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Detroit Pensioners Outside of a U.S. Federal Bankruptcy
Court of Law protest to make the banks pay for Detroit's
2005 Bank Swap deal, placing retirees pensions at risk.
"An groundbreaking article discussed on Independent Underground Radio LIVE by reporter T. Kelly of The Michigan Citizen reveal a truth. Detroit, Michigan declaration of bankruptcy was possibly based on a series of lies, deceptions and worse violations of State Law. While a series of facts were exposed in Kelly's journalistic piece, the majority of Michigan residents in error believe Detroit was financially insolvent and ultimately broke."What if it was your City, Township, Village or County pushed to the brink of bankruptcy, by will of the State?
Detroit, Michigan bankrupt status was based on core design to take City assets from control of its' populace. Directly into hands of a Wall Street Bankers, a Auction House, a powerful law firm and corporate investors. Orchestrated by the political party holding authority of Michigan's Executive and Legislative branches.
All of these actions did not occur without warning.
The March to Bankruptcy Court for Detroit
In order to understand how a scheme of this magnitude can be performed, revisiting a bit of history is necessary.
In 2004, the City of Detroit ceased its agreed upon incremental tax rate reductions. Governor Jennifer Granholm (D) in midst of a State Budgetary Crisis, slashed revenue sharing payments across the board to all Michigan cities, villages, townships and counties for balancing the state budget from 2003.
The agreement as a result was broken with Detroit and has yet to be revisited since.
How Detroit fared as a result of the broken Engler-Archer agreement?
City residents were left with a 2.5% city income tax rate, less than what was necessary to efficiently operate a major American city with lower-than-anticipated annual revenue sharing payments. To date the estimated total Detroit is due from the State of Michigan in owed Shared Revenue Payments total - $220 million dollars.
Which makes current Michigan Governor Rick Snyder (R) announcement on January 23 to infuse $350 million with conditions in order to save a portion of the City of Detroit pension obligations for retirees along with Art Works at the Detroit Institute of Arts (DIA), a bit more suspicious in nature.
According to Governor Snyder, another $330 million dollars would be pledged by private foundations or for a lack of a better term, corporate institutions.
To date, Detroit's Firefighter & Police and General Retirement Pension Fund estimated revenue is $5 billion dollars. Governor Snyder's deal would swap $680 million in pledge funds to control fully $5 billion dollars of both retiree pensions annuity funds, in return.
Why would Detroit trust any other deal with a sitting Governor of the State of Michigan?
Governor Rick Snyder less three months after being sworn into office in January 1, 2011 signed Public Act 4, March 4 of the same year.
Known as P.A. 4 the now nullified law asserted dictatorial control of the State over any autonomy Michigan's cities, townships, villages and counties believed they had to control their municipality financial affairs.
This law also nullified the core intent in of autonomy in Michigan Home Rule City Act - 279.
"The Home Rule City Act resulted from the provisions of the 1908 state constitution, which called for home rule authority to be conferred upon the various local governments in the state. The 1963 state constitution retained these same home rule provisions.
Both constitutions recognized the fundamental integrity of counties, townships, cities, and villages in Michigan. Local governments could no longer be created, abolished, or consolidated without the consent of the electors who reside within the affected territory. Prior to this time, local governments had been created by a special act of the legislature which did not require any consent from those living within the affected territory.
Under Michigan’s Revised Statutes of 1848, there were several classes of cities, the primary distinction among which was population. In nearly every case, however, it was the legislature that had provided a city charter for each city that mandated how each city was to be governed and how its officers were to be chosen.Michigan Forward, a non-profit Think-Tank group, worked on a successful petition drive referendum drive effort throughout 2012 to dismantle and nullify Public Act #4.
Under the Home Rule City Act, each city was given the ability to make changes to its city charter on its own. The charters that had been previously granted by the legislature continued in force until such time as an affected city took this action. All cities in Michigan are now classified under one class, namely, Home Rule Cities, regardless of the source or origin of the various provisions of their respective city charters."
The group submitted over 220,000 signatures from registered state voters so the statutory law PA #4 could face a citizenry affirmation or denial.
On November 6, 2012 Michigan residents voted by a 52% to 48% margin to scratch any existence of P.A. #4 from State Compiled Laws.
Less than four weeks later, Governor Rick Snyder with assistance of an Republican controlled State Legislature, signed into law Public Act #436 of 2012.
