The roulette wheel spins in the “superpit” area at the Greektown Casino in Detroit on September 14, 2011.

The city’s ‘most stable’ revenue stream is $180 million in annual cash from three Detroit casinos, Emergency Manager Kevyn Orr testified.

Orr made the statement after chronicling the city’s dire financial condition that triggered a Chapter 9 bankruptcy filing July 18.

But that revenue stream was endangered amid a fight with an insurer earlier this year, jeopardizing the city’s ability to provide services, Orr said.

Orr said an insurer trapped part of the city’s monthly casino revenue and the issue was not resolved despite the city and the firm trading “nastygrams.”

The casino cash was tied up thanks to a Wall Street gamble backed by ex-Mayor Kwame Kilpatrick.

The city sued the insurer in early July after concluding Detroit could not live without the casino cash.

“It would have been pretty catastrophic,” Orr testified.

Emergency Manager Kevyn Orr shakes hands with Detroit Police and Fire pension Chairman George Orzech, left, during creditors meeting at Detroit Metropolitan Airport in June.

Emergency Manager Kevyn Orr shakes hands with Detroit Police and Fire pension Chairman George Orzech, left, during creditors meeting at Detroit Metropolitan Airport in June.

Emergency Manager Kevyn Orr’s restructuring plan was not a take-it-or-leave-it offer to creditors, he testified Monday during the city’s bankruptcy eligibility trial.

Orr said during a stretch of testimony aimed at proving the city negotiated in good faith with creditors, particularly in unveiling a June proposal for creditors, including bondholders, retirees and unions.

“Did you tell the audience it was not negotiable?” the city’s bankruptcy lawyer Greg Shumaker asked Orr.

“No,” Orr said while recounting a meeting with creditors at Detroit Metropolitan Airport on June 14.

Emergency Manager Kevyn Orr

Emergency Manager Kevyn Orr

Emergency Manager Kevyn Orr coined a phrase you won’t find on bumper stickers across Metro Detroit.

“This path is not sustainable.”

That’s the phrase Orr used in May to describe the city’s finances and budget tricks that masked the true depths of Detroit’s fiscal health.

In May, Orr wrote a report that included the phrase to let residents know about the finances in clear terms after years of City Council members and public officials.

Kevyn Orr

Kevyn Orr

Emergency Manager Kevyn Orr said the depths of Detroit’s financial crisis was “somewhat shocking” to learn after his appointment in March.

Orr recounted his earliest days in office and his efforts to unravel the city’s financial condition.

He learned that in 2011, the city’s total liabilities were $12 billion. That figure grew to $14 billion a year later.

“Between my appointment and within a few weeks, the liability was $4 billion larger, about $18.5 billion total,” Orr testified Monday.

“Do you recall your general reaction upon learning about the cash and liabilities and revenue?” the city’s bankruptcy lawyer Greg Shumaker asked during direct examination.

“I knew things were bad but it was somewhat shocking how dire it was,” Orr said. “Within a few weeks of coming on board, I was informed several of our employees had checks bounce. The cash flow was so tight.”

He was asked about the city’s claim that it is insolvent — a key requirement for Chapter 9 bankruptcy relief.

“No one on a serious basis has ever disputed me that the city is insolvent,” Orr said.

skyline people mover

Emergency Manager Kevyn Orr testified about the city’s shoddy services, including blight and lights — or lack thereof — and said the goal is to provide a “C-plus” level of service for residents.

Orr’s early testimony Monday focused on how the city’s financial crisis has left services, including emergency medical responses, ranking at the bottom of major cities nationwide.

“Blight is endemic and apparent,” Orr testified during direct examination from Jones Day law firm lawyer Greg Shumaker. “No one has ever said city services are adequate in Detroit.”

Kevyn Orr

Kevyn Orr

Services are so shoddy, Orr doesn’t expect to provide residents A-plus level of services. The goal, he said, is to raise the level to “C-plus.”

Orr said 20 percent of the city’s housing stock is blighted and 40 percent of streetlights are out across Detroit.

“Wide swaths of the city are unlighted,” Orr said. “And it’s not just that city lights are out. The city infrastructure is somewhat destroyed.”

Repairing underground electrical switches requires significant excavation, he said.

“Deferred maintenance has caused us to be, shall we say, very much behind the curve,” Orr said. “The grid is so old, and public lighting is so overworked, that private contractors and insurance companies won’t let them work on our lighting grid.”

Orr said he has tried to improve conditions by setting up a public lighting authority and setting aside $12 million plus a $1.8 million operational budget.

Protestors outside U.S. District Court last week included a mask of Gov. Rick Snyder.

Protestors outside U.S. District Court last week included a mask of Gov. Rick Snyder.

