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Detroit may use water department funds to pay pension debts, Orr says

Detroit's Emergency Manager Kevyn Orr talks with Reuters during an interview in Detroit, Michigan August 7, 2013. REUTERS/Rebecca Cook
Detroit's Emergency Manager Kevyn Orr talks with Reuters during an interview in Detroit, Michigan August 7, 2013. REUTERS/Rebecca Cook

By Joseph Lichterman

DETROIT (Reuters) - Detroit is considering tapping into some of the $1.2 billion in water and sewer revenue earmarked for repairs and instead apply it to city pension or healthcare costs, the city's emergency manager has said in a court proceeding.

"I didn't say we would take any capital; I said we will - we would - consider it," Detroit Emergency Manager Kevyn Orr said in response to a line of questioning in a sworn deposition on Monday.

Orr would not offer details about any planned alternative uses for funds currently slated for upgrades to the water and sewage department. But he acknowledged there likely are restrictions on the use of water and sewer revenues based on promises Detroit made when selling more than $5 billion in water and sewer revenue bonds.

A 516-page transcript of Orr's testimony was included in a filing with the bankruptcy court on Wednesday.

Orr's spokesman, Bill Nowling, declined to comment on the testimony.

Detroit's Water and Sewage Department provides water service to the city and eight suburban counties that account for 40 percent of Michigan's population.

In a June 14 proposal to the city's creditors, Orr said he hoped to spin off the water and sewer services into an independent authority.

Detroit, which is struggling under an estimated debt load of more than $18 billion, filed the largest-ever U.S. municipal bankruptcy in July. Orr was questioned Monday by attorneys representing city unions and retirees who are trying to prove the city is not eligible for protection from creditors under U.S. bankruptcy law.

Roughly half of Detroit's liabilities stem from retirement benefits, including $5.7 billion in liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability.

Orr has said city workers and retiree could face reductions in pensions and health benefits. Attorneys spent most of the deposition asking Orr about whether Michigan's state Constitution prohibits him from reducing pension benefits.

Anthony Ullman, an attorney for the committee representing the city retirees, grilled Orr about potential assets the city could monetize, including the water and sewage department, the Municipal Parking Department and the Detroit Institute of Arts.

The city owns the DIA's 60,000-piece collection and discussion of potentially selling some of the pieces to pay the city's debt has been one of the most publicized issues in the bankruptcy proceedings. Christie's was hired to appraise part of the museum's collection, but Orr said the auction house has not yet delivered an appraised value.

In the testimony, Orr said there have been general discussions of finding other ways to monetize the works, including leasing some art. Orr said there was preliminary discussion of a potential $1 million lease payment, but stated he could not estimate the potential revenue stream more precisely.

"It's nothing substantive ... I think I had a discussion with one of the representatives at Christie's that was, generally speaking leasing is a very difficult thing to do," Orr said in the testimony. "That's the nature of the discussion that you would have to have the right pieces at the right time at the right market to generate cash."

Attorneys were also focused on communication between the emergency manager's office and state officials prior to the city's bankruptcy filing.

At the behest of city lawyers, Orr refused to answer questions about any communication with the state. The Detroit chapter of the American Federation of State, County and Municipal Employees filed a request with the court Wednesday to force Orr and other witnesses to testify on communications from before the filing.

The transcript from Orr's deposition was included as part of the filing. Bankruptcy court Steven Rhodes has scheduled a hearing for Thursday on a request by the American Federation of State County and Municipal Employees to compel Orr to testify about communications between the city and the state of Michigan prior to Detroit's July 18 bankruptcy filing.

(Reporting by Joseph Lichterman; editing by David Greising, G Crosse)

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