"Much like PA 4, the new law vests emergency managers with considerable powers over the municipalities they are appointed to run. "They can unilaterally tear up union contracts, take over pension funds, make and repeal laws, sell public assets, the list goes on," said Tony Paris, an attorney with the Sugar Law Center, in an earlier interview with The Huffington Post.
The option that hasn't been mentioned as often as bankruptcy or emergency management is neutral evaluation, or mediation, which was written into PA 436 as one of the four choices afforded to leaders of Michigan cities that face financial hardship. Michigan lawmakers got the idea from California, where the tactic was used by several communities in crisis, including Stockton (whose officials ultimately filed for Chapter 9 bankruptcy)."
As Detroit's Emergency Manager, Orr's initial job description was to guide Michigan's major city back from the brink of financial insolvency, which was initially declared by former State Treasurer Andy Dillon and Governor Rick Snyder.
In reality, Orr's job performance and success in his new position earning over $275,000 a year plus per diem benefits paid for on behalf of all taxpayers for the State of Michigan, was based on sending Detroit to a U.S. Bankruptcy Court and fast.
A video on behalf of Governor Snyder's office July 18 confirming the announcement was met with much fanfare but little to no answers on what would happen to current and future Detroit Retirees pension guarantees or, would Michigan ever pay back Detroit's portion of its' owed State Shared Revenue Payments.
Meanwhile, Emergency Manager Kevyn Orr prepared Detroit's Bankruptcy filing.
"Section 18(1) of PA 436 further provides that, "[i]f the governor approves of the [EM's] recommendation, the governor shall inform the state treasurer and emergency manager in writing of the decision.... Upon receipt of written approval, the emergency manager is authorized to proceed under chapter 9 [of the U.S. Bankruptcy Code]. This section empowers the local government for which an emergency manager has been appointed to become a debtor under [the Bankruptcy Code], as required by section 109 of [the Bankruptcy code], and empowers the emergency manager to act exclusively on the local government's behalf in any such case under Chapter 9" of the Bankruptcy Code; and
In accordance with Section 18 of PA 436, the EM has recommended to the Governor of Michigan (the "Governor) and the Michigan State Treasurer (the "State Treasurer") that the City be authorized to proceed under chapter 9 of the Bankruptcy Code."EM Kevyn Orr's recommendation is date July 18, 2013, or is it?
A thorough review of the document notes that another date to-be-determined was originally used and then wrote over with a number "8" in ink.
Ironically, it appears unlike writing a legal instrument of a personal or business check. When a initial date mistake was typed-written into the document, another clarifying notation of the number "8" does not contain whose initials made this correction.
On December 3, U.S. Federal Bankruptcy Judge Steven Rhodes authorized Detroit declaration of Bankruptcy with the following ruling. “This once proud and prosperous city can’t pay its debts,” said Judge Rhodes. “It’s insolvent. It’s eligible for bankruptcy. But it also has an opportunity for a fresh start.”But could Detroit possibly pay it's debts and was appointed E.M. Kevyn Orr properly prepared to due with a task of bringing the City back to solvent status without suing Corporate Banking Institutions UBS AG and Bank of America over a possibly illegal Bank Swap Deal?
Groundbreaking Michigan Citizen Article Reveals Shocking Details on Detroit's Bankruptcy
With the help of Google Cache, we're able access the Michigan Citizen article by reporter T. Kelly from January 23 effectively titled, 'Orr Completely Unprepared for Bank Negotiations'.
The article cites E.M. Orr declared plans to pay UBS AG, Bank of America and Merrill Lynch up to .$75 cents on dollar as a result of the failed and illegal Bank Swap Deal, while offering City of Detroit retirees $.15 cent on the dollar for former guaranteed annuity payments.
"Attorneys presented closing arguments for and against the plan presented by Orr and his former law firm Jones Day to settle the city’s interest rate swap obligations. The EM and his advisers want approval from presiding Judge Steven Rhodes to borrow $350 million from Barclays bank," Michigan Citizen reporter T. Kelly wrote.
"They will use $230 million to pay off two clients of Jones Day: UBS AG and Bank of America. Both banks are parties to the interest rate swap agreements with the city. The remaining $120 million will be reinvested in the city, according to the Orr plan. The city entered the swap agreements in 2005 to borrow $1.44 billion, propping up the city’s pension funds.