It’s colder outside than Kwame Kilpatrick with a city-issued credit card but that shouldn’t stop protesters from massing outside federal court ahead of Gov. Rick Snyder’s testimony in the Detroit bankruptcy trial.

Around 8 a.m., a lone protester sat in a chair along Lafayette waiting for comrades to provide solidarity, and body heat.

While waiting for your papier mache Snyder masks to dry, review his deposition testimony, which lawyers for unions, pension funds and retirees will try to pick apart during his 1 p.m. testimony.

Gov. Rick Snyder

Gov. Rick Snyder

A few highlights:

Snyder testified under oath that he doesn’t know who is bankrolling his secretive NERD Fund that is paying for some of Emergency Manager Kevyn Orr’s living and travel expenses and a close aide’s $100,000-a-year salary.

During a deposition over his role in authorizing Detroit’s bankruptcy filing, Snyder was asked whether the city’s bankruptcy law firm Jones Day, restructuring firms or two powerful creditor banks have donated to his NERD Fund, according to a draft transcript obtained Thursday by The Detroit News.

“With respect to your questions as to who the donors were and that category of questioning, my answer would be I don’t know,” Snyder testified. “There’s an independent board that does that work.”

Snyder also was pressed about the fate of retiree pensions:

Most questions focused on whether Snyder considered city retiree pensions could be slashed in the bankruptcy. Snyder during the deposition called it a “hypothetical” proposition, despite Orr’s public statements that pensions have to be reduced to relieve the city of crushing debt. The governor also defended his decision not to place any contingencies on the bankruptcy filing prohibiting Orr from cutting pensions.

“I dismissed it without major discussion with my legal counsel because the way I viewed it was placing contingencies could only cause … more delay or confusion in the bankruptcy process,” Snyder testified.

Valerie Brader

Valerie Brader

A consultant who charged the city hundreds of thousands of dollars while working on a team of consultants overseeing the Detroit Water department at a time when ex-Mayor Kwame Kilpatrick was secretly rigging contracts has a prominent role advising Gov. Rick Snyder on the bankruptcy case.

The governor’s deputy legal counsel Valerie Brader is involved in meetings the governor’s office has held about the fate of the Water department, which last year faced a massive overhaul and layoffs of about 80 percent of its workforce. Emergency Manager Kevyn Orr wants to spin off the department to a new regional group as part of the city’s restructuring.

Brader was referenced several times last month during Orr’s bankruptcy-related deposition, an under-oath grilling that likely will be a focus of testimony when Orr returns to the witness stand at 9 a.m. today.

Brader is a unique link between the bankruptcy case and a controversial period during which U.S. District Judge John Feikens drew complaints from suburban leaders for building an expensive team of consultants to monitor Water department contracts and study ways to reorganize the public utility. The judge, who died in 2011, had broad oversight of the Water department because of a 1977 consent judgment that settled a pollution lawsuit.

U.S. District Judge John Feikens

U.S. District Judge John Feikens

Brader is a Rhodes scholar and former Feikens law clerk who was appointed by the judge in March 2007 as a judicial adjunct to help negotiate a settlement that suburban officials hoped would result in securing more control of the Water and Sewerage Department.

The hiring was criticized as a new expense that ultimately was passed onto city and suburban customers of Detroit’s water department in the form of higher rates.

“This is cronyism,” Warren city spokesman Joe Munem told The News at the time. “This is an obnoxious abuse of power.”

Feikens justified the appointment, saying Brader was qualified for the job, which paid $175 an hour and came on top of $9.3 million in contracts awarded to the judge’s consultants. Brader worked alongside the judge’s key consultant, Detroit lawyer F. Thomas Lewand, who was fired in February 2011, two months after Kilpatrick was indicted on racketeering conspiracy and other charges.

By early 2011, Brader been paid almost $236,000, according to federal court records obtained by The News.

On Sunday, state Rep. Kurt Heise, R-Plymouth, praised Brader, who joined the Snyder administration in 2011.

“She has a great deal of knowledge about DWSD and its operations,” said Heise, the former director of the Wayne County Department of Environment. “I thought Valerie was a bright attorney who did her homework but she was not in the top echelon of decision-making in the judge’s camp or Lewand’s camp.”

Brader confirmed Sunday she is attending DWSD related meetings but did not respond to additional questions.

“She advises the governor concerning legal matters, which obviously includes the Detroit bankruptcy,” Snyder spokeswoman Sara Wurfel wrote in an email Sunday. “This also necessitates occasional communication with the (emergency manager)/city.”

