The city of Detroit will present a "mountain of evidence" to show that its perilous finances qualify for a turnaround in bankruptcy court, an attorney said Wednesday as a judge opened an extraordinary trial to determine if the largest public filing in U.S. history will go forward.
Detroit, with $18 billion in debt, filed for Chapter 9 protection in July, but it's not automatic. Judge Steven Rhodes has set aside several days to hear evidence and decide whether the city met many key steps, including good-faith negotiations with creditors, before taking drastic action three months ago.
Updates from inside the courtroom: Rod Meloni at Detroit's bankruptcy trial
"There's nothing left to do here. There is no revenue solution. ... Chapter 9 is more needed here than another other possible scenario you could think of," attorney Bruce Bennett said in his opening remarks.
He said no one can credibly argue that Detroit is solvent.
Witnesses "will present a mountain of evidence showing the insolvency of the city," Bennett said. "This is one of those cases where the data speaks very clearly and persuasively on its own. It needs no gloss."
The trial poses a critical decision for Rhodes: If Detroit clears the eligibility hurdle, the case then would quickly turn to how to solve the debt and get city government off the ropes.
In her opening statement, Jennifer Green, an attorney for Detroit's pension funds, highlighted months of emails and memos from state and city officials preparing for a bankruptcy, not fruitful talks with creditors.
"It really was a forgone conclusion," she said.
Michigan Gov. Rick Snyder will testify in the Detroit bankruptcy trial on Monday.
Unions had served Snyder with a subpoena, but his live testimony appeared to be an unsettled issue earlier this week. His lawyer said the governor's recent three-hour deposition should be enough.
But Snyder's attorney, Matthew Schneider, now says the governor wants to cooperate and will be available Monday afternoon.
Unions and pension funds want to question Snyder about approving Detroit's bankruptcy filing in July as well as other issues related to the case.
A city isn't eligible for a makeover unless a judge finds that key steps have been met, especially good-faith talks with creditors earlier this year. It's a critical decision: If Detroit clears the hurdle, the case would quickly turn to how to solve at least $18 billion in debt and get city government out of intensive care.
Special section: Detroit bankruptcy
Rod Meloni column: Is Detroit bankruptcy eligible?
Unions and pension funds are challenging Detroit on the eligibility question. They claim emergency manager Kevyn Orr, who acquired nearly unfettered control over city finances following his appointment by Snyder, was not genuinely interested in negotiating when they met with his team in June and July. Orr insists pension funds are short $3.5 billion and health coverage also needs to be overhauled.
Evidence will show that Orr "planned to file bankruptcy long before the purported negotiations had run their course, confirming that the 'negotiations' were no more than a check-the-box exercise on the way to the courthouse," Babette Ceccotti, an attorney for the United Auto Workers, said in a court filing.
Earle Erman, attorney for Detroit's public safety unions, said the city has cut wages and changed health care benefits without across-the-table talks. Another lawyer, Sharon Levine, representing AFSCME, said the city spent months "mapping out its path to Chapter 9," not looking for compromises that could keep Detroit out of bankruptcy.
Rod Meloni column: Detroit pension problems: Who is right?
In response, however, attorneys for the city said a June 14 meeting and subsequent sessions with creditors were well-intended but fruitless. A bankruptcy filing was being prepared, they acknowledged, but "never set in stone."
The trial in front of Rhodes is expected to last several days, with testimony from Orr, Police Chief James Craig, financial consultants and, possibly, the governor. It will be an autopsy on what Snyder has called decades of ruinous financial decisions in Detroit combined with an exodus of people — the population has dropped to 700,000 from 1.8 million — and other social and economic factors.