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Aug
2013
1

Michigan Attorney General Says He’ll Fight for Detroit’s Pensions: “It’s What I Have to Do.”

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Michigan Attorney General Bill Schuette has stepped over the party line and announced that he will be fighting to defend the pensions of Detroit retirees during the city’s bankruptcy.  Schuette called the case “crystal clear” and noted that pension plans are a contractual obligation that may not be impaired.  He has filed on behalf of the affected retirees in Federal bankruptcy court.

In a statement he said, “Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement.”

For Schuette, the duties entrusted to him by the voters of Michigan are more important than the wishes of his political party.  He told the Detroit News:

“It’s what I have to do. My job is to defend the state constitution — all of it.”

The move comes after a ruling by a judge last week that left the future of retiree pensions in limbo.  Via Reuters:

A U.S. bankruptcy court judge on Wednesday dealt a blow to Detroit’s public employee unions and pension funds opposed to the filing by suspending legal challenges in Michigan state courts while he reviews the city’s petition for protection from creditors.

The city’s unions and pension funds had hoped to keep the fight in state court, where they felt Michigan’s constitutional protections of retiree benefits would prevail against any efforts by state-appointed Detroit Emergency Manager Kevyn Orr to scale them back.

Judge Steven Rhodes ordered three lawsuits filed by city workers, retirees and pension funds halted and said that applied also to suits against Orr as well as Michigan’s governor and treasurer.

In a June 14 proposal to creditors, Orr called for “significant cuts in accrued, vested pension amounts for both active and currently retired persons.”

The city of Detroit currently has $18 billion in debt and unfunded liabilities.  This includes $5.7 billion in liabilities for healthcare and other retiree benefits and a $3.5 billion pension liability.  Despite this, Schuette is going to fight for the workers who are contractually owed the money they earned throughout their careers, a mission which goes against the wishes of Gov. Rick Snyder and Detroit Emergency manager Kevyn Orr.

Schuette’s actions have earned him praise from media outlets who do not regularly defend his decisions.  This includes the Detroit Free Press which began their July 29th editorial with an admission:

It’s not often that the Free Press Editorial Board sees eye to eye with Michigan Attorney General Bill Schuette. But the AG’s announcement that he is prepared to defend the constitutional protection of Michigan pensioners earns him our praise…

It seems almost certain that retiree health care will be lost. But it is crucial that pensions be protected, and that’s why it’s appropriate that Schuette, in a break from fellow Republican Gov. Rick Snyder, has stepped up to defend them.

That’s the law in this state. And Schuette is following the rule of law by defending the state constitution. In this instance, Schuette, the state’s top legal authority, is “on duty,” as he says, in a way with which this newspaper strongly agrees.

The eventual decision will set a precedent for other cities which could experience similar downfalls in the future.  According to the Pew Charitable Trust, the nation’s largest cities have a combined, unfunded pension liability of over $100 billion.  The case is likely to revolve around whether federal law trumps state constitutions:

One of the key questions that will be decided in the Detroit case is whether federal bankruptcy law trumps state constitutional protections of municipal pensions. Such safeguards are common in many states, so there will be a lot of eyes on how the issue is decided in Detroit.

The U.S. Constitution says that federal law pre-empts state law. But it also reserves to the states all powers not constitutionally delegated to the federal government. Public employee pensions are regulated by state law.

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