But the no-nonsense judge Rhodes quickly noted that very few cases of municipal bankruptcies in the country have been dismissed on the merit of the filing, not on the legal theory of the state v. the federal government.
Pension fund lawyer Robert Gordon argued vehemently that the bankruptcy filing is not legitimate and that it will adversely affect the city’s two retirement systems.
“It’s a circular issue,” Gordon said.
The pension attorney raised the 10th Amendment of the U.S. Constitution, which gives states some sovereignty as a basis to argue that the state interest can be protected in a bankruptcy proceeding.
Former federal bankruptcy judge Ray Reynolds Graves said in chapter 9 the city can cancel the benefits and the court can’t do anything about it because federal law takes precedence.
“We get into this argument of federalism, where state law has stated that as a matter of the right of the state it must protect its pensioners who are municipal employees. Does that sovereignty take precedence over any federal law? It’s to the contrary,” Graves said.
Because the U.S. Constitution speaks to a uniformed law on bankruptcy across the country, when the city of Stockton in California filed for chapter 9 bankruptcy, U.S. bankruptcy judge Christopher Klein did not stop the city from canceling the pensions of its workers.
“I don’t know whether spiked pensions can be reeled back in. There are very complex and difficult questions of law that I can see out there on the horizon,” the Associated Press quoted Klein as saying in his ruling.
Graves said while there is no clear answer as to whether the state Constitution can prevent the elimination of retiree benefits, Orr can modify the pensions, meaning less money for hard-pressed workers.
With Detroit becoming the largest municipality in U.S. history to file for bankruptcy, news of the filing has attracted mixed reviews from around the country and the globe.
Some of Detroit’s business leaders from the Detroit Regional Chamber of Commerce, including CEO Sandy Baruah and Quicken Loans founder Dan Gilbert, have sought to allay the fears of investors and those worried about the state of bankruptcy, saying the city will come through this difficult period.
Many questions remain unanswered, including the fate of retirees, which came up in federal court today even as Judge Rhodes decides whether to allow the bankruptcy proceeding to move forward.
Some of the puzzling questions will be part of a special forum open to the public on July 26, at noon at the Downtown Campus of Wayne County Community College District where a panel of leaders will address the underlying issues facing bankruptcy and the city. The forum, “State of Emergency: Bankruptcy and the Future of Detroit,” will feature former federal bankruptcy judge Ray Reynolds Graves, former Detroit City Council member Sheila Cockrel, Detroit Riverfront CEO and member of the Compuware Board of Directors Faye Nelson, Detroit Free Press business columnist Tom Walsh and a representative from the police and fire retirement systems.
Bankole Thompson is the editor of the Michigan Chronicle. Email bthompson@michronicle.com.
About Post Author