Under the terms, if interest rates were low, the city would earn money and if interest rates were high, the banks would make money. Interest rates shot up shortly after the deal was made and to date the city has paid $300 million, according to attorney Jerry Goldberg who represented retiree David Sole in court opposing the Orr plan."Detroit's Finance Director Sean Werdlow under former Mayor Kwame Kilpatrick administration recently as November 21 defended his part in negotiating possibly illegal Bank Swap deal that resulted in up to 100,000 personal property homes being Detroit foreclosed upon.
As a guest speaker Wayne State University November symposium on municipal bankruptcy, Werdlow said the 2005 deal was prompted by a “rogue” pension system and that without the deal Detroit city government would have gone bankrupt years ago.
“We would have been having this discussion in this auditorium back in 2005 but for that transaction,” Werdlow told the audience at WSU’s law school the Detroit Free Press noted November 21.
The 2005 deal in question saw the city borrow $1.44 billion to shore up Detroit’s two municipal pension funds, the General Retirement System and the Police & Fire Retirement System.
The funds faced significant underfunding at the time, and the city was obligated to fill that gap with direct contributions from the city’s general fund. Then-Mayor Kwame Kilpatrick said at the time that he would have had to lay off 2,000 city workers if forced to pay the entire obligation.
So the city borrowed the money, put the borrowed cash into the pension funds, then did a complicated “swaps” deal to lock in favorable interest rates. But when the financial industry collapsed and the swaps deal backfired, the city’s debt stemming from the pension deal swelled to $2.8 billion for principal, interest and insurance payments over the next 22 years."After tasked with the job of entering into financial transactions of this magnitude with due diligence Werdlow who now works for the investment and underwriting firm of Siebert, Brandford and Shank Company, LLC, blamed Detroit's Firefighters & Police and General Retirement Pension Boards management for his choice to lobby and enter the 2005 Bank Swap deal.
"Werdlow told the symposium that a “rogue pension board accountable to no one” is the single biggest contributor to fiscal distress in many cities. Of Detroit’s two pension boards, he said, “They don’t take orders. They don’t listen to the City Council. They don’t listen to the mayor. They’re completely on their own.”
He cited the much-criticized practice of the 13th check, in which the General Retirement System and occasionally the Police & Fire System made bonus payouts to retirees and the accounts of current city workers.
The Free Press has reported that the amount paid out in such bonus payments totaled about $1 billion over the years and that those payments and the lost investment income had the money remained in the funds could have totaled $1.9 billion. Had that money remained in the funds, the city may not have had to do the 2005 deal that turned out so badly."With bit of research into Michigan Public Act 34 perhaps Werdlow and then-Mayor Kwame Kilpatrick, would have found it was impossible if not possibly illegal to enter the 2005 Bank Swap deal on behalf of Detroit or the City's three pension funds.
"Attorney Caroline English, representing creditor Ambac Insurance and other attorneys opposing the Barclays deal argued in the point the community has insisted on: The swaps are void; they were illegal agreements and the city has no obligation to repay the banks," the Michigan Citizen article cites.
The swaps are illegal because the city did not follow Michigan municipal finance law, Act 34, in entering the swap agreements, and the city used casino revenues as collateral for the swaps in violation of the state gaming law, English argued in court Jan. 13.
The city created a corporation to appear as the borrower, because the city could not legally borrow any more money, English said. “It is inescapable the city is indebted under the swap obligations. The service corporations were used unlawfully to evade the Municipal Finance Requirement… The service corporations have no revenue.”To break this situation down for our readers just a bit, Detroit did not have excess revenue available in the City coffers to enter any Bank Swap Deal agreement in 2005.
To bypass Michigan Municipal Finance Law Act 34, the City via its Financial Department, created a new corporation where Detroit's pensioners, workers, residents and taxpayers would be the ultimate borrowers -- using unpredictable revenue from the City's three Casinos, as collateral.
E.M. Kevyn Orr who lobbied for Michigan Governor Rick Snyder and State Treasurer Andy Dillon agreement with a request to file a U.S. Bankruptcy Petition on behalf of Detroit under P.A. 436 of 2012, believes according to the Michigan Citizen article, the City is obligated to pay debts which occurred under the possibly illegal 2005 Bank Swap Deal with UBS AG, Bank of America and Merrill Lynch.
