The fight begins in Detroit

July 20, 2013


As Detroit’s bankruptcy filing this week brings on understandable lamentations about the city’s dwindling population and derelict building, a murky legal challenge is under way. There are many places where state and federal law cross over in municipal bankruptcy proceedings. There are few court rulings about the subject, so it is hard to know which law books to reach for when understanding the ones that will prevail.

The Tenth Amendment, which reserves to the state all powers that are not directly granted to the federal government, is at play when the U.S. Constitution says nothing on a matter. In Detroit’s case, pension rights are enshrined in the Michigan Constitution. It is an unknown if these will be considered a “contract” that Detroit Emergency Manager Kevyn Orr can break or a “constitutional right,” which would be harder to adjust.

Here are the details of an early round of this fight from the Detroit News:

Ruling that the governor and Detroit’s emergency manager violated the state constitution, an Ingham County Circuit judge ordered Friday that Detroit’s federal bankruptcy filing be withdrawn.

‘It’s absolutely needed,’ said Judge Rosemary Aquilina, observing she hopes Gov. Rick Snyder ‘reads certain sections of the (Michigan) constitution and reconsiders his actions.’

The judge said state law protects pensions from being ‘diminished’ but there will be no such protection in federal bankruptcy court.

Aquilina’s order will quickly move to the Michigan Court of Appeals to address the state-level legal skirmishing over the Chapter 9 bankruptcy strategy planned for the financially distressed city by Snyder and Detroit Emergency Manager Kevyn Orr.

While many commentators are dismissing the state court judge’s ruling as meaningless, there is still the broader question of whether anyone has the right to determine what happens to the public employee pensions.

The U.S. Constitution grants no rights to the federal government, or its courts, to make determinations about a state’s public pensions, but the Michigan Constitution clearly does. Detroit’s pension funds have already allocated $5 million for a legal battle, so it is not hard to imagine this question going as far as the U.S. Supreme Court.

It’s true that the rush to jump into federal bankruptcy court stayed lawsuits against Detroit. But the rush certainly does nothing to address the broader constitutional questions that face pension holders.


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The politicians are happy to tell us that we are honest, hard working and moral. However, they are not and we are not. In general we are the opposite of that. Detroit is an early indication of what we have become and will be more and more in the future as long as we believe that the person who works hard is a fool. Neither political party, no corporation, no union and no supreme court justice are/is any different.

Posted by brotherkenny4 | Report as abusive

I wonder how many “legal magic tricks” will be performed in trying to block the truth from being told. I can just see it now. Lawyer A, “Judge we need to meet in chambers to suppress this evidence because it is proprietary and it might interfere with the Corporate interest of my Client.” The money will be used up attempting to get disclosure. Or maybe, reality will kick in and things will become Crystal clear.

Posted by 2Borknot2B | Report as abusive

Maybe its time they start posting exactly what positions get pensions funded by the City or the city is liable for and how much these pensions plan to pay for each one. Show us the list with facts. Of course they won’t because they don’t want people to know a trash collector will have a very lucrative pension many times above what any private trash service would offer or that crap typing jobs in the city have top notch pensions and so forth. They won’t show the details of how these pensions are set to pay far more then what would be considered private pay in that industry or show how the Unions forced the city into taking these while not allowing layoffs when needed or firing bad employee’s.

Posted by Syanis | Report as abusive

The real issue, be it a legal issue or not, is that should pension beneficiaries not endure cuts to their benefits, who is going to pick up the tab? If it’s in the Michigan constitution, then it is exclusively a Michigan problem. But the lawyers will argue otherwise, as if there is some bottomless bucket of funding somewhere.

If anyone thinks Michigan or Detroit can go to the feds to secure funding, there are 49 other states that might protest just a bit. Should POTUS or Congress open that can of worms, you will have virtually every municipality in California extending their hand (starting with LA), and every major city, and some states,in the country as well–see New York City, New York State, Illinois and Chicago with literally billions in unfunded pensions commitments.

This problem is not exclusive to Detroit. And, like always, the pensioners and tax payers will be the first to take the hit. The politicians who sold everyone down the river, will remain whole and absolved of any wrong-doing.

Message: if you are a municipal or state worker, you might consider funding an IRA while you’re still working. There is not any guarantee your pension will be there in the amounts or the duration you are being told (sold?). If your pension is through a union, same goes. The Union brass will do fine and will tell you exactly what you like to hear. Like my father’s union pension, it was all smoke and mirrors.

Posted by COindependent | Report as abusive