The fight begins in Detroit
@cate_long BR judges are not unaccustomed to rushed filings intended precisely to avoid potentially adverse state court rulings. It’s common
— Devin Chwastyk (@ChwastykD) July 19, 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the state constitution, an Ingham County Circuit judge ordered Friday that Detroit’s federal bankruptcy filing be withdrawn.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.
U.S. District Court bankruptcy Judge Steven Rhodes to handle Detroit’s bankruptcy case
— Detroit Free Press (@freep) July 19, 2013