CHICAGO -- Michigan Attorney General Bill Schuette Monday asked a federal appeals court for a speedy decision on whether Detroit can cut its pensions, calling it a question of national importance.
The controversial question is at the center of the city's historic bankruptcy case. Judge Steven Rhodes, who is overseeing the case, ruled in December that pensions have the same status as contracts and can be cut in Chapter 9, despite state constitutional protections.
Schuette plays what some say is an awkward role in the case, serving both as counsel to Gov. Rick Snyder, who wants to cut pensions, and a role as the state's elected "people's attorney." In that role, he has argued since last summer that Detroit's effort to cut pensions is illegal because of the state's constitutional clause banning any impairment or reduction in the claims.
Schuette
"Attorney General Schuette is doing what he said he would do, taking advantage of every opportunity to defend the Constitution and pensions of retired fireman and police officers," said his spokeswoman, Joy Yearout.
The filing argues that the questions of whether Detroit is bound to comply with the state constitution or not calls for immediate review.
"These are compelling questions of national importance -- and they cannot be deferred until later," the AG argues in the brief. "No bankruptcy court decision, to date, has reviewed the question whether a state constitutional provision, like Michigan's pension clause, continues to bind in bankruptcy."
Schuette argued that the appeals court also needs to decide the question now because the city and its creditors are in the midst of mediation talks, which "should be framed by the proper legal understanding of the city's obligation."
Detroit's emergency manager Kevyn Orr and attorneys are trying to craft a plan of adjustment to file with the bankruptcy court within the next few weeks. Rhodes set a deadline of March 1 for the plan filing.
"The parties need this court to correct the bankruptcy court's error now: for the retirees, the reduction of pension payments for any duration is a significant harm," Schuette argues. "Without this court's immediate review, the ability to correct any error later may be lost."
The constitution's pension clause is a "fundamental law" different from a mere contract and cannot be impaired in Chapter 9, Schuette argues. Orr is a public officer, and as such is duty-bound to uphold the state constitution.
The AG said that he continues to believe that the bankruptcy was properly authorized by the state despite the implied pension cuts, rejecting a key argument by pension attorneys seeking to overturn the city's eligibility for Chapter 9.
In December, Rhodes ruled that he would certify a direct appeal of his eligibility ruling to the Court of Appeals -- which allows creditors to bypass the district court level -- but said he would not recommend an expedited appeals process.
The average annual benefit to retiree pensioners is the general employment system is $18,000. For police and fire, it's $30,000.
The creditors appealing Rhodes' pension decision include the city's two pensions systems, a committee representing 23,000 Detroit retirees, several unions, and retired police and fire associations. No bond insurers or bondholders have appealed the decision.