Sharon Levine

Sharon Levine

During his Sept. 16 deposition, Orr said he met with Brader at least once ahead of filing the biggest municipal bankruptcy in U.S. history. He discussed a lawsuit filed by Detroit retirees and active workers that, along with other legal challenges, prompted the city to sprint to federal court and file bankruptcy July 18 — one day earlier than planned.

During the Sept. 16 deposition: AFSCME union lawyer Sharon Levine asked Orr about two lawsuit: one filed by a group of Detroit retirees, dubbed the Flowers plaintiffs, who wanted a judge to block Snyder’s administration from authorizing the city to seek federal bankruptcy and declare the emergency manager law unconstitutional; and a second lawsuit, the so-called Webster case, which wanted a state judge to rule on the constitutionality of the emergency manager law.

From the deposition transcript:

Levine: “So you discussed with Valerie Brader and (Snyder legal counsel) Mike Gadola the Flowers and the Webster litigation, you discussed with the governor just the fact that there was the the litigations were pending now? And we’re still within the July 3 through July 17 time frame.”

Orr: “I don’t know if I ever discussed both cases. I think I discussed one with Brader and/or Gadola.”

Levine: “Okay, and what did you discuss about the litigation with Brader or Gadola?”

That’s when Orr’s attorney Greg Shumaker interrupted.

Shumaker: “Objection. I’m going to — the question calls for the witness to reveal privileged attorney-client communications as part of a common interest agreement with the state and therefore I’m going to instruct him not to answer.”

U.S. Attorney Barbara McQuade labeled Feikens and his consulting team victims of Kilpatrick’s corruption after he was indicted in December 2010.

U.S. Attorney Barbara McQuade

U.S. Attorney Barbara McQuade

“They were victims of the fraud just like the rest of us,” McQuade said.

Before sentencing Kilpatrick to 28 years in prison earlier this month, U.S. District Judge Nancy Edmunds bemoaned the lack of transparency during his reign, which allowed corruption to thrive and go undetected.

“I hope the sentence I’m about to impose on Mr. Kilpatrick will give that message; that we’re demanding transparency and accountability in our government; that we expect it; that if there has been corruption in the past, there will be corruption no more,” she said. “That way of business is over. We’re done,” she said. “We’re moving forward.”

The real victims, Edmunds said, were Detroit taxpayers.

“One thing is certain,” the judge said. “It was the citizens of Detroit who suffered when they handed over their hard-earned tax dollars to the city but failed to receive the best services at the best price in return.”

Gov. Rick Snyder, left, talks with the media with Detroit's Emergency Financial Manager Kevyn Orr after talking with Detroit Young Professionals at Wayne State University on Monday, March 25, 2013.

Gov. Rick Snyder, left, talks with the media with Detroit’s Emergency Financial Manager Kevyn Orr after talking with Detroit Young Professionals at Wayne State University on Monday, March 25, 2013.

Detroit Emergency Manager Kevyn Orr was just getting warmed up Friday afternoon when his testimony in Detroit’s bankruptcy eligibility trial was halted at 5 p.m. by the end of the federal court’s business day.

Orr, a University of Michigan law school graduate, ran through his career highlights as a U.S. Trustee and bankruptcy attorney and recounted the first “overtures” he received from Gov. Rick Snyder’s office in late January as they were trying to recruit him away from a lucrative partnership at the Jones Day law firm’s Washington, D.C. office.

Orr said he walked away from an opportunity to run the prestigious law firm’s Miami office to take an 18-month, $275,000-a-year assignment fixing Detroit’s troubled finances and city government.

Under questioning by a former Jones Day partner, Greg Shumaker, the emergency manager testified that once he decided to be a candidate for the job, he recused himself from talks between the city and Jones Day as his law firm worked to become Detroit’s financial restructuring counsel. Attorneys for unions and retirees have already zeroed in on Jones Day’s year-long effort to get in the door at City Hall.

Orr also testified that taking Detroit into bankruptcy court was never a condition of his appointment by Snyder, who is expected to take the witness stand at 1 p.m. today.

“Was there any connection between you being considered for the position and Jones Day being retained as the city’s restructuring counsel?” Shumaker asked Orr.

“No,” Orr replied. “I made it very clear. Now that I am a candidate I don’t want it to help or hurt the firm. The firm will stand on its own.”

In a bit of an oddity for a non-criminal federal court case, Orr testified with his state police body guard sitting just a few feet away from the witness stand.

U.S. Bankruptcy Judge Steven Rhodes allowed Orr and his security detail to leave the courtroom before the numerous city and creditor attorneys were allowed to head for the exit.

To catch up on The Detroit News’ coverage of the trial from last week, read about the highlights of Day One here, Day Two here and Friday’s testimony here.

Robert Snell
Robert Snell is the Detroit News federal courts reporter. He can be reached at rsnell@detnews.com or (313) 222-2028.