Orr used as a basis for claiming the Bank Swap Deal was legal, Michigan Home Rule City Act 276. This Act as mentioned earlier in this article in itself, was effectively nullified with the Emergency Manager Law, PA 436
"Orr and the Jones Day attorneys claim the city’s Home Rule status allowed it to borrow the money without the limitations of Act 34. But Home Rule has limitations, English said, and Act 34 is one such limitation.
“If the swap transaction is void under law, it is void as though it never existed.” While Orr argues that using the casino revenues as collateral is legal, English said such use of the casino revenues does not fall under the list of general, quality of life purposes allowed by gaming laws.
English then questioned how Orr could have said the city only had a half chance of winning if it sued the banks to settle the swaps. “How did Orr say this claim has a 50-50 chance?”
“Orr did not go into negotiations armed,” said English.By negotiations, Attorney for Ambac Insurance Carol English is referencing the alleged negotiations E.M. Kevyn Orr engaged in with City of Detroit Creditors including UBS AG, Bank of America and Merrill Lynch as cited by Bloomberg News on July 16, 2013.
"Bank of America Corp. and UBS AG would accept 75 cents on the dollar from Detroit on $343.6 million in swaps liabilities in a deal with Kevyn Orr, the city’s emergency financial manager, according to a person familiar with the negotiations.
The city would refinance the remaining debt and would be guaranteed to receive about $11 million a month in casino-tax revenue, according to the person, who asked not to be identified because the negotiations are private.
Orr wants to sign the agreement as early as today and continue talks with other creditors and employee unions to avoid the largest U.S. municipal bankruptcy, the person said."In the snippet for Bloomberg News cited piece, Emergency Manager Kevyn Orr was ready to accept a deal with two of the three cited corporate banking institutions creditors for Detroit --UBS AG and Bank of America -- two days before Orr's letter to Michigan Governor Rick Snyder and then State Treasurer Andy Dillon on July 18, it is assumed.
This occurred despite the fact according to Michigan Municipal Finance Law - Act 34, debts owed to UBS AG and Bank of America in particular were possibly illegal during the time this deal was constructed in 2005, by then Mayor Kilpatrick and former Detroit C.I.O. Werdlow.
Currently, former Detroit Mayor Kilpatrick resides at a Federal Department for Corrections Institution in Oklahoma City, OK, serving a 28-year sentence for racketeering, bribery and extortion convictions unrelated to the 2005 Bank Swap Deal, in March 2013.
On-going questions exist on renegotiated deal with Barclays Bank in June, which Emergency Manager Kevyn Orr submitted for U.S. Federal Bankruptcy Judge Steven Rhodes approval.
Since Judge Rhodes has rejected the June deal and has asked for further negotiations.
Barclays deal would've possibly paid this financial institution $.78 cents on the dollar, while City of Detroit retirees and workers eligible under the former retirement plan would still receive $.15 cent on the dollar monthly pension obligations.
“The city put itself in a box in June,” English said, referring to the Barclays deal promising the banks 75 cents on the dollar. In December, Rhodes ordered a renegotiation of that deal the Michigan Citizen January 23 article cites.
English said the new renegotiated deal “may be worse” than the original deal because of how ill-prepared Orr and Buckfire were in not having an expert projection of where interest rates are going in 2014. She presented a graph of interest rate projections showing the city may actually end up paying 78 cents on the dollar with the new deal.
English believes the city has a good chance of winning a suit that would void the debt. The swap obligations would be uncollectable, there would be no liens on casino revenues and the city could use that money for quality of life. The banks would instead owe the city millions.
“This deal should have the swap parties paying the city about $50 million a year,” English said. Rhodes asked what would happen to the parties if the city wins.
“You unwind the deal. The pension fund did not benefit in any way,” she said. “We submit the settlement agreement is far too rich for the banks.”
There is no way the court can determine if Orr’s agreement with Barclays is “fair and equitable” without knowing what the interest rates will be in January, English said.Furthermore, the Michigan Citizen article alleges E.M. Kevyn Orr was not an expert in municipal bankruptcies and failed to be fully truthful with Detroit City Council as required by P.A. 436.
The full loan agreement as required by PA 436 - the Emergency Manager Law and Orr the article states, withheld a important fact interest rates for the Barclays deal ranged from 3.5 to 6.5 percent loan. Members of Detroit's 2012 City Council was told it was 3.5 percent.