Judge: Detroit's Bankruptcy Filing is Unconstitutional

Citing the state's constitution, which bars actions that would reduce the pensions of public employees, a Michigan judge stepped in on Friday to block Detroit's historic filing for bankruptcy.

Citing the state's constitution, which bars actions that would reduce the pensions of public employees, a Michigan judge stepped in on Friday to block Detroit's historic filing for bankruptcy.

As we explained yesterday, the city of Detroit owes $18.5 billion to various creditors, including to state pensioners. The financial woes of the city are so dire that in March Governor Rick Snyder appointed Kevyn Orr as Emergency Manager for the city (much to the dismay of many of the city's residents and elected officials). Orr was supposed to step in and steer the city away from financial ruin. That effort didn't go well, despite Orr's wide-ranging power over the city's governance. Towards the top of Orr's to-do list for the city, in order to avoid bankruptcy, was to strike a deal over pension funds. When groups representing pensioners caught wind of Orr's flirting with filing bankruptcy earlier this week, they objected, strongly. When the city actually went ahead to file, Circuit Judge Rosemarie Aquilina filed orders relating to three separate lawsuits that would force the city to withdraw their bankruptcy filing and take no further actions to reduce pension benefits owed. The Detroit Free Press explains:

Lawyers representing pensioners and two city pension funds got an emergency hearing with Aquilina Thursday at which she said she planned to issue an order to block the bankruptcy filing. But lawyers and the judge learned Orr filed the Detroit bankruptcy petition in Detroit five minutes before the hearing began.

Aquilina said the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees, including those in the City of Detroit. Snyder and Orr violated the constitution by going ahead with the bankruptcy filing, because they know reductions in those benefits will result, Aquilina said.

The state has already indicated that they will appeal Aquilina's decision, so the bankruptcy process can move forward.