Detroit manager: Bankruptcy challenges costly

Detroit manager: Bankruptcy challenges costly

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DETROIT (AP) — Court battles with one of Detroit's most antagonistic creditors would have been costly and had the potential to delay the city's restructuring efforts, city emergency manager Kevyn Orr testified Thursday.

Orr, the key witness this week in Detroit's bankruptcy trial, described a contentious relationship with New York-based Syncora Inc. that ended last month when the city reached a deal with the bond insurer on about $400 million in debt.

Syncora had opposed the city's use of some casino tax revenue, Detroit's bankruptcy eligibility and a loan to improve quality of life for residents, Orr said.

"They filed litigation to just about everything we were trying to do through the course of the bankruptcy," Orr testified under questioning by an attorney representing Detroit. "It was costing the city not an insignificant sum of money to defend the city from those litigations. We anticipated it was going to be over $5 million to $10 million."

The fight also would have taken time, several years even.

"I expected them to go all the way up to appeals — to the (U.S) Supreme Court," Orr said.

Thursday was Orr's second day on the witness stand before federal Judge Steven Rhodes, who has to decide whether the city's plan to remove $7 billion in debt is fair to creditors.

Under a deal reached Sept. 9, Syncora is getting cash and long-term leases on a parking garage and the tunnel between Detroit and Canada, among other concessions.

That leaves another bond insurer, Financial Guaranty Insurance Inc., as the lone major creditor opposing the bankruptcy. Its claim is about $1 billion.

Orr testified Thursday during questioning by a Financial Guaranty Insurance attorney that it was important for the city to move swiftly through the bankruptcy during his 18-month appointment as emergency manager. His contract expired last month, but Orr reached a deal with the mayor and city council to remain in his post through the bankruptcy trial.

Orr was hired by state in March 2013 to fix Detroit's finances. That July, he made Detroit the largest U.S. city to file for bankruptcy.

His debt-restructuring plan includes $1.7 billion to improve police, fire and other services to city residents over the next decade. Some of the money also would be used to demolish scores of vacant houses and remove blight across the city.

Orr also was questioned on various topics associated with the bankruptcy, including the city's poor track record of collecting taxes.

He said the city currently is collecting only about 50 percent of its property taxes, but dares not raise them.

"You've saturated the tax-paying body with so many taxes, it's unsustainable," Orr said, adding that, too often, it leads to people abandoning their homes. "It's easier to walk away."

Empty houses create blight, which lowers property values and forces more families to leave the city, he added.

Detroit's population is now about 685,000, Orr said, more than a quarter-million fewer than in 2000.

"Do you want the city to be 500,000? Do people want the city to be 350,000?" Orr asked. "It can't happen."

Testimony will resume Friday morning.

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