Joe Guillen

Detroit Free Press

Detroit Mayor Mike Duggan said today that former emergency manager Kevyn Orr kept him in the dark about calculations used to predict the city’s future pension payments.

Now, as the city realizes those payments will be many millions higher than expected, Duggan said the city is considering a lawsuit against Orr’s firm, Jones Day.

Because of the secrecy from Orr's team, the city plans to put $50 million this year into a trust fund to cover future pension payments, Duggan said.

During his annual budget presentation to City Council, Duggan said that the potential lawsuit hinges on whether Orr was obligated to keep Duggan in the loop in 2014 during talks about what the city would owe when those pension payments resume in 2024.

“The discussions between the actuary and other people of Mr. Orr’s team were concealed from (Detroit CFO John Hill) and me,” Duggan told City Council this morning. “We did not know that these assumptions were being based on these optimistic set of criteria. Had we known that, we would’ve dealt with it very differently.”

Duggan initially raised the prospect of a lawsuit against bankruptcy consultants early last year when the city discovered an estimated $491-million shortfall between pension payments estimated in the bankruptcy exit plan, approved in 2014, and more recent figures. The consultants underestimated the pension payments because they used outdated mortality tables, which predict how long retirees are expected to live and, in turn, receive pension checks, Duggan said.

Today's comments provided new insight into the likelihood of a city lawsuit against Jones Day and were perhaps Duggan's most direct criticism of Orr's role in the so-called pension cliff the city is facing in 2024. Duggan said he expects a decision on whether the city will sue within six months.

Duggan opened up about the potential lawsuit after Councilman Scott Benson asked whether the city was going to take action against bankruptcy consultants responsible for the miscalculation.

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Had he known then about Orr's methodology, Duggan said more prudent plans could have been made during the bankruptcy rather than having to set aside money now for future pension payments. Even if the city sues, it still has to prepare because a lawsuit against Jones Day would take years, the mayor said.

Orr is now partner-in-charge of Jones Day’s Washington, D.C., office. He did not respond to a message seeking comment.

Jones Day eventually collected nearly $54 million for its work on the city's bankruptcy. The firm cut $17.7 million off its bills under court-ordered mediation. The bankruptcy — authorized by Gov. Rick Snyder and directed by Orr — cost the city about $165 million in general fund dollars.

Today, Duggan questioned whether his own testimony during the city’s lengthy bankruptcy trial in October 2014 could have been different if he was better informed by Orr and his team.

During the trial, Duggan was among several city leaders called to testify before U.S. Bankruptcy Judge Steven Rhodes about the bankruptcy exit plan, which Rhodes ultimately approved.

“I support this plan, and I believe it is feasible," Duggan said under questioning from Jones Day lawyer Tom Cullen in confirmation hearings on the city's bankruptcy exit strategy.

Today, Duggan suggested he was not fully informed when he gave that testimony.

“The question is, did the emergency manager have a legitimate right to do this and keep (Detroit CFO John Hill) and me in the dark as we were testifying in the bankruptcy on feasibility. If we get to the point where we believe we’re going to win the case, we’re going to file it (lawsuit),” Duggan said. “We’re very much looking at how much discretion did the emergency manager have; how much obligation did he have to disclose and is this a lawsuit this city is going to win?”

The pension trust fund announced today to cover the pension payments was a major aspect of Duggan’s proposed 2017-18 budget. The $1.07-billion general fund spending plan also devotes resources to allow for more police officers and recreation centers in neighborhoods.

With a $50-million payment this year and annual payments in the years following between $15 million and $60 million, the trust fund is expected to have $335 million by 2023. With interest, the fund is projected to have $375 million.

Ensuring the city can make pension payments in 2024 is imperative if the city wants to get out from under state oversight imposed after the bankruptcy, the city’s CFO, Hill, has said.

After Duggan's presentation today, Hill could not specifically say when he told Duggan that he also was kept in the dark about the data Orr's team used in estimating the pension payments. E-mails and other documents have backed up Hill's account, he said.

"That's something (Duggan) found out as he's been coming to a decision" about whether to sue Jones Day," Hill said. "It's a legal process."

Contact Joe Guillen: 313-222-6678 or jguillen@freepress.com.