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Detroit Pensions at Stake

The city of Detroit, Michigan officially filed for Chapter 9 bankruptcy on July 18, 2013.  Since then, fear and uncertainty have hit many of the citizens of Detroit.  Those who could potentially be affected the most by the bankruptcy are those with public pensions through the city.

When Kevyn Orr was appointed by Michigan Governor Rick Snyder to be Detroit’s Emergency Financial Manager, there was some hope that Detroit might be able to get back on track to a financially stable future.  The bankruptcy filing earlier this month quickly quashed any thought of that.

Recently, Michigan Attorney General Bill Schuette flipped positions and will uphold Michigan’s constitutional provision that protects public pensions.  Before this decision, Schuette filed an appeal to a court decision rendering the Detroit bankruptcy filing unconstitutional.

Taking an opposing side to Gov. Rick Snyder and Detroit emergency manager Kevyn Orr, Michigan Attorney General Bill Schuette said Saturday that he will defend the state’s constitutional protection of public pensions in the Motor City’s historic bankruptcy filing.

Invoking his role as “the people’s attorney,” Schuette said he will file in U.S. Bankruptcy Court in Detroit on Monday to intervene in the city’s federal bankruptcy proceedings, even after his office opposed efforts in a state court earlier this month to halt the bankruptcy filing in challenges brought by pensioners and lawyers for the city’s pension funds.

“The City of Detroit’s bankruptcy will cause even greater hardship for many people in southeast Michigan who are already struggling,” Schuette said.

Schuette said he will intervene “on behalf of southeast Michigan pensioners who may be at risk of losing their hard-earned benefits,” in accordance with his responsibility as attorney general to defend the Michigan Constitution.

The move would put Schuette at legal odds on at least one aspect of the city’s bankruptcy with the administration of fellow Republican Snyder, who hired Orr and has defended bankruptcy with steep cuts for unsecured creditors — including pensioners — as the only way to restore Detroit to solvency.

Schuette noted that Orr has not detailed the type of cuts he intends to seek from Detroit’s two pension plans, but Orr has said the city doesn’t have money to pay $3.5 billion in underfunding in the two plans that provide retirement pay to about 20,000 people. Pension plan officials bitterly dispute the underfunding levels.

“Michigan’s constitution, Article 9, Section 24, is crystal clear in stating that pension obligations may not be ‘diminished or impaired,’ ” Schuette said.

Schuette called Detroit’s $18 billion-$20 billion in debts and liabilities “simply staggering.”

From the Detroit Free Press

Detroit is the first major U.S. city to file for bankruptcy.

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