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Mich. gov. says lawsuits led to bankruptcy filing

Published: Tuesday, Oct. 29, 2013 1:22 a.m. CDT

DETROIT – Michigan Gov. Rick Snyder testified Monday that lawsuits filed against him, the Detroit emergency manager and others by city debtholders proved to be the final straw that led him to authorize the city to file for bankruptcy.

Snyder said the filing wasn't an attempt to forestall court-imposed injunctions that could result from the lawsuits. But he said he was concerned that the lawsuits from state retirees and others showed that there "wasn't a meeting of the minds" and that the city needed to protect itself as it struggled to pay bills.

"Bankruptcy is a very last resort," he said. "It was a tremendously difficult decision to make, but the right one."

Snyder's testimony came during the fourth day of a federal trial before Judge Steven Rhodes to determine whether the city can fix its finances in bankruptcy court. His testimony centered on what led to the bankruptcy filing, as well as a decision in March to name bankruptcy expert Kevyn Orr as Detroit's emergency manager.

In the days leading up to the bankruptcy filing, retirees sued, claiming their pensions are protected by the constitution and at risk in a bankruptcy. The lawsuits were put on hold with the bankruptcy petition.

Detroit must show it is broke and tried in good faith to negotiate with creditors. Attorneys who oppose the filing seeking the largest municipal bankruptcy protection in U.S. history have tried to build a case that bankruptcy was a predetermined course or inevitable outcome.

Dozens of protesters critical of Snyder showed up outside the courthouse just before he took the stand in the afternoon. They carried signs, one depicting him with devil's horns.

Earlier Monday, Orr testified that he had thought as late as June that a bankruptcy filing could be avoided but that he knew time was running out for the city and its creditors to agree to concessions. Orr said he received a couple of counterproposals from creditors, but none from unions or retirees before filing for bankruptcy protection in July.

"Anyone paying attention knew the time had come to make some very difficult decisions," Orr said of a June meeting with hundreds of the city's creditors. "We were in a financial emergency and were going to have to move very quickly."

He said that after he took the job he saw firsthand the high crime, blight and deplorable conditions of police equipment and facilities in Detroit.

"I knew things were bad," Orr testified. "It was somewhat shocking ... just how dire it was."

Orr, who represented automaker Chrysler LLC during its successful restructuring, has said the city is saddled with $18 billion in long-term debt. He and Police Chief James Craig both have testified about the city's dire straits.

"Detroit spends more than it takes in. It is clearly insolvent on a cash-flow basis," Orr testified as he read from a report he issued in spring after 45 days as emergency manager.

Orr is expected to return to the stand. The trial could end next week, but a decision on Detroit's eligibility appears to be several more weeks away. The judge has set a Nov. 13 deadline for lawyers to file legal briefs on certain issues.

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