Thursday, July 25, 2013

Michigan Constitution Suspended Allowing Banks to Seize Municipal Pension Funds

Ingham County judge loses another round in her bid to halt Detroit's bankruptcy case

6:46 PM, July 23, 2013
By Kathleen Gray
Detroit Free Press Lansing Bureau

Detroit’s pension systems and Ingham Circuit Judge Rosemarie Aquilina went 0-for-2 this week, when both a federal judge and a state Court of Appeals panel said a dispute over how pensions will be handled in Detroit’s historic bankruptcy won’t be decided in Ingham County.

On Monday, U.S. Bankruptcy Judge Steven Rhodes, who has been assigned the bankruptcy case, said the pension issue will be decided in federal, not state court. And a three-judge panel of the state Court of Appeals on Tuesday granted a stay of Aquilina’s rulings that Detroit’s bankruptcy filing should be withdrawn because it violated the state’s constitution.

The three-judge panel, consisting of Appeals Judges Michael Kelly, Patrick Meter and Stephen Borrello, ruled unanimously Tuesday afternoon that Aquilina’s order in three cases involving Detroit’s pension systems and the temporary restraining order against moving forward with the bankruptcy was halted pending the resolution of the case.

The panel’s ruling also prohibits Aquilina from having any further proceedings on the matter until the appeal is resolved.

Through her court clerk Aquilina declined comment on the Court of Appeals ruling, saying that she only speaks through her orders and rulings.

She ruled last week that the bankruptcy filing should be withdrawn and placed a temporary restraining order against any further bankruptcy proceedings because it violates the state constitution provision which prohibits tampering or diminishing pension benefits. The state Attorney General’s office immediately appealed the ruling saying that federal law, which doesn’t have the same pension protections, takes precedence in the matter.

Attorney General Bill Schuette and Orr’s office referred all calls to Gov. Rick Snyder’s press office.

“We’re pleased that the court affirmed state’s and EM’s actions and we can dedicate energy and work hard toward finding a fair resolution for all concerned in a single forum, and giving Detroit a new beginning and Detroiters the services and quality of life they need and deserve,” said Sara Wurfel, Snyder’s spokeswoman.

Ronald King, attorney for the pension systems, said Monday that the bankruptcy should probably proceed, but with protections for workers.

“The governor and the emergency manager have a very, very difficult task, but we have people who will be very much affected by this,” he said. “We can’t just start carving out exceptions to the state constitution. But we’ll live with whatever the result is.”

At stake are pension benefits for 20,000 retirees and about 9,500 current Detroit employees paying into the system. Gov. Rick Snyder and Emergency Manager Kevyn Orr have said that pension payments will be protected for six months, but that “adjustments” will have to be made after that to deal with a $3.5 billion unfunded liability in the pension system.

Curtis Jacobs, 84, worked in the city’s finance department for 26 years until he retired at the age of 81.

“Everybody always felt our pensions were protected,” said the Detroit resident who gets about $2,000 a month in pension payments.

“I do get social security, but if they cut my pension way down, I’m hurting,” he said. “I have my son living with me and I worked for that pension.”

In other news on the bankruptcy filing, Rhodes is set to appoint a mediator to rule on disagreements between Detroit and its creditors during the city’s Chapter 9 bankruptcy case.

He signaled in a filing today that he plans to appoint Gerald Rosen, chief district judge of the U.S. District Court for the Eastern District of Michigan, as mediator in Detroit’s bankruptcy. That decision will come at an Aug. 2 hearing.

The appointment would position Rosen as an influential player in Detroit’s financial restructuring. For example, he could play a role in settling disputes over the size of Detroit’s unfunded pension liabilities, a major sticking point between Detroit emergency manager Kevyn Orr and the city’s pension boards.

Staff writer Nathan Bomey contributed to this report. Contact Kathleen Gray at 517-372-8661 or

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