Monday, July 22, 2013

Judge: Unconstitutional for Detroit to Go After Pensions in Bankruptcy

On Friday, a Michigan trial court judge ruled it violates Michigan's state constitution for Detroit to go after vested pension rights in bankruptcy.  The ruling follows Detroit's rush to bankruptcy court which may affect up to 21,000 retirees.  The Court ruled Detroit violated state law because the state constitution prohibits the government from doing anything to impair pensions.

Article IX, section 24 of the state constitution of Michigan reads, "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby."  The judge explained "The Governor is prohibited... from authorizing an emergency a manager ... to proceed under Chapter 9 in a manner which threatens to diminish or impair accrued pension benefits."  Accordingly, the judge ordered Detroit's emergency manager to withdraw Detroit's bankruptcy petition.  Read the Court's ruling here.

Some advocates for bankruptcy in Detroit claimed the City must go after pensions to declare bankruptcy and address other forms of long-term debt.  However, in a related case, the U.S. Bankruptcy Court for the Eastern District of California ruled the City of Stockton does not have to go after pensions to be eligible for bankruptcy.