Judge backs Snyder, Orr in bankruptcy
DETROIT — U.S. Bankruptcy Judge Steven Rhodes ruled Dec. 3 the City of Detroit is eligible to enter into Chapter 9 bankruptcy. His historic ruling makes Detroit the largest municipality in the country to go bankrupt.
In the 140-page opinion, Rhodes stated PA436, the emergency manager law, is not unconstitutional as some have claimed. He also ruled retirees’ pensions are not protected, although he requested a plan of adjustment from Emergency Manager Kevyn Orr, to be approved by the end of the year.
Before announcing his ruling, Rhodes called the city “service-delivery insolvent.”
“The city does not have enough money to care for its residents or pay its debts,” Rhodes said.
In a joint statement issued on behalf of the Boards of the General Retirement System of the City of Detroit and the Police and Fire Retirement System of the City of Detroit, both groups said they disagreed with the judge’s ruling and plan to appeal the decision.
“We … intend to appeal the decision in order to uphold the Pensions Clause of the State Constitution under Tenth Amendment principles,” they wrote. “The Pensions Clause of the Michigan Constitution absolutely bars any attempt by the City to cut or impair accrued pensions, no matter the reason. The State Constitution represents the people’s will. That will cannot be ignored or subverted because it’s financially convenient to do so, or because slashing pensions allows for a city to escape from its constitutionally protected pension benefit obligations.”
According to the GRS and PFRS boards the Court has two options: The first is that it follows the earlier State Court ruling and finds the Emergency Manager Act — or Public Act 436 — unconstitutional, which means the City can’t be a debtor under Chapter 9 under these circumstances. The second is that it determines the law is limited by the Pensions Clause of the Michigan Constitution, which requires that as the City works through bankruptcy its pension obligations will be fully respected and upheld.
They say they will continue to “work in good faith with all stakeholders to find the best outcomes to benefit Detroit, our members, retirees and beneficiaries.”
Mayor-elect Mike Duggan issued a statement following Rhodes’ ruling.
“This is a day in Detroit’s history that none of us wanted to see,” Duggan said in his statement. “Now that Judge Rhodes has ruled the city eligible for bankruptcy, we are about to move into the Plan of Adjustment phase that is likely to define our city government for years to come.”
Duggan said he’s going to do “everything I can to advocate on behalf of Detroit’s future in this process.”
“We need to make sure the retirees are treated fairly on the pensions they earned and we need to make certain we come out of bankruptcy in a way we can afford to provide the quality of city services the people of Detroit deserve.”
Orr said he’s pleased with the judge’s decision. “We will continue to press ahead with the ongoing revitalization of Detroit,” Orr said. “We look forward to working with all our creditors – pension funds, unions and lenders – to achieve a consensual agreement on a restructuring plan that balances their financial recoveries with the very real needs of the 700,000 citizens of Detroit.”
In a statement, Gov. Rick Snyder said the judge reaffirmed what was a difficult decision.
Snyder pushed the bankruptcy, and it was revealed in trial testimony, had his aide interview Orr in Feb. before the city was declared to be in financial emergency. “Authorizing the emergency manager to seek federal bankruptcy protection was a difficult decision, but it was the last viable option to restore the city and provide Detroit’s 700,000 residents with the public services they need and deserve,” Snyder said.
Rev. Dr. Wendell Anthony, President, Detroit Branch NAACP, whose suit challenging the constitutionality of PA 436 was stayed by Rhodes in August, said he felt the rush to bankruptcy was unwarranted.
“Even Judge Rhodes agrees with us that the City did not negotiate in good faith,” Rev. Anthony wrote in a statement. “This is critical in understanding the consequences which have led to the erosion of the right to vote in the affected communities. The City of Detroit and other communities around the state should not be placed at a constitutional disadvantage which takes away their fundamental voting rights. We will continue our appeal of PA 436 and its negative impact on Detroit and other cities across the state of Michigan.”
The Detroit Branch NAACP filed an appeal last week to Judges Rhodes decision to not allow the lawsuit brought by the Detroit Branch NAACP and the Michigan State Conference NAACP to proceed in U.S. District Court. The NAACP lawsuit challenges the constitutionality of Public Act 436 and argued that it violates the Voting Rights Act.