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Orr’s bankruptcy ‘premeditated’

Union attorney examines case

 ‘Urban warfare’

By T. Kelly
The Michigan Citizen

DETROIT — In a nationally broadcast program, Oct. 31, Herb Sanders, ASFCME attorney, explained the Detroit unions’ opposition to the filing of Chapter 9 bankruptcy by Gov. Rick Snyder and his emergency manager, Kevyn Orr, and the damage being done.

Sanders pointed to holes in the Snyder-Orr case, troubling conflicts of interest, the further gutting or worker’s rights and jobs. He explained glaring omissions in the case, while illuminating the unions’ position.

Progressive Radio Network host Utrice Leid prefaced her interview of Sanders with an analysis of what she saw happening in the city.

It is an “extreme form of urban warfare; a systematic emptying of the city in order to reinvent it to serve a confluence of social, economic and political interests that serve the interests of a different America,” Leid said. Detroit is a test case and if forces behind the takeover succeed in Detroit, there would be other similar cities falling as well, she predicted.

Sanders is managing partner of the Sanders Law Firm in Detroit and in-house attorney for Council 25 of American Federation of State County Municipal Employees.

The unions are not opposed to the restructuring of debt, he said. “That is what Chapter 9 is supposed to be about.”

However, the unions oppose this effort because it goes beyond restructuring of debt, he said. The unions believe, “Our public employment pensions are protected by our state constitution, which indicates they should not be dissolved in bankruptcy,” Sanders said.  “We further maintain the pensions are deferred income that public employees gave away through negotiating certain benefits in order to earn pensions at a later date.”

Sanders said the unions also have a problem with the way the bankruptcy is proceeding. When Orr filed bankruptcy, all litigation concerning the city of Detroit was stayed. That included, not only court cases, but union grievances through arbitration had been stayed and unfair labor practices hearings have been stayed. The result is, he said, without challenge the city has been able to outsource in practically every major department of the city.

“So, in the disguise of bankruptcy, the city is, in essence, through the emergency manager contracting out all of the hard working union jobs with pension benefits, with health care and they are not following the outsourcing ordinance; they are not following the collective bargaining agreements in doing that and as a result, the unions have no authority to challenge these efforts,” he said.

Constitutional challenges

Speaking of the constitutional challenges to the Chapter 9 filing, Sanders noted how the law requires a Chapter 9 bankruptcy to be voluntarily filed. However, he said, he thought Snyder and Orr were “disingenuous” to argue in court this bankruptcy filing was voluntarily.

Orr is appointed pursuant to Public Act 436 by the governor and reports to the governor, Sanders said. “He is not a city of Detroit official, so there has been no request by the city to enter into the bankruptcy.”

Only one city official had testified at the trial as of the fifth day, Sanders said. And that was the chief of police who was hired by Orr and reports to the emergency manager.

“There has been no testimony by the mayor, by any of the city council persons, by the director of finance or the accounting department,” Sanders said.  “No testimony by anyone who preceded the emergency manager to validate the city’s position, or the emergency manager’s position that the city is insolvent  or to suggest that this is a voluntary process.”

There are other constitutional issues, he said. Including the pensions in the bankruptcy as creditors raises constitutional issues.

PA 436, under which Orr is operating, is a constitutional question. In addition, a number of lawsuits challenging the constitutionality of PA 436 have all been stayed by U.S. bankruptcy Judge Steven Rhodes.

“In my opinion, the court has put the cart before the horse by holding a proceeding to determine the legitimacy of filing the bankruptcy without first determining whether or not the statute under which it was filed, PA 436, is indeed constitutional,” Sanders said.

The parties who filed the challenges have filed motions to lift the stay, he said. Although filed several weeks ago, no ruling on lifting the stay has been made.

Obama silent

Radio host Leid questioned why a case of such importance had not been addressed by the Obama administration.

“Unfortunately, the Obama administration has chosen not to become involved to date,” Sanders said. He noted four or five months ago, he and representatives of Rainbow PUSH and the National Action Network met with the U. S. Attorney for the Eastern District of Michigan, Barbara McQuade, to discuss the constitutional questions surrounding the implementation of PA436: The disenfranchisement of over 750,000 African Americans in Michigan. “They can vote but their vote means nothing since the emergency manager can trump whatever their vote is,” Sanders said.

