The two Detroit pension funds that could face steep cuts if the city’s bankruptcy moves forward filed a formal objection to the city’s eligibility to file for bankruptcy in the first place on Monday as a judge’s deadline loomed. The funds argue that Michigan’s constitutional protections for pensions mean that they should never have been listed in bankruptcy documents because they cannot legally be forced into cutting payments to retirees.
The same argument won support from a state judge back in July, but federal bankruptcy judge Steven Rhodes invalidated that decision. Rhodes could side with the pension funds without derailing the bankruptcy, Wayne State Law School Dean Jocelyn Benson told MSNBC.
The constitutional argument was one of several available to opponents of the bankruptcy. Monday’s deadline applied to objections to the city’s eligibility for bankruptcy, which rests in large part on whether or not Detroit’s emergency manager pursued good-faith negotiations with the various stakeholders who would lose rights under bankruptcy proceedings.
Emails between emergency manager Kevyn Orr and officials from Gov. Rick Snyder’s (R) office suggest that pre-bankruptcy negotiations were a sham. In the emails, Orr, state officials, and his colleagues at the law firm that is representing the city seemed to agree that bankruptcy was inevitable, and anything that delayed it “would only serve to kick the can down the wrong path.” Orr told local journalists the emails “aren’t necessarily proof of anything.” The lawfirm, to which Orr intends to return once his emergency manager tenure ends, stands to make as much as $100 million in legal fees from its work on the city’s behalf.
Unions representing the city’s workers filed their own objections, citing the emails to argue Orr failed to fulfill the good-faith requirements of bankruptcy law and calling the filing a “charade.” But the pension funds’ decision to eschew that argument suggests that they believe the constitutional argument is more likely to succeed. The state’s Republican Attorney General, Bill Schuette, has promised to argue that the state constitution protects the 30,000 participants in the city’s retirement system.