The Michigan Attorney General has filed a brief in the City of Detroit’s Chapter 9 bankruptcy arguing in favor of Detroit’s eligibility under the bankruptcy code.
This is the newest development in a battle in the press between the Michigan Governor’s office and the Michigan Attorney General’s office. Earlier this summer, the Attorney General had made statements that he would defend the right of former and current city employees to receive their full pensions. The position was taken through the media as an attempt by the Attorney General to stall the bankruptcy filing that formulated under the Governor-appointed Emergency Manager.
With the latest filing, though, the Attorney General lays out a much clearer picture of his view on the matter: that the bankruptcy should move forward, as the City is eligible, but the pensions should not be reduced.
Michigan Attorney General Bill Schuette’s office today defended Detroit’s bankruptcy filing, saying the law used to appoint emergency manager Kevyn Orr is constitutional and the bankruptcy filing itself doesn’t cut pension benefits.
“The State of Michigan believes that the City of Detroit meets all the requirements (of federal bankruptcy code) and is eligible to be a debtor,” Assistant Attorney General Steven Flancher said in a legal document filed with U.S. Bankruptcy Court in Detroit late today.
The state’s legal brief is designed to counter the arguments filed by a number of Detroit’s creditors — especially unions and pension funds — which have argued Judge Steven Rhodes should reject the city’s bankruptcy petition.
Detroit, which says it has more than $18 billion in debts, became the largest municipality in U.S. history to file for bankruptcy protection on July 18.
Some creditors have argued the city’s bankruptcy case should be rejected because Gov. Rick Snyder violated the Michigan Constitution when he authorized the bankruptcy because the constitution protects pension benefits.
“Simply authorizing the filing under Chapter 9 does not diminish or impair a single pension,” Flancher wrote. “By providing the governor authority to ‘authorize’ a local government to proceed in Chapter 9, the act does not impair accrued benefits or even address the inclusion of accrued pension benefits.”
Specific cuts to the pensions of Detroit’s 23,500 retirees, as well as any proposal to reduce the debts owed to any creditor, would be part of a “plan of adjustment” — which the city doesn’t have to file until after Rhodes decides whether the city is eligible for bankruptcy protection, the state said.
In a municipal bankruptcy, a city must prove it is eligible by showing it is insolvent and has attempted to renegotiate its debts with creditors. A city also can argue it has so many creditors that negotiations weren’t practical.
Detroit Free Press: http://www.freep.com/article/20130906/NEWS01/309060149/bill-schuette-pensions-constitution-bankruptcy-protection-eligibility-detroit-naacp