The U.S. attorney forwarded the concerns to Washington, however, they declined to become involved “at this time,” Sanders said. “Voting Rights Act being violated; equal protection being violated; due process being violated. First Amendment rights of elected officials in districts where there are emergency managers as well as their constituents’ rights being violated and the U.S. attorney taking a back seat and decided not to become involved.”

Big money

“There’s a big deception that the money woes of Detroit and other cities around Michigan are due to public employees eating at the public trough and having large incomes and large pensions. The average AFSCME employee earns around $28,000 per year. As of 2011 the poverty level for a family of four was $27,000 per year,” he said. “The average AFSCME pension is around $19,000 per year.”

He said during a city hall meeting a few years ago during contract negotiations one worker testified he had lost his home due to last contract cuts and he had been living in a homeless shelter for over two years while working full-time for the city. Another lady testified after the last cuts she could no longer afford electricity and lived without it for a year, carrying lanterns around her home.

Sanders said the conservative Michigan legislature levied a tax on pensions for the first time within the last year. “So we have individuals on a fixed income whose pensions are being taxed; being told they could lose their healthcare in totality.”

Retirees under 65 years of age are being told they are going to be given $125 a month voucher to get their own health care and retired individuals are going to lose all or a portion of their pensions. “So what we are doing is putting the elderly on the streets with no safety nets.”

“It is a situation that is remarkable, unbelievable,” Sanders said. “The nation needs to know what is going on in Detroit, in Michigan, because this is the footprint for the rest of the United States.

“If they can get away with it in Detroit and in Michigan, we will see it in Wisconsin, Ohio, Indiana and Pennsylvania. I hope the message is carried to the people across the country sooner rather than later so that they can join us in our effort to fight this takeover so that it doesn’t come to their state and their city.”


If the bankruptcy is approved, Sanders said, he anticipates it will be devastating to retirees to the extent that pensions are included within the bankruptcy. Also, there could be thousands working for the city on a full time basis and them and their dependents needing and qualifying for public assistance, he said.

Instead of bankruptcy, Sanders said he would rather see addressed those things that led to the financial woes. Restore revenue sharing, restore residency requirements for workers are revise the tax abatement policy, Sanders said.

In addition, there’s over $800 million in taxes due the city. The state has been in charge of the city since the consent agreement, April 2012, Sanders said. “Yet through testimony in court, the state has not made any effort to collect the over $800 million owed.”

Steps forward

Sanders said he doesn’t  believe the city has made its case. The city has not put forth any expert witness concerning insolvency. That is unprecedented, Sanders said. Instead, the consultants hired by the emergency manager are the ones testifying the city is insolvent.

“It’s like me going to car salesman and saying my vehicle is a few years old and I need you tell me should I buy a new one. No one goes to a car salesman to determine if a new car is needed.”

Ernst & Young have testified, but they are paid by Orr to administer the bankruptcy.  Miller Buckfire  is paid by the emergency manager to administer the bankruptcy. There is no independent third party to verify the city is insolvent, Sanders said.

The city has not determined yet what percentage of pensions are unfunded. There are no firm numbers. In addition, he said, testimony revealed the city failed to put forth balance sheet showing assets compared to liabilities. The only asset the city has attempted to value is the art work at the DIA.  How can Snyder and Orr meet the insolvency test without a balance sheet, he asked.

Sanders said he believes the city has also failed to meet the negotiating in good faith test.    He said Jones Day, Orr’s former law firm hired by Orr to be attorneys for the bankruptcy were telling the governor before they were ever hired, that Chapter 9 bankruptcy, in their opinion, trumped the state constitutional protection of pensions.

Sanders said AFSMCE filed a grievance with the state attorney grievance commission months ago claiming a conflict existed with Orr hiring  Jones Day his former partners. The attorney grievance commission has ignored the complaint.

Also challenging the bankruptcy are the UAW, unions for the public safety officers and retiree groups.


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